Foreign Gold Miners Could Be Set to Prosper in the Red East
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IN CHINA
resourceinvestor.com
By Jon A. Nones
13 Nov 2006 at 07:48 PM EST
St. LOUIS (ResourceInvestor.com) -- China has emerged as the world’s fourth largest gold producer within the last decade. According to Goldletter International’s November release of the “China Gold Report,” China will be the world's premier gold producer within the next decade as the country widens its doors to more foreign investment.
According to the statistics of the China Gold Association, gold production in China was about 224 tonnes in 2005. China‘s gold production is forecast to be 240 tonnes this year, up 7% from 2005.
Recent changes in regulation by the Chinese government have encouraged investment by foreign miners.
With the introduction of new exploration and ore processing technology, some of these foreign miners could be set to prosper.
China’s Gold Industry
Between 1949 and 1982, China banned personal ownership of gold, and any hope of a gold market.
However, in recent years, China has lifted its control over the gold market, and the country is now the fourth-largest gold consumer in the world.
In 1996, China passed the mineral resources law on mineral exploration and development, concluding that “the State shall safeguard the national development and utilisation of mineral resources under the responsibility and supervision of the Ministry of Land and Resources (MLR).”
By this legislation, MLR promised to reform the approval process and the costs associated with securing exploration rights in China, in order to encourage foreign investment in an industry, according to the report. Laws and notices issued in 1998 and 2000 clarified the exploration process and the transfer and assignment of exploration rights.
In December 2003, the Chinese Government issued a white paper on China’s Policy on Mineral Resources which stressed that China would depend on exploitation of domestic mineral resources to guarantee the needs of its thriving economy. The policy highlighted the importance of sustainable development and Sino-foreign cooperation.
And since the launch of the Shanghai Gold Exchange in 2002, the gold market has been vastly liberalized. The exchange amounted to 905 tonnes in 2005, up 36% from 2004. Its gold trade volume more than doubled in the last two years to $14 billion.
In addition, four companies have already floated on the Shanghai and Hong Kong stock exchanges, and foreign investment funds have been allowed to buy shares in these gold miners.
Today, current annual consumption of gold can be estimated at approximately 253 tonnes, according to stats from the World Gold Council, and this number is expected to soar to 500 tonnes in three to five years. But per capita consumption of gold is only 0.16 grams, much lower than the world’s average of 0.7 grams, suggesting strong growth for the future.
China’s Gold Production
Zhongjin Gold, owned by China National Gold Group Corporation (CNGC), contributes 20% of total gold production in China, and shares 30% of total Chinese gold resources. In 2005, CNGC produced 42 tonnes (1.35 million ounces) of gold, which was a year-on-year increase of 25%.
Not only is China's national gold industry expected to get a strong boost, but successful foreign companies active in China will also contribute to growing production in the years to come, according to the report.
The China Geological and Mineral Survey Bureau estimates the gold resources of China’s 10 major provinces to be over 11,000 tonnes and the country’s prospective gold resources at around 15,000 tonnes.
According to statistics of the China Mining Association, Shandong Province in east China is the richest area (approximately 40% of total proven reserves), followed by Shaanxi, Sichuan, Gansu, Yunnan and Guizhou. Production is centred on the eastern provinces where 70% of known gold deposits are located.
But most of China’s production comes from small, underground mines with little mechanization, according to the report. Only a few mines produced more than 100,000 ounces annually, but have an annual average closer to 16,000 ounces.
“Missing many of the sophisticated techniques of the western approach including highly sensitive geochemical and geophysical survey as well as high-end interpretation of satellite imagery, China is relatively undiscovered. This offers a high potential for successful exploration,” the report noted.
Production from a growing number of gold projects developed by foreign companies coming on stream could contribute up to 1 million ounces or 15% to China's total output at five different mines within the next three years, according to the report.
Foreign Investors
Australia’s Sino Gold [ASX:SGX] has been active in China since 1996 and has become China’s largest foreign gold producer.
The company operates the Jianchaling underground mine, located in the central Chinese Shaanxi Province, which has produced approximately 450,000 ounces of gold from 1998 to 2006.
The company is now developing the Jinfeng Mine in Guizhou Province. The mine has gold reserves of 2.9 million ounces and gold resources of 4 million ounces, and is expected to commence commercial production in early 2007.
Silvercorp Metals [TSX:SVM] is set to become the number one foreign silver producer from mining operations at the high-grade Ying Silver Project. Silver production commenced in April and is projected at 5 million ounces plus 40,000 tonnes lead and zinc in 2006.
Silvercorp has reported Measured and Indicated Resources to be 40 million ounces of silver, 214,938 tonnes of lead and 68,896 tonnes of zinc, with Inferred Resources at 57.1 million ounces of silver, 317,361 tonnes of lead and 116,914 tonnes of zinc.
Central China Goldfields [AIM:GGG], which has been covered by Resource Investor in the past, is a London-listed gold explorer focusing on areas with historic production where modern mine extraction methodology has been underutilised.
The company’s portfolio is currently made up of five projects, two of which are considered flagship properties, the Snow Mountain Gold Project and the Nimu Copper-Molybdenum Deposit. So far, Snow Mountain has an estimated 950,000 ounces of Inferred Resources.
The company has also been granted an option to acquire an initial 50% interest of Majestic Gold’s [TSXv:MJS] exploration assets in China for cash payments totalling C$12.25 million.
There are many more foreign companies operating in China. Below is a detailed chart of those listing in Canada, Australia and the U.S. |
