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China Gold cuts costs to offset lower prices

Mainland mining firm will also increase output and look for acquisition targets

China Gold International Resources, the sole overseas listed arm of the nation's largest gold miner, China National Gold Group, will raise output, cut production costs and scout for acquisition opportunities amid lower bullion prices.

The Hong Kong and Toronto-listed state-backed company would lower costs by improving metals recovery ratios, material procurement cost and advanced production techniques, said Song Xin, who was promoted from chief executive to chairman of China Gold in February.

"Since our recovery ratio has risen, our unit production costs have fallen processing the same amount of ore rocks," Song told the .

The gold recovery ratio of China Gold's main profit driver, the Changshanhao mine in Inner Mongolia, rose to 54 per cent last year from 22 per cent in 2007.

Song said it was achieved through quality control of its crushing machines to ensure consistent ore rock size, increasing the penetration rate of chemical agents used to extract gold, good equipment maintenance to minimise down time, and staff training to improve productivity.

The mine's cash production cost last year fell 14 per cent to US$707 per ounce, while total cost declined 7 per cent to US$866. Song would not give a projection for this year.

Cost cutting is vital since the mine's ore grade is lower than some of its rivals and gold price fell almost 30 per cent last year, before rising 7.3 per cent in this year's first quarter.

China Gold's average selling price slid 15.5 per cent last year to US$1,362 an ounce.

Helping its fight against the sharp correction of gold price - which fell the most last year since 1981 - is an output ramp-up.

A new rock crusher and processing facilities have been built and will be commissioned in the current quarter, doubling the processing capacity to 60,000 tonnes of ore a day.

China Gold projected its gold mine's output to rise from last year's 130,772 ounces to 208,000 ounces this year and 260,000 ounces next year.

In Tibet, its Jiama multi-metals mine - mainly copper - is expected to complete the first phase of expansion in the first half and the second phase in next year's first half.

The company aims to raise annual copper output from 12,847 tonnes last year to 22,698 tonnes this year and 79,896 tonnes by 2016.

Song said China Gold was seeking acquisition opportunities in Central and Southeast Asia, North and South America, Africa and Australia, preferably mines with at least one million tonnes of copper resources or 100 tonnes of gold resources, with projected return rates of 15 per cent.

China Gold last month posted a 22.2 per cent fall in net profit to US$57.18 million as higher copper output and lower gold production cost helped offset lower gold output and metal prices.

This article appeared in the South China Morning Post print edition as: China Gold cuts costs to offset lower prices
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