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China goes prospecting for world’s gold mines

Posted on April 10, 2016 by MK
Wall Street Journal/Biman Mukherji/4-10-2016
Hunt by Chinese companies for overseas deals could make China an even bigger player in the global gold market
“A period of low gold prices also means Chinese companies may have more options to buy because several mining companies are facing a credit crunch and have massive debt.”
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MK note:
– First, it shouldn’t surprise anyone that China would unleash its gold mining companies on an acquisition spree. China, as we have reported conspicuously here for a number of years, is attempting to build its national gold reserves as a hedge against currency depreciation. What better way to do it than to buy producing gold mines wherever they become available. I don’t know if anyone has done the math, but it is probably within China’s capability to buy all the top producers in the world and not even put a serious dent in its $3.2 trillion in reserves.
– Second, aggressively pursuing gold miners makes a great deal of sense if you think the bullion pipeline running West to East might someday slow to a trickle, become compromised, or shut down completely. Mines are a long term source of metal that, if properly engineered and managed, can add to Chinese reserves for many years to come.
– Third, keep in mind that every time China adds a gold mine to its portfolio, that is one more mine not selling gold on the open market and not hedging its production – a major consideration with respect to the long-term supply/demand fundamentals. Like its domestic production, international production, it is likely, will be earmarked for the national treasury.
– Fourth, do not be fooled into believing that such pursuits are the purview of inspired Chinese mining executives alone. The Chinese government and central bank could very well have put out a memo – “Re: The wisdom of foreign gold mine acquisitions.” For China, acquiring gold mines is a strategic decision. The only question is how much of the world’s gold mines the West is willing to cede (make that deed) to the Peoples Republic.
– Last, do you remember this from Peoples Bank of China governor Zhou Xiaochuan? – “At present, up to 12 trillion yuan stays in domestic residents’ saving accounts. The launch of individual gold investment, therefore, will allow residents to change currency assets into gold assets. At the macro level, it will expand channels for changing savings into investment, thus adjusting the money supply; in the micro aspect, allowing citizens to trade and keep gold can improve social welfare, benefiting both the country and the population. Moreover, with the dual attributes of common commodity and currency commodity, gold is a desirable instrument for hedging. Therefore, developing gold trade for individuals is practical.”
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