Editors Note – We originally published the article below in October 2016 under the headline – Chinas Gold Horde Takes A Big Leap Forward – We are republishing today under a different headline to drive home the fact the recent moves made by Barrick with their acquisition of Randgold and their hostile takeover bid of Newmont are not because they want to consolidate the market but because, as we have recently discussed, Barrick is on the ropes for supply, period. There is no other reason for Barrick to attempt a hostile takeover of one of the largest mining companies in the world.
As you will read, and as we have recently stated, the Pascua-Lama project in South America has taken a real toll on Barrick’s ability to move forward. Very few companies can survive a $8.5 BILLION dollar lose that will never, ever be recovered – never recovered. This is to say nothing the ongoing situation in South Africa with strikes, civil unrest and a new government that is not as friendly towards outside companies as in years past. How many more times can Barrick Gold go the Chinese government to sell more shares to acquire another project before China simply takes over Barrick? My guess is not too many.
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We recently reported that Russia was going to be selling China between 80 and 100 tons of gold annually, which will impact Chinas gold horde beginning this year.
It is well known that China has not only been acquiring gold mines around the world, but they have also been acquiring other types of mines as well. Where will all this mined gold be deposited? Is this official gold, is this gold to go the people of China, will it ever again see the open market? All legitimate questions in light of the speculation that China has it’s eye on reintroducing gold into the monetary system in some form. Speculation ranges from a gold backed renminbi to a gold backed trade bond.
We learned this morning that China is in formal talks with Barrick, the largest gold producer in the world, for a 50% stake in the Veldaro gold mine located in Argentina.
As Reuters reported on October 25:
China’s Zijin Mining Group Co Ltd and Shandong Gold Mining Co Ltd have held separate talks with Barrick Gold Corp to buy a 50 percent stake in its Veladero gold mine in Argentina, according to four sources with knowledge of the process.
Veladero is one of Barrick’s five core mines; all are in the Americas. It is expected to produce between 580,000 and 640,000 ounces of gold this year.
The high quality of the mine, production capacity and the prospect for geographical diversification have appealed to the state-owned Chinese suitors, said three of the sources, who requested anonymity because the matter is private. All spoke over the past week.
Barrick, the world’s biggest gold miner, has not launched a formal sales process for Veladero, and there is no certainty that the talks will result in a transaction, the sources said.
My guess is China will make them an offer that will be too good to pass by, unless Barrick is hurting for supply. With projections of approximately 19 tons of gold to be mined this year, that would be the only reason Barrick would withdraw from these negations. Usually what China wants China gets, this is deal is more-than-likely well on it’s way to being finalized.
While Barrick is presenting the Veldaro project to China, it is tying the Pascua-Lama project to the deal. The Pascua-Lama project was shut down in 2013 due to some very shady dealings that were uncovered from a Barrick insider by SGTReport. This particular project has been a huge financial drain to Barrick with costs exploding and no prospect for the project to come online – in it’s current state – and with even more cost associated with moving the project forward.
We learn more from Reuters about this aspect of the Veldaro mine deal
Barrick would like the buyer of the Veladero stake also to make an investment in its Pascua-Lama project in South America, two of the sources said.
The gold and silver project, which straddles the border of Argentina and Chile in the Andes Mountains, was put on hold in 2013 due to environmental issues, political opposition, labor unrest and development costs that ballooned to $8.5 billion.
The Canadian company wants help developing the mineral-rich area it controls, known as the El Indio belt, a 140-kilometer stretch of land home to Veladero and Pascua-Lama. Alturas, another large discovery owned by Barrick, is also on the El Indio belt.
Last year, Barrick and Zijin, one of China’s biggest gold producers, formed a strategic partnership, with Barrick selling a stake in its Papua New Guinean mine to the Chinese company. Zijin officials have visited Pascua-Lama several times, according to local media reports in 2014. Source
It sounds like China is well aware of the underpinnings of the Veldaro project and, once again speculating, probably have already been working with both Chile and Argentina to work out the details of how to bring Pascua-Lama online, otherwise, there would be nothing to report since the Veldaro deal is tied to Pascua-Lama. I would be willing to bet the Pascua-Lama will be back online within 18-24 months, if not sooner, once the Veldaro mine deal is finalized. If Zijin is able to pull this off, the volume of gold going to into China from this one deal would have a massive impact on the volume of gold going into China year after year.
Just another report to confirm that we have been asking the right question about China and gold
– Why is Chinas gold horde swelling if they are not planning on reintroducing gold into the monetary system what possible reason could they have for continually acquiring this “pet rock, “barbarous relic” that is only held by central banks as a “tradition“?
If you really wanted to acquire more “pet rocks” one would think that having a more diversified holding would be appropriate. Apparently, China doesn’t think so.
