In a market where decent gold equity deals can be almost as rare...

In a market where decent gold equity deals can be almost as rare as the commodity itself, eager Chinese buyers are scouring the Australian Outback looking to shore up access to future gold supply.

Shandong Gold Group is taking a majority stake in Focus Minerals’s operations after six months of talks on a possible cornerstone investment deal, which had “almost exclusively” involved Chinese-based businesses, according to Focus Chairman Don Taig.

“In the past we have also had some discussions with Australian investors, but they didn’t want to take a big cornerstone position. Shandong, however, is a like-minded company and was prepared to put a premium on the table,” Mr. Taig told Deal Journal Australia.

If the deal passes regulatory and shareholder approval, China’s third largest gold producer by output will take a 51% stake in Focus in exchange for its 227.5 million Australian dollar (US$238.2 million) investment.

While the ASX-listed miner’s stock only took a mild boost from the news, with shares recently trading up just 2.3%, Mr. Taig said directors will unanimously support the deal in the absence of a better offer.

“I think we have a pretty good deal,” he said. “You can always argue that you could get a larger premium, but we are focused on the long-term benefits.”

“If someone came over the top of Shandong and it was a superior deal, we would recommend that,” he added. “But Shandong stacks up much better in terms of scale and the impact on the business” compared with other possible agreements discussed in recent months.

The deal is the latest in a series of moves by major Chinese producers to plug a domestic shortfall and shore up long-term supply for the gold-hungry nation. Last month China National Gold Group Corp., the country’s largest gold miner, announced a potential US$3.9 billion bid to acquire African Barrick Gold PLC ABG.LN +1.46%, while a subsidiary of Zijin Mining Group Co 601899.SH -1.72%., its second-largest producer, acquired more than 50% of Kalgoorlie’s Norton Gold Fields NGF.AU 0.00%.

Zijin recently said it will continue to look for acquisition opportunities outside China.

The gold sector remains the most active area of mining in terms of M&A deals, according to Ernst & Young. Yet bankers and analysts say some deals have been hard to get over the line thanks to unrealistic valuation expectations. This stems from a disconnect between the gold stocks and the price of physical bullion, which climbed to record highs on safe-haven demand at the same time a rout in global stock markets sent equity valuations sharply lower.

Shandong has made it clear it’s not interested in a full takeover, according to Mr. Taig. Instead the deal may allow Focus to go looking for its own M&A targets, in a sector that has long been loaded with smaller explorers and is described by market experts as ripe for consolidation.

“If there’s a further downturn in the industry or cash remains tough to come by, then we’ll be in a position where we can do some judicious consolidation,” he said. “For those with a war chest, it will be competitive, but there are a lot of juniors out there exploring—and if there are deals to be done, we’ll do them.”

In the meantime, Focus expects to be able to rein in its own production costs, and subsequently boost its margins, thanks to the dea. It will allow the miner to scale up output, invest in more efficient processes and utilize the mining major’s expertise, said Mr. Taig.

The recent deferral of some major mining projects in Australia—where resources giants like BHP Billiton BLT.LN +0.18% have put the brakes on expansion plans—should also take some pressure off the company’s costs, he said.

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