Concerns grow over Zijin management after deaths at acid plant

PUBLISHED : Tuesday, 31 January, 2012, 12:00am
UPDATED : Tuesday, 31 January, 2012, 12:00am


Zijin Mining, the mainland's biggest gold miner, saw its share price tumble as much as 7 per cent after it announced its third operational crisis in 19 months, renewing concerns about its management.

Three workers died at an acid plant in the company's home base of Fujian province on Thursday. The company said a worker collapsed after he entered a container of activated coke while trying to clear a blockage in the vessel.

Three other workers tried to rescue him, but also collapsed. Three of the four later died.

The local authorities ordered the suspension of production trials at the plant, scheduled to run from mid-December last year to mid-June this year, and called an investigation into work safety.

CLSA resources sector analyst Richard Leung said Zijin had several months to sort out safety problems at the plant, so the incident should not affect its profit for this year and the plant's July production date.

'However, since this is its third industrial accident in one and a half years, its equity valuation continues to deserve a discount to peers due to governance issues,' he said.

Zijin yesterday closed 4.2 per cent lower at HK$3.43, after trading as low as HK$3.33. It is trading at 8.9 times this year's estimated earnings, compared to 11.4 times at rival China Gold International Resources and 14.6 at Zhaojin Mining Industry.

Leung said that unlike Zhaojin and China Gold, Zijin was not a near-pure gold producer.

Zijin sourced two-thirds of its revenues from gold-related production in the first nine months of last year, with the rest from copper, zinc and iron production.

This partly explains Zijin's lower valuation, which is more on a par with copper miner Jiangxi Copper's level of 7.9 times this year's earnings.

In July 2010, flash floods caused a leak at Zijin's wastewater pond in Fujian. Toxic water leaked into the Ting River and poisoned or killed about 2,000 tonnes of farmed fish. Zijin was fined 30 million yuan (HK$36.8 million). In September 2010, the tailing dam of its mine in Xinyi, Guangdong province, collapsed from mudslides caused by a typhoon, killing 22 people.


The amount of gold, in tonnes, Zijin Mining produced in 2010