China to steer gold mining toward bigger companies

From China Daily, Beijing
via People's Daily Online
Thursday, November 30, 2006

http://english.people.com.cn/200611/30/eng20061130_326804.html

China, the world's fourth-biggest gold producer, will raise the threshold for foreign investors in the gold mining sector to improve the sustainability of the industry, a regulator said.

According to a source from the National Development and Reform Commission (NDRC), China will impose restrictions on small foreign investors in the sector while welcoming larger ones. The source declined to reveal what measures will be taken, only saying an announcement would be made before the end of the year.

The regulator also declined to define "small" versus "large" investors.

"The sector doesn't need many small foreign investors as there have been a large number of small Chinese gold miners," the source said on condition of anonymity. "The new policy is designed to improve the quality of foreign investment to ensure sustainable development of the sector."

There are more than 100 foreign companies investing in China's gold mining sector, according to industry data. However, most of them are small, meaning they often withdraw quickly after making a profit.

Cui Lin, a gold analyst with Antaike Information Development Co. Ltd, said many small foreign companies invested in gold prospecting in China. But they sold high-grade resources to big investors and stopped prospecting, leaving low-grade gold ore unused.

"This has generated immense waste of precious gold resources, which is harmful to the sector's sustainable development," Cui said.

There are 4,134 tons of found gold reserves in China, ranking it No 8 in the world. However, more than 1,000 tons are low-grade and hard to smelt.

In a recent international mining forum in Beijing, Chen Fumin, chairman of the China Gold Association, said the nation will encourage foreign companies to invest more in low-grade gold ore exploitation. The association consists of more than 200 major gold miners, processors, and marketers.

Gold production in China rose 8.05 percent to 169.28 tons in the first three quarters of this year from a year earlier, according to statistics from the association.

The nation's 2006 gold production is anticipated to reach a new record of 240 tons, up from 224.05 tons last year.

The NDRC source predicted gold output in China would grow by 5 percent annually on average in the next three years.

The source said they expect the policy to boost consolidation between domestic gold miners to form bigger companies.

The State expects China's top 10 gold miners will control a much bigger slice of total gold production by 2010.

There are more than 1,200 gold mines in China of which 739 are small, each with a daily mining capacity of less than 50 tons of gold ore.

Chen, also president of China National Gold Group Corp, the country's top gold producer, said big foreign investors will be welcomed to participate in the sector's reshuffling with advanced technologies and management know-how.

His company, which has a Shanghai-listed unit, has grabbed one-fifth of China's annual gold production through mergers and acquisitions of small miners in recent years.

The sector is lucrative as a result of bullish gold prices and growing demand for precious metal in China.

From January to September this year, the sector reported 3.9 billion yuan (US$497 million) in profits, jumping 51.5 percent year-on-year.

Meanwhile, the sector's output value increased by one-third to 36.9 billion yuan (US$4.7 billion).

Gold demand in China climbed by 3 percent year-on-year to 62.9 tons in the third quarter of this year amid a tumble of 3 per cent in global gold consumption.

The nation now is the world's third biggest gold consumer after India and the United States.

Prices of the 99.95-aurum gold bullions at Shanghai Gold Exchange, the sole national gold bourse, closed at 161.22 yuan (US$20.55) per gram yesterday, up 0.03 yuan (0.38 US cents).

At the gold exchange, formed in 2001 as a substantial step in the opening of China's gold market, there are 149 members conducting spot transactions with renminbi.

In the first three quarters of this year, gold trade volume at the exchange jumped by 34 percent to 896.3 tons.

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