Zijin Mining Group

Surging gold drives Zijin profit

PUBLISHED : Tuesday, 08 August, 2006, 12:00am
UPDATED : Tuesday, 08 August, 2006, 12:00am

Earnings at the mainland miner double as the metal price soars and production volumes increase

Zijin Mining Group, China's second-largest gold miner, said its first-half profit doubled as gold prices hovered at almost 26-year highs and production volume increased.

The Hong Kong-listed company said yesterday its net profit rose to 662 million yuan for the first six months this year from 331 million yuan last year. Turnover jumped to 3.95 billion yuan, from 1.07 billion yuan.

'Zijin's earnings growth will be driven by the soaring gold prices and the increase in production volume as production cost is relatively stable,' JP Morgan analyst Zhang Feng said.

Zijin has benefited from a 27 per cent rise in global gold prices this year as the softening US dollar fuelled demand for precious metals which were viewed by investors as an alternative to the greenback.

The US dollar has fallen 8.7 per cent against the euro so far this year and fell to a two-month low last week on speculation that the Federal Reserve will take a breather on interest-rate increases this year.

Combined net profit for Chinese gold producers jumped 53 per cent to 2.47 billion yuan in the first half after a 6.3 per cent increase in production to 106 tonnes, the Securities News said yesterday, citing the China Gold Association.

Zijin produced 679,974 ounces of gold in the first half, up 184 per cent from a year ago. It also produced 18,821 tonnes of copper, up 133 per cent.

The company also said its gold and copper selling prices surged 33 per cent and 102 per cent respectively in the first half but did not give exact figures.

Although Zijin's first-half profit lagged behind his forecast of 821 million yuan, Mr Zhang said he remained bullish on the firm as he expected gold prices to go up by 50 per cent to US$669 an ounce this year and by 13 per cent next year.

Gold prices would peak in the third quarter of next year at an average of US$800 an ounce, Mr Zhang said. He expected Zijin's net profit to be 1.85 billion yuan for the full year, the high end of market forecasts of 1.4 billion yuan.

Fujian-based Zijin said its cash or equivalent was 1.17 billion yuan at the end of June, up 699 million yuan from a year ago.

'The company will expand investment on acquisitions, aiming to develop its gold and non-ferrous metal businesses in the quickest way,' Zijin said yesterday.

The company increased its stake in the Hunchuan Zijin gold mines to 100 per cent from 82 per cent for 89 million yuan late last month. In June, the company said it invested US$20 million to buy a 70 per cent stake in China Gold Development Group which owns a 52 per cent stake in Shandong Guoda Gold.

It said in March it had earmarked one billion yuan to invest in gold and copper mining and smelting projects in a bid to reap higher sales from the high price of the precious metal. 'It would take some time before the firm can take significant profits from acquisitions as it needs time to consolidate new purchases,' Mr Zhang said.