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Gold Mining Enterprises Are Mulling Over Overseas M&A

China’s gold mining enterprises are actively plotting deployment of overseas resources, the “Thirteenth Five Year Plan” period may become a crucial period for resource reserve expansion by domestic gold enterprises.

“China National Gold Group Corporation will quicken its pace of walking out, and speed up the process of setting up a batch of overseas projects, walk-out is expected to become a new bright spot in the company’s ‘Thirteenth Five Year Plan’.” Said Liu Bing, Deputy General Manager of China National Gold Group Corporation, at the 2016 China International Gold Congress on July 28.

In April this year, China National Gold confirmed acquisition of 82% equity of Jinfeng Gold Mine located in south Guizhou Province in China, which was previously owned by Canada-based Eldorado Gold Company, with which it completed its biggest cross-border M&A in the enterprise’s history. According to available data, this mine has a proven gold reserve of about 52.8 tonnes, the service term is 14 years.

After scoring the first success this year, China National Gold did not stop its pace of M&A. It was reported that Glencore’s Kazakhstan gold mine now available for sale is also on the list of its planned acquisition projects.

Meanwhile, Shandong Gold, a company ranking third in terms of resource reserve in China, also is planning overseas M&A. “There is overseas M&A plan at the Group level.” Wang Peiyue, General Manager of Shandong Gold Mining Co., Ltd, told the journalist.

In the “Thirteenth Five Year Plan”, Shandong Gold Group proposed that by 2020, the mineral gold output of the Group’s gold business unit will top 55 tonnes, with which it will become a global Top 10 gold mining enterprise. Last year, Shandong Gold Group recorded 36 tonnes annual output, ranking 17th worldwide, which means there is still some gap to catch up.

“This target definitely cannot be reached if we rely on Shandong Gold’s existing resource in China alone, this means that within the next five years, the company will surely go abroad and acquire some mines.” One industry insider told journalist of Shanghai Securities News.

Zijin Mining Group Co., Ltd, which last year successfully acquired overseas mines at low price, has no intention of lagging behind. “In the future we are mainly concerned with gold and copper resources, our target regions and countries are Africa, Australia, Russia, Canada and countries on other continents with abundant mining resources, preferably late-stage mature and already launched large-scale projects.” Huang Xiaohong, Deputy General Manager of the International Business Division, Zijin Mining Group, said when speaking of the Plan.

The overseas mining M&A in gold industry also coincides with the “One Belt, One Road” strategy at the national level. According to public data, total gold reserve of countries along the route of “One Belt, One Road” is up to 21,000 tonnes, accounting for over 40% of global total reserve, 80% of gold for use by the global gold manufacture industry is concentrated in this stretch of land.

In fact, not only China needs to “Walk out”, overseas market also needs China’s investment. Zhuang Wenguang, Vice President of Qilu Mining Business Division of Shandong Gold Group, analyzed: “The overseas market values our capital, once mineral investment related to ‘One Belt, One Road’ kicks off, it will fuel the economy of countries along the route. Against the macro background of slowdown in global economy, these less developed countries along the route lack fund, they are facing backward infrastructure construction, and lack of momentum for driving community growth, they also need capital for investment and development.”

Facing the tremendous potential of the gold industry’s “One Belt, One Road”, led by Shanghai Gold Exchange, Shandong Gold Group Financial Holding Capital Management Co., Ltd., and Shaanxi Gold Group joined hands with domestic large financial institutions headed by China Industrial Bank to jointly set up the “Silk Road Gold Fund”, a special fund for Silk Road, this fund has a planned size of up to 100 billion yuan, with a term of 5-7 years, it is expected to become the biggest special fund in China. Through marketized operation, this fund will create an integrated industrial chain system covering geological prospecting, mining and smelting, gold product sales, gold leasing, gold trading and gold investment.

Nevertheless, overseas overseas M&A also involves risks. Song Xin, Chairman of China Gold Association, pointed out, “When looking for possible M&A opportunities overseas, make sure to calculate the account carefully, after all, sellers on the international market are more experienced than buyers.”

“Most overseas mine M&A cases fall through in the end, the problem occurs at the early stage of the acquisition, since we are unfamiliar with laws, regulations, and policy environment, it creates big risks for late stage of the deal, when it comes to actual operation, we may develop conflicts with local community, and cultural concept of the population.” Zhuang Wenguang said, “The stable and mature operation of a mine needs a long period of adaptation and break-in.