China gives foreigners golden chance

SYDNEY - Sino Gold's chairman, Nick Curtis, watched for more than a decade as China opened up industry after industry to foreign investors, waiting his turn.

While China has learned to embrace everything from McDonald's hamburgers to Chrysler Jeeps as its economy grows faster than any other in the world, gold mining has largely remained closed to outsiders.

"The gold-mining sector is almost the last sector to be reformed," Curtis said. "Mostly because until recently it was virtually 100 per cent state-owned."

China mines about 7 per cent of the world's gold, making it the world's fourth-largest producer behind South Africa, the United States and Australia.

This week, Sino Gold announced it was close to construction of what will be China's second-largest gold mine, the Jinfeng lode in south-western Guizhou province, after it was granted a coveted Government project permit rarely allocated to foreigners.

Until now, nationalism - China still requires miners to sell all their gold to the state, albeit at market prices - has played a role in keeping foreigners out.

Curtis said such Government dominance left China's gold industry fragmented and underexplored.

"There were several local groups lobbying that it was inappropriate for this deposit [Jinfeng] to be in a foreigner's hands," he said.

"The Government is now making it apparent those pressures just don't work. The system is clear on that."

Sino Gold will hold an 82 per cent interest in the mine, with Beijing and provincial governments dividing the remaining 18 per cent, making it China's largest foreign-controlled gold mining company.

South Africa's Gold Fields holds 8 per cent of Sino's stock. The World Bank holds 6 per cent. Curtis estimates the mine will cost US$70 million ($98 million) to develop.

A US$40 million loan from Standard Bank and Germany's HVB Bank is expected to be completed next month. Sino Gold will fund the remaining US$30 million internally.

Geologists have identified reserves of at least 2.1 million ounces of gold at the Jinfeng mine, which Sino believes it can mine at an initial rate of 180,000 ounces a year for an average cost of US$183 an ounce - less than half the world bullion price of about US$420.

Sino's geologists expect the mine can eventually be expanded to a production rate of 300,000 ounces a year.

Only the Zigin lode in Fujian accounts for more gold each year.

Pending final approval by China's Ministry for Land and Resources, Sino wants to start digging gold by mid-2006 and be at peak production by the end of the year.

By then a smaller mine it operates in Shaanxi province will have run dry, allowing the company to focus on Jinfeng.

Guizhou province, 1500km from Beijing and one of China's poorest provinces, relies largely on coal mining and patches of agriculture in between large swathes of limestone to support its 35 million residents.

"China's gold industry has been one of the last to reform ... We are at the forefront of opening the mining sector," Curtis said.

- REUTERS