Zhaojin Mining Industry Co will use part of the proceeds from its HK$2.2-billion IPO to increase its production and become the country's largest gold-mining company in the next two to three years.

East China's leading gold mining company said yesterday that it would use about HK$500 million to improve and expand its mining areas, and raise its ore processing capacity. Another HK$250 million would be spent on expanding exploration.

Mergers and acquisitions (M&As) are also on the company's expansion list. It plans to use HK$170 million to pay off bank borrowings that would lower the gearing ratio and improve its financial position.

"We will use part of the (IPO) proceeds to enhance our capacity, and we are very confident of becoming the country's largest gold mining group in the next two to three years," Zhaojin Mining Chairman Lu Dongshang said at a press conference.

Zhaojin Mining, based in Zhangyuan district of Shandong Province, will put up 172.8 million H-shares in its Hong Kong IPO for a price range of HK$9.8 to HK$12.68 each.

The company will set aside 17.2 million shares for Hong Kong investors and 155.52 million for international buyers. The allotment for the global offering will be announced on December 7.

UBS AG is the sole global coordinator of the deal, and Cazenove Asia and UBS AG are its joint bookrunners.

Zhaojin shares are expected to start trading on the main board of the Hong Kong stock exchange from December 8.

Energy and resource analysts generally have an optimistic outlook for Zhaojin Mining, although the company would suffer if gold prices fall.

"The group's financial condition and operation results rely very much on the gold price... that is its biggest risk. Moreover, if the renminbi appreciates against the US dollar, it will hurt its business," an analyst said.

Zhaoyuan is known as the gold capital of China for its abundant gold reserves. More than 90 per cent of its 2005 revenue came from gold sales.

The company is engaged in exploring, mining, processing and smelting gold, with its principal product being standard gold.

China is the world's fourth largest gold producer, and its production last year was 224.05 tons. The country's current annual consumption of gold is estimated to be about 253 tons, according to the World Gold Council, making it the world's fourth-largest gold consumer, too.