China Gold panning for overseas options

PUBLISHED : Monday, 09 April, 2012, 12:00am
UPDATED : Monday, 09 April, 2012, 12:00am

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China Gold International Resources, the overseas development arm of state-owned China National Gold Group, the nation's second-largest gold producer, is scouting for acquisition opportunities in both developed and developing nations.

The Toronto and Hong Kong-listed firm is seeking targets in Central and Southeast Asia, North and South America, Australia, and Africa, chief executive Song Xin told the South China Morning Post.

'In developed nations, opportunities exist, but the costs are high due to high market information transparency,' Song said. 'In developing nations, we are selectively looking at some politically stable regions that have resources.'

The company is also looking to invest in small exploration companies in mature markets, which have proven resources that can be developed into commercial projects.

'We are mainly looking at gold, copper, and silver mines that have at least one million tonnes of copper resources or 100 tonnes of gold resources.'

China Gold, which has no overseas project at present, will also look into buying its parent's recent overseas asset acquisition when its viability is proven.

In January, China National Gold agreed to buy a 70 per cent stake in a mine in the Kyrgyz Republic in Central Asia from Hong Kong-listed water purification equipment maker Chaoyue Group for US$21 million. The mine has around 97 tonnes of gold resources and one tonne of copper resources.

A feasibility report on its development is being conducted.

'Since the independent technical report [on its development] has not been completed, the parent has bought it first,' Song said. 'When it is about to become commercial, the parent can sell it to the listed company on the latter's request.'

When China Gold was listed in Hong Kong in late 2010, its parent undertook not to compete with it on overseas projects.

However, if it chose not to buy certain projects due to their high investment risks, its parent could buy them first and sell them to China Gold when their commercial viability was proven.

China Gold in late March posted a 200 per cent increase in net profit to US$84.27 million, 9.9 per cent below an average estimate of four analysts, according to Bloomberg.

CCB International analysts Li Kin and Karen Li said the disappointment was due to higher than expected production costs and lower than expected metal content of its ore, although the miner had improved the recovery rate of metals from ore.

China Gold plans to produce 3.69 tonnes to 3.83 tonnes of gold this year, little changed on last year's 3.79 tonnes. Copper output is projected at 9,800 tonnes to 11,500 tonnes, an increase of up to 17.6 per cent from 9,781 tonnes last year.

Its mainstay Chang Shan Hao mine in Inner Mongolia has 134.7 tonnes of gold resources, of which 78.1 tonnes are economically extractable reserves. A feasibility study on a second capacity expansion is being conducted. Song said the scale of expansion would be announced in the second half of this year.

Citi has estimated the expansion could see mining and ore processing capacity double to 60,000 tonnes per day by 2015.

China Gold's Jiama mine, 60 kilometres east of Lhasa in Tibet, began commercial production in September 2010. It has 4.08 million tonnes of copper resources, of which 885,600 tonnes are economically extractable reserves. It also has 107.3 tonnes of gold resources, of which 32.3 tonnes are economic reserves.

To help protect the environment, Song said China Gold spends 11 per cent of its total project investment on environmental protection, compared to 3 per cent of the minimum stipulated by national regulations.