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Chinese firms go hunting for gold mines overseas

China’s voracious appetite for gold is growing beyond the heightened demand for jewellery and recent boost of its bullion reserves, with local miners increasingly snapping up gold mines overseas, reports The Wall Street Journal.

But the ambitious companies face an important challenge in their quest to become international giants, as mines with significant gold reserves are already developed and approaching the end of their productive life, or located in risky jurisdictions, the report says.

“New significant mines are always harder to find and more expensive or in a more difficult political environment. If you are a latecomer, you are unlikely to ever become as big as an earlier participant,” Viral Gathani, head of energy, natural resources and infrastructure investment banking at CIMB Securities in Hong Kong, was quoted as saying.

Spearheading the overseas acquisitions drive is Kingwell Group, which last week said it was considering to place an offer for more than half of Canadian company Brazilian Gold Corporation (TSXV: BGC), owner of a major gold project in northern Brazil.

Another keen miner is Fujian-based gold giant Zijin Group (SEHK:2899), which made its initial foray abroad eight years ago. According to Zijin’s president for international affairs, Li Zhilin, the company currently controls six mines in Russia, Mongolia, Tajikistan and Australia.

Zijin obtained regulatory approval for its takeover of Norton Gold Fields (ASX:NGF), one of Australia’s biggest gold miners last July, while vice chairman Qiu Xiaohua sees the company investing $5 billion in overseas acquisitions during the next several years.

The group ‑China’s leading gold producer by output— is looking to bid for three of Barrick Gold’s (TSX, NYSE: ABX) mines in Western Australia.

According to The Australian (reg. required), the Asian giant is consolidating its position a lead financier to new mines Down Under, as it has already committed more than $1.5 billion (A$1.55bn)), aiming to  to ensure a diverse and long-term supply of metals for its internal market.

China hosts less than 5% of the world’s known gold reserves according to data from the World Gold Council, while domestic mines are often readily exhausted.

The nation’s robust fiscal health in tandem with the ailing state of many Western economies has provided Chinese companies with a bounty of ripe acquisition opportunities. A senior central government official even recently went to the trouble of encouraging Chinese companies to pursue what he considers to be “rare and historic” opportunities to buy overseas companies.

Other Chinese gold miners currently pursuing major overseas deals include the country’s biggest gold producer China Gold Group, which last year attracted headlines for its intention of acquiring African Barrick Gold (LON:ABG), as well as Shandong Gold, which obtained a majority stake in Australia’s Focus Minerals (ASX:FML) in December.