Is China Gold's First Overseas Purchase A Harbinger Of A Gold Miner Roll Up?

Gold has retraced over 60% of its September swing high to low - rallying almost 12% off late September lows. Whether by cause or effect, it seems our stimulus-driven, vendor-financing, USD-heavy, mercantilist neighbors across the Pacific have decided the time is right to BTFDs in gold and gold miners as today's South China Morning Post notes "China Gold to buy Central Asia mine". Jery Xie Quan, VP of China Gold, further noted that was also negotiating potential mine acquisitions in Canada and Mongolia, which are either in advanced development or close to starting production. Are the Chinese using their excess USD to purchase gold-producing assets? Who knows but it may help explain the relatively strong performance of the EUR against the USD as the former region deteriorate fast.

China Gold to buy Central Asia mine
Foreign development arm of nation's No 2 producer to acquire gold and copper facility within weeks
Eric Ng in Tianjin
Updated on Nov 08, 2011

China Gold International Resources Corp, the overseas development arm of state-owned China National Gold Group, the nation's second-largest gold producer, expects to complete its first foreign mine acquisition as early as the end of next month.


The target mine in Central Asia produced mainly gold, with copper as a secondary product, said vice-president Jerry Xie Quan of the Hong Kong and Toronto-listed firm.


"It is a relatively large-sized project," Xie said at the sidelines of the China Mining Congress. "We expect to see results from the acquisition effort before year-end."


China Gold would consider financing the acquisition through bank loans and convertible bonds, he said. The company had net cash of US$76 million at the end of June.


China Gold has two gold mines on the mainland, one in Inner Mongolia and another in Tibet.


Together they produced 55,259 ounces (about 1.57 tonnes) of bullion in the first half, about 10 per cent of the output of its parent. Neither the company nor its parent firm has overseas projects.


Xie said China Gold was also negotiating potential mine acquisitions in Canada and Mongolia, which are either in advanced development or close to starting production.


The firm was known as Jinshan Gold Mines. China National Gold bought a 42 per cent stake in the firm in 2008 and renamed it China Gold International Resources.


Mainland gold miners have been stepping up efforts to develop  domestic mines and acquire  resources overseas to meet surging  demand. China is the world's largest gold producer.


JPMorgan commodities analyst Michael Jansen said retail bullion demand from China and India together amounted to 2,000 tonnes a year, about 85 per cent of the world's annual mined supply.


He forecast bullion prices to average US$1,869 an ounce next year, up 10.2 per cent from US$1,696 this year, on the back of strong investor and end-users' demand.


Exceptionally low interest rates in developed countries that are suffering from high sovereign debt levels have also lowered the opportunity cost of holding gold and gold-backed investment products, which do not pay interest.


Also supporting prices is buying by central banks, especially those in China, Central Asia, Russia, Southeast Asia and Latin America. Central banks as a group, traditionally net gold sellers, had turned net buyers in recent years, Jansen said.


On the supply side, he said large producers were struggling to find enough new resources to replace growing production. Many were  acquiring new development projects from exploration firms to speed up reserve replenishment.


In the first nine months of  this year, global mergers and acquisitions in the gold sector amounted to US$28 billion. Jansen expected the full-year figure to exceed last year's US$33 billion.