Beijing is planning to order the mainland's smallest gold miners to shut down in an attempt to eliminate short-term, profit-focused operators that ignore the industry's new focus on environmental protection.
The Ministry of Industry and Information Technology is drafting industry entry barriers that will include the elimination of miners with daily ore processing capacity of less than 50 tonnes, the official Shanghai Securities News reported, citing an unnamed ministry official who attended a national industry seminar in Wuhan, Hubei province, on Monday.
Since the state does not regulate the gold industry's output, rising gold prices have encouraged mining firms - many privately owned - to join the sector. Many such firms were small and focused on short-term gains, which had led to wastage as they recovered the best ores and left lower-grade material behind, the report said.
Such projects also often lack proper long-term environmental protection planning. Large mines that enjoy economies of scale tend to process lower-quality ore and rehabilitate the mined area properly.
A consultation paper on industry entry criteria is being drafted. It will include 'restricting development' of collieries with less than 100 tonnes of daily ore processing capacity, as well as those that have to source more than half the raw material for processing gold ore from a range of environmentally unfriendly cyanide chemicals, the paper added.
According to the China Gold Association, in 2006 the mainland had more than 1,200 gold mines, of which 739, or 61 per cent, had daily ore processing capacity of below 50 tonnes.
Samsung Securities analyst Thomas Zhu estimated affected mining firms to account for less than 20 per cent of the industry's output. The five largest listed miners control about 45 per cent of production.
UOB Kay Hian analyst Helen Lau said projects of listed miners usually had at least 300 to 500 tonnes of daily ore processing capacity. Whether the projects to be shut down would be taken over would depend on their location and ore quality, she said.
CLSA analyst Richard Leung expected the industry consolidation to take a long time since big miners tended to be unwilling to take on high-cost projects with less than one tonne of annual gold output. He said projects with less than 100 tonnes of daily processing capacity produced less than 0.5 tonne of gold a year.
Wang Ligang, spokesman for Shandong province-based Zhaojin Mining Industry, said the firm focused its acquisition targets in Shandong, Xinjiang, Gansu, Inner Mongolia and Liaoning.
'Our criteria for above-ground projects are at least 30 tonnes of resources and ore grade of at least one gram of gold per tonne of ore, and for underground ones, at least 10 tonnes of resources with at least three grams of gold per tonne of ore,' Wang said. The mainland's largest gold miner, Zijin Mining, declined to comment.