China goes for the goldThen there?s the approach. Following the...

China goes for the gold


Then there?s the approach. Following the failed $18.5bn bid by CNOOC (the state owned Chinese oil company) for Unocal, the California-based oil company in 2005, China has taken a softly, softly approach to resource deals. Rather than acquiring companies outright, the country, through its sovereign wealth funds and state-owned companies, has opted instead for partial ownership.

The Gold One deal is another example of this modified approach, which is seen as more acceptable in countries such as the US, Canada and Australia, which have all tightened rules on foreign investments in raw material amid nationalist tinged concerns over energy and food security. Gold One said while the consortium?s initial 17.7 per cent stake purchase would be subject to approval from the Australian foreign investment board, it does not expect the deal to be blocked.

Lastly, the timing: although gold has come off its April peak, when it was trading at above $1,563 an ounce, to about $1,493, prices are still 38 per cent above what they were two years ago. As with other commodities, China is keen to lock down long-term supplies at a time when prices are high. It is helped by the strong renminbi, which has risen nearly 5 per cent against the dollar over the past 12 months.

And while much has been written about Chinese companies being willing to pay over the odds for foreign assets, the price for Gold One ? which produced 66,445 ounces of gold last year and made A$19.3m in profit before tax ? looks fair.

http://blogs.ft.com/beyond-brics/2011/05/17/china-goes-for-the-gold/