Mainland gold producers listed in Hong Kong are poised to report robust first-half earnings due to bullion prices rising 39 per cent during the period. But analysts warn that increasing energy and labour costs in the second half may squeeze margins. Fujian-based Zijin Mining Group, the mainland's second-largest gold miner - which is scheduled to release results on Monday - is expected to report a 41 per cent jump in first-half earnings to 1.7 billion yuan (HK$1.94 billion), according to a Goldman Sachs estimate (see table). Earnings growth is expected to be even higher at its smaller competitors. Goldman estimates that Shandong-based Zhaojin Mining Industry earnings will grow 88 per cent to 300 million yuan, and Henan-based Lingbao Gold will be up 236 per cent at 129 million yuan. Goldman's estimates are 10-15 per cent lower than market consensus forecasts. 'Gold producers are benefiting from soaring gold prices, especially those that have large gold reserves with high self-sufficiency ratios,' said Sabrina Xie Lulu, an analyst at Guotai Junan Securities. The average price of gold gained 39 per cent to about US$913 an ounce in the first half, from US$659 an ounce a year earlier. Guotai Junan expects gold prices will average US$900 an ounce this year, up 30 per cent from last year. But Ms Xie emphasised that mainland gold producers could not capture all the increase, as the appreciation of the yuan eroded domestic gold prices, which only rose 22 per cent in the same period. Ms Xie said Zhaojin, a pure gold producer with about 39 per cent of its gold coming from its own mines, would benefit the most from the bull market for bullion. 'Although Zijin's gold self-sufficiency ratio is even higher at about 50 per cent, its diversification into base metals, such as zinc, where prices are slumping, will drag down its earnings growth,' she said. Lingbao's gold self-sufficiency ratio is only 24 per cent, more like a smelter, so the impact of higher energy and labour costs would be greater on Lingbao, she added. Labour costs alone accounted for about 33 per cent of gold-producer productions costs, said Goldman analyst Song Shen. 'Our channel checks indicate labour costs have risen 20 per cent in the first half of this year compared with the 2007 average,' he said. Increasing labour cost pressure on the industry has prompted the US investment bank to cut gold producers' 2008 to 2010 earnings by an average of 13-19 per cent. Sino Gold Mining, a Hong Kong- and Australian-listed gold miner with projects on the mainland, said on Tuesday its US$55 million development costs at its 95 per cent-owned White Mountain mine in Jilin province may climb as much as 15 per cent due to the appreciation of the yuan and cost increases for steel and land compensation. Its first operating gold mine - 82 per cent-owned Jinfeng in Guizhou province - is also facing cost pressure. Cash operating cost guidance for the project has been increased to an average of US$390 an ounce this year, from an original estimate of US$370 an ounce. London's AIM-listed Leyshon Resources, which is developing its 70 per cent-owned Zheng Guang gold and zinc mine in Heilongjiang province, said its capital cost estimate had increased by 14 per cent in line with inflation in the mining sector. The 17 per cent diesel price rise in June and this month's electricity tariff increase of 4.7 per cent reignited concerns about a profit-margin reduction for gold producers. Energy costs totalled 15-30 per cent of the cost of production. CLSA forecasts gold prices to rise 32 per cent to an average of US$920 an ounce this year, before retracing to US$850 an ounce next year.