Mining gold-edged goodwill abroad

Zijin's quest for metal resources creates big value for several sellers overseas

Zijin Mining Co, one of China's biggest gold and copper producers, said it would further expand mining resources abroad, with several of its large mining projects scheduled to begin operations this year.

The company's Cukaru Peki Upper Zone mine in Serbia, part of its recently acquired Timok coppergold project, is expected to come on stream by the end of the first half of this year, according to Serbia Zijin Mining Doo Bor, the Serbian unit of the company.

With certified reserves of about 44.7 million metric tons of ore with high copper content and associated gold and silver, the Cukaru Peki Upper Zone project will produce 200,000 tons of copper annually, it said.

Overseas projects are going to be the mainstay of the company's development. Chinese mining companies should also go global and seek more opportunities to compete in the global market, Chen Jinghe, the company's chairman, said earlier.

Zijin's overseas investment strategy took effect in 2005 when the company forged a cooperation agreement with Mwetaung mine for exploring nickel and other minerals in Myanmar.

In the following years, Zijin invested in mineral-rich assets through mergers and acquisitions in Canada, Russia, Vietnam, Peru and other countries.

The company's business abroad is starting to grow, with its gold and copper reserves overseas exceeding those in the domestic market. Gold production overseas has also surpassed that in China, it said.

Overseas gold production accounted for 58 percent of Zijin Mining's gold production by the end of last year. The ratio of overseas copper production to the company's total copper production was 44 percent and zinc production 50 percent, according to its recently released financial report.

This is part of the company's efforts to expand through acquisitions in countries rich in resources like large mines of gold and copper. Its business is spread across 12 countries worldwide.

With the goal of boosting its gold and copper reserves, Zijin acquired stakes in two overseas mines and one domestic one in 2020. These are the Buriticá Gold Mine in Colombia, the Aurora mine in Guyana, and the Julong Copper Mine in Tibet. The three stakes cost nearly $2 billion, bringing the company's total gold and copper reserves to 2,300 tons and 62 million tons respectively, it said.

Excellent progress is also being made in the construction of the Kakula copper mine in the Democratic Republic of Congo, which is expected to come on stream by the end of the first half of this year, said the company.

Kamoa-Kakula is a joint venture between Ivanhoe Mines (39.6 percent), Zijin Mining (39.6 percent), Crystal River Global (0.8 percent) and the DRC government (20 percent). Ivanhoe Mines and Zijin Mining are co-funding the development of Kamoa-Kakula.

With the initial mine development of Kakula soon to be fully financed, Ivanhoe Mines said the two sides are focused on rapidly advancing the construction of surface infrastructure and the processing plant, to match the accelerating pace of development of the underground mine workings and to transform Kakula into one of the world's greatest copper mines.

The Belt and Road Initiative has been facilitating Chinese gold miners' overseas expansion for gold assets to meet demand from home. While China is a resource-rich country, its ore grade is relatively low compared with peers abroad. Also, some resources are not easily accessible.

Under the circumstances, analysts believe Chinese gold companies will likely step up further tapping markets abroad as many undervalued mines present a good buying opportunity.

"Zijin Mining has been acquiring overseas assets to boost its output and diversify from the gold operations. As one of China's largest gold producer, it has bought gold mines to lift its gold output, and also diversified from gold to be the largest mined-copper and mined-zinc producer in China now," said Zhu Yi, senior analyst of metals and mining at Bloomberg Intelligence.

"The company will continue to focus on M&A opportunities and commissioning new capacity to drive up its production volume of gold and copper, according to its five-year plan ending 2025 announced in January."

Bloomberg expects the company's output of mined-gold could rise 100-125 percent over the 2020-25 period, with mined-copper output potentially increasing by 117-139 percent. Gold business accounted for 61 percent of its 2020 revenue, followed by copper at 19 percent.

As the mining transactions are usually quite capital-intensive and the availability of capital and related financial services are essential for companies conducting overseas deals, financial support is usually crucial for Chinese companies to go abroad and grow there, Zhu said.

According to the company's 2030 development plan, it aims to produce 67 to 72 tons of gold, 80 to 85 tons of copper, 47 to 50 tons of lead, 290 to 330 tons of iron ore concentrate and 240 to 300 tons of silver in 2022.

The rising prices of gold and copper not only benefited the company's performance last year but also focused the capital market's attention on the mining companies, it said.

High gold prices could also continue to find support this year from the safe-haven appeal due to geopolitical tensions amid a low-to-negative interest-rate environment and expanding global money supply.

The World Gold Council estimated that gold investment continues to be well supported by the interest rate environment this year, although uncertainties still exist due to the lingering COVID-19 pandemic.

With the economic recovery highly likely to continue and stimulation of consumer markets being a priority for policymakers, the industry body expects gold demand in China to further revive this year.

Owing to the lingering portfolio risks and potential inflation resulting from measures to counter the COVID-19 impact, there is potential for higher demand for the yellow metal across the world, especially in emerging markets such as China, said the World Gold Council in a news release in February.

The China Gold Association also said gold purchases have gradually recovered, due to the country's effective COVID-19 epidemic controls and economic recovery, after the country witnessed a 48.2 percent slump in the first quarter of 2020.

Demand for gold bars and coins rose by 50.91 percent year-on-year during the second half of last year, as a looser monetary policy and more volatile gold prices increased private investor interest in the yellow metal.

Zhu said companies like Zijin Mining are also expected to increase gold output this year. While gold is Zijin's main source of revenue, the company is into copper and zinc in a big way, ranking among the top producers of the two metals.

The company's revenue rose 26 percent year-on-year in 2020 to 171.5 billion yuan ($26.2 billion), with net profit spiking 51.9 percent year-on-year to 6.5 billion yuan, according to its latest annual report filed with the Hong Kong stock exchange recently.

Zijin's gold business contributed nearly 70 percent to its revenue last year. Zijin's gold price increased by 22.97 percent to 365 yuan a ton from 2019 as investors hedged against risks heightened by the COVID-19 pandemic, and the company's gold output picked up 4.58 percent year-on-year to 315 tons.