Zhaojin Mining Industry, one of the mainland’s largest gold miners, plans to spend 1.85 billion yuan (HK$2.31 billion) in the next three years to bring China’s largest gold mine to production.

The Shandong-based company agreed at the weekend to buy a controlling stake in the mine, which Zhaojin chairman Weng Zhanbin said on Monday was likely be the mainland’s largest and most profitable gold mine.

“With (the) gold price trading at a relatively low level, the mine’s acquisition price is very favourable,” he said. Zhaojin said the mine had around 470 tonnes of gold resource, resulting in an acquisition price of US$55.49 per ounce of resource.

Weng said some 250 tonnes of the 470 tonnes had been proven to be economically extractable, while at least 90 per cent of the rest was expected to eventually be proven, although more drilling was required. He said the 470 tonnes of resource was also expected to rise further with more drilling.

The mine is undergoing construction design and land preparation, and could start trial production as soon as the second half of 2018, Wang said, while adding that delays could not be ruled out.

When fully ramped up, the Haiyu gold mine in Shandong is expected to have an annual output of 15.6 tonnes, and be able to maintain that level for around 22 years. Zhaojin’s gold output from its own mines was 20 tonnes last year.

Hong Kong-listed Zhaojin said on Sunday it had agreed to buy a 53 per cent stake in the mine for 2.72 billion yuan. It has already paid 1.2 billion yuan and the firm’s general manager of finance, Fang Jisheng, said the remainder would be financed by bond issuance and bank loans.

“In the long term, we also plan to issue A shares on the mainland,” he said, adding Zhaojin was working with investment banks on a mainland listing but had no timetable for the process.

Fang said the mine’s acquisition would boost Zhaojin’s gold resource by 60 per cent to 1,281 tonnes, and its production cost per gram of gold was estimated at 100 yuan a gram, compared with 140 yuan at Zhaojin’s other mines.

Zhaojin’s post-acquisition gold resource would exceed the 1,210 tonnes posted by rival Zijin Mining at the end of last year.

Weng attributed the new mine’s low cost base to its proximity to its headquarters and main production areas in Shandong, allowing it to share infrastructure, equipment and human resources with the firm’s other projects.

Zhaojin shares fell 7.9 per cent on Monday to HK$5.95, after surging 57 per cent in the past two months.

“Since Zhaojin has risen the most among its listed peers in the past few months, some investors have likely decided to take some profit as they expect the stock will not see more catalysts in the short term after the good news from the mine acquisition and the employees’ share-purchase plan,” CLSA analyst Daniel Meng said.

Zhaojin said last week it planned to sell new shares and its major shareholder Fosun Industrial Investment planned to sell some of its existing shares to management staff, with the total up to 10.8 per cent of its Hong Kong-issued shares.

Meng said it was likely that Zhaojin would realise its mainland share-issuance plan, unveiled two years ago, given that regulatory barriers on the mainland had been lowered and in view of its need to fund new projects.

South China Morning Post

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