Chinese firms on prowl to acquire goldmines by: ROBIN BROMBY...

Chinese firms on prowl to acquire goldmines

by: ROBIN BROMBY
From:The Australian
January 07, 201312:00AM

IF your belief in gold is wavering, consider the separate but complementary news from Youyi South Road in Tianjin's Xiqing district and a development in Pitt Street, Sydney last week. You might as well throw in No 6 Sansad Marg in the heart of New Delhi as well.

A report from the Beijing-based Caixin news service reports that, at the recent China Mining Conference in Tianjin, conversations kept turning towards one subject - the quest for goldmines overseas.

The article pointed to recent developments such as Zijin Mining gaining control of Norton Gold Fields (NGF) and a statement by the Chinese company's vice-chairman that Zijin plans to outlay $US5 billion ($4.8bn) over the next three to five years to buy gold assets overseas.

Zijin already controls goldmines in Russia, Mongolia and Tajikistan as well as Australia.

The report also cited Shandong Gold Group acquiring a majority position in Focus Minerals (FML). It did not, however, cite the more recent $105 million credit line given Norton Gold by the Industrial & Commercial Bank of China, nor the $225m Shandong injection into FML. When you put that up against the odd few million being raised by local gold explorers, you can grasp the immensity of what China is doing on the gold scene.

The Caixin report says one of the other big four, China National Gold Group, is looking to buy goldmines in Africa. The last member of the big four, Shandong Zhaojin (separate from Shandong Gold), is reported to be negotiating an acquisition in Australia but no details are known.

Nor does the report refer to a move back in September that saw Hawthorn Resources (HAW) get $14.96m from a consortium of Chinese investors led by Guangdong Fenghua Advanced Technology. Pure Speculation remarked at the time that it seemed a good deal of money to invest when the most advanced project had an indicated resource of 30,000 ounces.

Now to Pitt Street, Sydney.

Going largely unnoticed over the New Year break was the movement at Sydney-based Gateway Mining (GML), the latest gold explorer to come to the attention of Chinese investors.

Poor old GML has seemed becalmed for a few years. It has had joint ventures with Mitsubishi, Barrick Gold and Adelaide-based Minotaur Exploration (MEP), all of which fell by the wayside. The junior has never been able to raise enough money to drill its flagship project, the Gidgee complex in Western Australia's Black Range.

Charters Towers-focused gold explorer Citigold Corp (CTO) made a poorly priced takeover bid for GML in 2009 and ended up with an awkward 34 per cent.

Normally, in a market like this, you would never be able to unload that sized parcel in such a lightly traded stock. But CTO - which is separately being financed by Asian interests - has managed to sell its entire GML stake to Hong Kong-based Shan Pei Investments and a Singapore-based investor.

A young Sydney-based investment adviser, Andrew Bray, now GML's MD, apparently saw in the largely unloved GML the rightly priced vehicle for an entrance into the gold industry backed by Chinese investors. Only one member of the board is staying on, and that temporarily: chairman Brian Gomez, who is now based in Papua New Guinea. He is remaining until Bray finds whether he can pin down a PNG acquisition.

Gomez, once a financial reporter at The Australian, has plenty of expertise there: he is now working at the PNG Chamber of Mines & Petroleum and previously served in the mines minister's office in Port Moresby.

Bray has already raised $5m for the company, so expect Gidgee to at long last get a large drill effort. Historically, about 1.5 million ounces have been produced, mainly from shallow pits in GML's ground, but what is needed is drilling to greater depth.

Nearby, Panoramic Resources (PAN) has its own Gidgee project, from which 1 million ounces were extracted by the previous owner. PAN has a resource of 1.16 million ounces and expects first gold production next year.

In the longer term, though, see Gateway as yet another Asian beachhead into our gold sector.

There will be more. And we are still waiting for the Chinese central bank to update its gold holdings, last reported in 2009. If the increase is anything like the last one, the gold doubters might finally be silenced. And by then not only will China control more physical gold but also more of the mines that produce it.

Going back to the Caixin report, it quotes one Chinese mining executive pointing out you can make money mining gold, or purchasing gold from other miners and refining it, but all these pale by comparison to the profit potential when a company controls the entire supply chain, from mining to refining.

And the New Delhi aspect? The Reserve Bank of India, based at Sansad Marg, wants the government to impose higher import duties on gold. So much of gold is now being bought by Indians that it is blowing out the country's trade deficit. It is estimated that Indian households own about 11,000 tonnes of gold - that's about equivalent to the two largest official holdings (the US and German) put together. Critics say a higher duty would only mean more smuggling of gold into India; much is already coming in illegally from Bangladesh. Indians won't allow anything to stand in the way of their buying gold.

http://www.theaustralian.com.au/business/opinion/china-on-prowl-to-acquire-goldmines/story-fnciihm9-1226548488491