China's Gold Rush Attracts Foreign Investors

Strategic Insights -

Canadian company Asia Minerals Corp. has signed a contract to establish China's first gold-mining joint venture, marking a significant milestone in the country's gold rush. The agreement between Asia Minerals and Shandong Zhaoyuan Gold Industrial Group would see the Canadian firm invest $36 million in two stages to finance a feasibility study and expand an existing mine. China is believed to possess vast, untapped gold deposits, and the move could signal a foreign rush to prospect for gold in the country.

Key Takeaways:

  • Asia Minerals Corp. has signed a $72-million agreement with Shandong Zhaoyuan Gold Industrial Group to establish China's first gold-mining joint venture.
  • The Canadian firm will invest $36 million in two stages to finance a feasibility study and expand an existing mine, while Shandong Zhaoyuan will invest $36 million in the form of existing mine assets and gold reserves.
  • China has vast, untapped gold deposits, and is one of the few countries left in the world where the international mining sector has yet to become involved.
  • The joint venture will see daily ore production capacity rise to at least 1,500 tons from the current 500 by 1997, with an annual output of 60,000 ounces from 13,000 ounces.
  • Asia Minerals president David Owen predicts an overall 15% rate of return on investment, leaning toward the lower end compared to worldwide rates.
  • China decided to allow foreign investors to engage in joint ventures to mine low-grade and refractory ore due to a lack of technology and capital.
  • About 10 companies, including the Newmont Gold Co. unit of Denver-based Newmont Mining Corp., are in different stages of discussing joint-venture possibilities with China's central and local governments.
  • The lack of precedents in China for setting up joint ventures and Beijing's reluctance to open promising mines to foreign companies have slowed negotiations.

Statistics:

  • Initial investment: $72 million (U.S.)
  • Asia Minerals' investment: $36 million
  • Shandong Zhaoyuan's investment: $36 million
  • Daily ore production capacity: 1,500 tons (by 1997)
  • Annual output: 60,000 ounces (by 1997)
  • Existing mine's annual output: 13,000 ounces
  • Rate of return on investment: 15%

Sources:

  • "Canada's Asia Minerals Signs $72 Million Venture Deal in China" - The Wall Street Journal (no date)
  • Interview with Asia Minerals president David Owen (no date)
  • China's Central Government (no date)
  • Shandong Zhaoyuan Gold Industrial Group (no date)
  • Newmont Mining Corp. (no date)