Though the true amounts are
debatable, it's generally conceded that China is importing a lot of gold.
What's not included in this calculation -- but should be -- are the deposits
its mining companies are acquiring overseas. This gold-in-the-ground is just
as much a national monetary asset as is metal accumulated by Chinese investors
and -- to the extent that the mining companies sell their output to the government
-- can be expected to add to Chinese central bank gold holdings over time.
Most recently, China's Zijin Mining Group not only made another Australian
acquisition but raised $1.6 billion to keep the M&A binge going:
SYDNEY: Zijin Mining Group has launched a bid for Australian gold explorer
Phoenix Gold, the Chinese company's third planned acquisition of a foreign
mining asset in less than a month.
Long-dormant merger and acquisition (M&A) activity in Australia and
other mining-intensive countries is showing signs of a rebirth, with Zijin
the most acquisitive to date and with the deepest pockets.
"The company is open to opportunities around the world," Zijin executive
director and vice-president George Fang told Reuters. "It is a goal to find
more gold or other assets." In May Zijin announced it was issuing shares
to raise 10 billion yuan (US$1.61bil) for acquisitions.
Before launching its A$47mil (US$36.55mil) offer for Phoenix, it accumulated
a 17.9% interest in the company.
Zijin, one of China's largest gold mining companies, unveiled two acquisitions
in May for more than US$700mil, one in Papua New Guinea and one in Congo.
Zijin already mines gold next door to a Phoenix deposit after paying A$240mil
for another Australian miner, Norton.
"Gold is our game," Fang said. "Our team has the experience in gold mining."
Apparently it's just getting started:
(Bloomberg) - Zijin Mining Group Co. aims to keep buying gold and copper assets
outside China for the next decade, kickstarted by making almost $1 billion
in acquisitions in the past year.
The world's biggest gold producer by market value last month announced plans
to buystakes in Barrick Gold Corp.'s Porgera mine in Papua New Guinea and
Ivanhoe Mines Ltd.'s Kamoa copper project in Congo.
"One of our strategies for the next 10 years is globalization, we are trying
to make a wide portfolio of assets," Executive Director and Vice President
George Fang said in a phone interview. "In terms of business development
and the corporate development, of course we are open for potential opportunities."
Zijin said Monday it will make a takeover offer for Phoenix Gold Ltd. valuing
the Australian explorer at $36 million. It's competing with BHP Billiton
Ltd. and Teck Resources Ltd. for Barrick's Zaldivar copper mine in Chile,
according to people familiarwith the matter.
Chinese producers are seeking to take advantage as global mine asset valuations
tumble amid a commodity rout and as large competitors work to trim portfolios
to lower costs and cut debt.
In the past year, Zijin has announced or completed deals and investments
valued at about $992 million, making it the industry's most acquisitive company,
according to data compiled by Bloomberg.
"Gold and copper is our major activity in the mining industry," Fang said
Tuesday in the interview. "For our next move, we will focus on our major
sector."
This is encouraging for gold on two levels. First, it means that China is
accumulating even more metal than it's currently importing, maybe a lot more.
So any calculation of Chinese monetary gold reserves should take this growing
mine portfolio into account.
Second, it helps to put a floor under the market values of good-quality miners.
If Zijin is throwing this kind of money around it's a safe bet that other Chinese
entities are doing similar things. And anyone who's paying attention to real
estate in Vancouver BC or London knows what happens when Chinese money fixates
on a small, illiquid asset class.
