Jinshan Gold Is Now The Listed Arm Of State-Controlled China National Gold Group
By Charles Wyatt
minesite.com
Since May last year it’s been clear that Jinshan Gold Mines is becoming a Chinese gold company in every aspect bar the listing, which remains in Toronto. It was back in May 2008 that China National Gold Group Corporation, China’s leading gold producer, acquired 42 per cent of the equity in Jinshan from Robert Friedland’s Ivanhoe Mines, at a cost of C$217.7 million. This price was equivalent to C$3.115 per share, which seems a heady price when compared with the current price of C50 cents. Investors might have expected better of a combination of China and gold. After all, the Chinese New Year is now almost upon us and the Chinese Academy of Sciences predicts 8.3 per cent growth in Gross Domestic Product this year - a level which is just a dream for every other country in the world. Also the country’s US$586 billion stimulus package will begin to take effect in the second half of the year.
State-controlled China National Gold has a wide range of operations, ranging from exploration and production, to the refining of gold, silver, and copper, producing custom-designed gold and silver bars, as well as gold powder and grains, and raw copper. At the time of China Gold’s purchase of the equity stake in Jinshan Jay Chmelauskas, president of Jinshan, said that it would be supported by China Gold in its vision to acquire gold assets in China and elsewhere in the world. Even then, however, he must have realised that his time as chief executive was running out. As the deal was done, Mr Sun Zhaoxue, president of China Gold, took over from Pierre Lebel as chairman, while representatives of China Gold displaced Ed Flood and Peter Meredith of Ivanhoe. In fact by the end of May 2008, China Gold held five of the eight seats on the board, and was thus well in charge.
China’s gold industry is very disparate. China Gold is the biggest producer, but having said that it only produces some 2.5 million ounces per year and of these ounces about 40 per cent come from the treatment of ore from other mines. Its own mines tend to be small, around the 20,000 ounce per year mark, and Jay Chmelauskas clearly hoped that the merger would mean some bigger projects being taken over, where Jinshan’s technical expertise could boost production and profitability. Also at the back of Jay’s mind was the possibility of selling Jinshan’s Dadiangou gold project directly into China Gold, thus allowing his company to shed the C$55 million of debt which it was carrying at a 12 per cent coupon.
Four months later came the answer from China. An unsecured bridging loan of Renminbi 130 million (US$19.116 million) had been obtained from the Industrial Commercial Bank of China. This would be used to support operations at the Chang Shan Hao gold mine in Inner Mongolia, which Jinshan had brought into production in July 2007. The money would allow for the installation of crushers and pay for other aspects of the second phase of construction. This mine had had a slow start through the first winter of operation as leaching and gold production had been slowed by colder than average temperatures. But during the summer of 2008 there were signs that things were improving. September was a record month for production as Chang Shan Hao delivered 6,454 ounces of gold, but amount was still some way short of the nameplate production capacity of 10,000 ounces per month. Hence the need to upgrade facilities as soon as possible. What was more, the bridging loan had the advantage of not requiring any gold hedging.
Everything comes at a price, however, and the price in this case was that China Gold’s people took over every slot at Jinshan, from Mr Sun Zhaoxue as chief executive as well as chairman, to Mr Ren Jian as secretary to the board and vice president. Executives from China Gold are now running the Chang Shan Hao mine. Jay Chmelauskas, for his part, made a graceful exit with the words: “these changes herald an exciting period of growth for Jinshan.” It was also interesting at the time to note Mr Zhaoxue’s comment that Jinshan will be a platform for the creation of new opportunities for growth through consolidation and optimisation in the Chinese gold industry. No mention of any acquisitions elsewhere. Jinshan must now be seen in this light. It is the Toronto listed arm of China Gold.
It’s now expected that a larger senior facility will be arranged with Industrial and Commercial Bank of China to retire the Bridge Loan facility. Exploration work is also going on at the Dadiangou project in Gansu province which may enable a positive decision on development to be made later this year. A 39 per cent increase has been announced in the resource tonnage, but the most encouraging aspect has been the definition of a higher grade core zone within both the indicated and inferred resources. This contains 60 per cent of the project’s gold within 25 per cent of the total tonnage, and grades between 2.05 and 2.07 grammes per tonne compared with the overall average of around 0.9 grammes per tonne. It is on this area that Jinshan will focus as it carries out a preliminary economic assessment for a mining operation. A scoping study, a 43-101 resource estimate and a Chinese resource report are also nearing completion in support of an application for a mining licence, so things could move quite fast, even though the resource is still quite small.
What the Chinese management of Jinshan now has to do is prove to western investors that Jinshan will not simply be used to consolidate some of China Gold’s small mines, but will get the chance to be involved in bigger projects. The fact that its shares are so low shows that the story of its potential with big brother at its shoulder is not getting across, so a trip around North America and Europe by the new directors could be advisable. A presentation at one of our Minesite Forums in London, France, or Switzerland could start to get things moving. |
