Zhaojin Mining Industries, one of the mainland's largest gold miners, aims to increase gold production by acquiring smaller mines in Shandong province and obtaining more exploration rights, according to a report by its initial public offering sponsor. Zhaojin, which hopes to raise as much as US$300 million in a share sale early next month, will boost gold production 11 per cent next year and 38 per cent in 2008 due to acquisitions and internal growth, according to a UBS research report obtained from a fund manager. Cazenove is also helping arrange the share offer. Last year, the company produced 1.02 million ounces of gold, accounting for 14 per cent of China's output. Hong Kong regulators cleared the IPO last week and the firm and its bankers kicked off two weeks of pre-marketing activities yesterday. 'Institutional investors show a strong interest in this offering, thanks to the increasing investment demand for gold,' a source said, adding that the price of gold could climb to US$700 an ounce next year on the back of strong demand from the jewellery industry. Last week, gold rose above US$620 an ounce, an eight-week high, as the US dollar fell. The precious metal traditionally is a safe haven for investors and often advances when the greenback weakens. Shandong-based Zhaojin, which has the second-largest reserves among listed mainland gold miners, invested 644 million yuan last year, of which 410 million yuan was used to buy two mines. Capital spending is expected to decline to 200 million yuan next year, UBS said. 'Its fair valuation is 7.7 billion yuan to 9.3 billion yuan, or 19 to 21 times its 2007 earnings,' UBS estimated, adding the company could fetch a premium to Lingbao Gold, thanks to its broader revenue base. Lingbao, which is also more reliant on the lower-margin smelting business, now trades at 17 times forecast 2007 earnings. Its shares have soared 122 per cent since it began trading early this year. Zhaojin, which had reserves of four million ounces by June 30, operates four mines and one smelter in China. To broaden its production base, the company is likely to move its Shandong base. It has already obtained exploration rights in Hainan and Xinjiang.