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September 25, 2009

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CIC ramps up position in commodities

CHINA Investment Corp has bought US$1.9 billion of debt from Indonesia's PT Bumi Resources to ramp up its position in the commodities sector. Bumi said it will use the funds for debt restructuring and capital spending.

Jakarta-based Bumi is Indonesia's largest producer and one of the world's biggest exporters of thermal coal.

The deal, announced by Bumi on Wednesday, came just one day after CIC agreed to acquire a 15 percent stake in Hong Kong-based commodities trader Noble Group Ltd for US$850 million and follows a US$1.5 billion investment in Canada's Teck Resources Ltd in early July.

Meanwhile, a Chinese news report saying CIC may invest in the rare-earths sector in Inner Mongolia Autonomous Region sent shares of a Chinese industry leader sharply higher yesterday.

Inner Mongolia Baotou Steel Rare-Earth High-Tech Co rose the maximum allowable 10 percent one-day limit in Shanghai.

Rare earths are a series of metallic elements used in military and technological applications, including iPods and Toyota hybrid cars.

CIC's recent resource plays underscore China's efforts to secure long-term supplies of energy, metals and minerals needed to stoke economic growth. Those efforts have been underpinned by lower prices for commodities and potential takeover targets in the aftermath of the global economic crisis.

Lin Boqiang, director of the China Center for Energy Economics Research at Xiamen University, said he expected oil prices to rise above US$80 a barrel before the end of the year, leading coal and other resources higher.

"This may be the last good opportunity to shop before a price rally," Lin said.

The deal between CIC and Noble should reduce financial pressure on the Hong Kong company and enhance its access to a vast customer base in China's mainland, Japan's Nomura said in a note.


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