Dec 27, 2012 11:57 AM

Miners Going Overseas for All that Glitters


(Beijing) – At every juncture, conversations among gold mining executives at the recent China Mining Conference in Tianjin turned toward a single topic: The quest for gold mines overseas.

Owning a mine on foreign soil "primarily can increase (a mining company's) gold reserves and make it more self-sufficient in terms of raw materials, to improve profitability," said Zhang Bingnan, secretary-general of the China Gold Association. "Second, gold prices are expected to go higher."

And executives at the November conference could point to a pair of recent deals as sterling examples of opportunities taken – and success for each company.

In August, Jinyu (H.K.) International Mining Co., a subsidiary of Zijin Mining Group Co. Ltd., purchased a more than 50 percent stake in a valuable Australian mine.

Zijin's deal for Norton Gold Fields Ltd., one of the largest in Australia, was the first-ever buyout of a major overseas gold mine by a Chinese company. Terms were not disclosed.

Moreover, Zijin Vice Chairman Qiu Xiaohua said the company plans to invest up to US$ 5 billion internationally over the next three to five years.

Just a few weeks later, another company closed the second Chinese buyout of an overseas mine: Shandong Gold Group Co. Ltd. announced September 21 that it had purchased a 51 percent stake in Focus Minerals, another major Australian gold producer, for A$ 228 million.

A Shandong Gold source said the company plans to cut expenses at Focus, where extraction operations currently cost about 1,200 yuan per ounce, by reducing mining depths. And Australia is not the only foreign target on the company's radar.

"We are also looking for gold projects in Brazil and South America," said a source at Shandong Gold in charge of the company's capital management office.

Shandong and Zijin are among the "big four" state-owned gold mining companies eagerly tapping overseas resources. The others are China National Gold Group Corp.(China Gold) and Shandong Zhaojin Group Co. Ltd.

"We attach importance to not only prospecting for gold in existing mines we own," said Song Xin, vice president of China Gold. "But also to participating actively in overseas mergers and acquisitions, and looking for resources in Africa."

Going Deeper

Chinese companies started digging gold overseas in earnest about seven years ago. Zijin, for example, launched foreign investment efforts in 2005 and today controls six mines in Russia, Mongolia, Tajikistan and Australia, said Li Zhilin, the company's president for international affairs.

The Chinese expansion is continuing because company officials think gold prices will continue to rise. They trust, for example, a recent report by the U.S. investment bank Goldman Sachs which predicted rising gold prices until 2015. The report said per-ounce gold prices are likely to climb to US$ 1,811 in 2013, US$ 1,884 the following year and US$ 1,922 in 2015.

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