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Eric Ng

Fujian's proposed listing this month will give investors a first chance to bet on  the miner

The love affair Hong Kong people have with gold is no secret, but news that they may get their first chance to invest in a mainland gold-mining firm later this year is sure to cause excitement among  investors.

Fujian-based private and government-funded Fujian Zijin Mining Industry applied to Hong Kong Exchanges and Clearing for an H-share listing  earlier this month, sources familiar with the company confirmed.

One press report  on Sunday put the company's target fund-raising amount at $400 million, but the sources said it was too early to say how much could be raised as the timetable and market conditions were fluid.

If the company's initial public offering  goes ahead as planned, it will be the third mainland gold mining firm to list its shares.

Zhongjin Gold - a subsidiary of the country's largest gold producer - received a phenomenal response to its 405 million yuan (HK$379.52 million) A-share offer earlier this month. The offering was 824 times subscribed as investors snapped up stocks of the first mainland gold miner to make its shares available to the public.

This was despite the company's low profitability and heavy reliance on state subsidies.

Barely a week after its success, Shandong Gold Mining - a subsidiary of conglomerate Shandong Gold Group - began its A-share offering to raise up to 286.8 million yuan. It is due to list later this month.

By allowing gold miners to list,   the government hopes to boost efficiency in the fragmented industry and attract overseas investment and technology.

China - the world's fourth-largest gold-producing country last year - had more than 30 gold mining firms with 400,000 workers at  more than 1,000 sites, according to Zhongjin's listing prospectus.

Domestic miners lag  their international peers in operating scale, costs and technology, and are vulnerable to foreign competition  after China's entry into the World Trade Organisation.

In addition to  the remote nature of the country's mines, the industry also faced rampant illegal mining and excess smelting capacity, Zhongjin said.

However,  the government is determined to open up the market, with last October's opening of the Shanghai Gold Exchange a key milestone.

Zhongjin's sales amounted to 5.3 per cent of China's total sales of 189.8 tonnes last year, while parent China National Gold Corp  had a 10 per cent market share.

Zhongjin has gold mines in  Hebei, Shaanxi, Henan and Shanxi.

Despite being  an industry leader in terms of sales, Zhongjin's net profit of 36.41 million yuan last year amounted to only 4.14 per cent of its 878.1 million yuan turnover. The gross profit margin was 13.89 per cent. A state subsidy of 24.16 million yuan accounted for two-thirds of the net profit.

It was not a surprise the company did not go to the international market to sell shares.

Shandong Gold Mining, much smaller in scale with one mainstay mine in Shandong province, recorded a higher net profit margin of 9.44 per cent last year.

Although Zhongjin Gold and Shandong Gold appeared hardly palatable to international investors, Fujian Zijin Mining's apparent superior profitability may attract some interest. However, sceptics may want more information explaining and supporting the company's figures.

According to  the firm's website, Fujian Zijin posted a net profit of 205.88 million yuan last year on turnover of 599.07 million yuan, giving it a net profit margin of 34.36 per cent.

Net profit rocketed 104.4 per cent last year after surging 29.19 per cent in 2001. The company's  net profit margin has risen steadily, from 19.91 per cent to 22.75 per cent in 1999, 25.96 per cent in 2000, 27.03 per cent in 2001 and 34.3 per cent last year.

Fujian Zijin is 48 per cent held by  Minxi Xinghang State-owned Properties Investment and Management, 18.2 per cent by Fujian Gold Industry, 18.2 per cent by  Jinshan Trading, 7 per cent by  Shanghang Huadu Construction and 5 per cent by  Xiamen Hengxing Construction and Decoration.

Details of the shareholders' background were not available.

The company has a stake of more than 50 per cent  in  Huichun Gold and Copper Mine in Jilin province in northeast China. The subsidiary has 31 tonnes of gold reserve and 90,000 tonnes of copper reserve.

It also owns 55 per cent of  Shuiyingdong gold mine in the southwest  Guizhou province. The mine's gold reserves exceeded 30 tonnes.

In  Xinjiang province in the northwest, it holds about 50 per cent of the Ashele copper mine, whose reserves amount to 919,000 tonnes.

Its  Guichi Paodaoting gold mine in Anhui province has  a production capacity of 150kg  a year.



Mainland gold-mining firm plans HK listing