Chinese gold miners are aggressively scouting for overseas acquisitions, encouraged by historically low gold prices that could help them scoop up assets cheaply.
Though gold prices have risen by more than 16% since hitting a six-year low in December, the metal has still been trading close to levels last seen in 2010, in a range of roughly $1,220 to $1,240 a troy ounce.
China is the world’s largest gold consumer and producer, but only a few Chinese companies, such as Zijin Mining Group Co. , have ventured abroad to buy mines, unlike their counterparts in industrial metals.
If cash-rich Chinese gold miners embark on an asset-buying spree, China could reduce its dependency on other international producers for supplies and increase its heft in global gold markets.
A period of low gold prices also means Chinese companies may have more options to buy because several mining companies are facing credit crunches and have huge debts.
“China has five to six gold companies. I have been in touch with all of them, and they all have plans for increasing assets overseas,” said Peter Grosskopf, chief executive officer of Sprott Asset Management, a Toronto-based company that manages assets including physical bullion trusts.
He said the Chinese companies are well-capitalized and better positioned than their North American counterparts.
Sprott has set up a partnership fund with China’s leading gold company, Zijin Mining Group, which is called the Zijin Sprott Fund, with the aim of buying overseas gold assets, Mr. Grosskopf said. “The expansion [opportunities] are better globally than in China.”
The interest in gold mines comes amid a recent surge in overseas deal-making by Chinese companies.
So far this year, Chinese companies have announced $92 billion in foreign takeovers, according to Dealogic. One high-profile bid that didn’t end successfully involved Anbang Insurance Group Co., which recently abandoned its $14 billion bid to buy Starwood Hotels & Resorts Worldwide Inc. after a bidding war with Marriott International Inc. Had the deal succeeded, it would have been the biggest Chinese purchase of a U.S. company ever.
China consumes around 1,000 tons of gold annually and accounts for nearly 30% of global demand, according to the World Gold Council. The nation produces around 450 tons of gold annually.
China’s interest in gold assets comes as its gold production declined for the first time, dropping 0.4% in 2015 from a year earlier, according to a report by Hong Kong-based Argonaut Securities. Meanwhile, China’s gold consumption rose 3.7% during the same period, the report said.
That demand is prompting Chinese companies like Zinjin Mining to look for deals.
“We always have an opportunity pipeline where we keep watching, and hope we can achieve something within these two years,” said George Q. Fang, executive director of Zijin Mining.
Zijin has risen from a backwater operation to become the world’s third-largest gold-mining company by market capitalization. In 2005, it bought a minority stake in Pinnacle Mines Ltd. of Canada for just $2 million. It has gradually expanded its deals, but few of its purchases have cost more than $100 million.
Last year, however, Canada-based Barrick Gold Corp. said it was selling a 50% stake in the unit that manages its Porgera gold mine in Papua New Guinea to the Chinese company for $298 million.
“Zijin is in the process of globalization. We are in the learning curve,” Mr. Fang said.
Most of the Chinese companies are looking at existing gold deposits and companies, rather than building mines from scratch, said Mr. Grosskopf of Sprott, whose company’s partnership fund was one of the first qualified in China to tap offshore markets.
Zhaojin Mining Industry Co. Ltd., another leading Chinese gold company, said it also is looking at overseas opportunities for buying gold assets.
“It is a good time right now as the gold price is in the lower regions,” said Chen He, investment director at Zhaojin Mining Industry. “Zhaojin is looking for global opportunities.”
The company has nearly completed all the formalities for making an overseas acquisition in South America, he said. It had been toying with the idea of overseas buying previously, but gold prices were too high, he said.
Zhaojin is planning the acquisitions either through buying stock or purchasing projects. While the company is exploring the option of picking up equity in gold mines in developed markets such as Australia and Canada, it is also looking at the option of buying gold projects in developing markets, such as South America, he said.
Gold futures ended Friday at $1,242.50 an ounce on the Comex division of the New York Mercantile Exchange, down 34% from the record of $1,888.70 hit in August 2011.
Globally, deals in the gold sector have picked up pace.
Recently, the world’s second-largest gold producer, Newmont Mining Corp., sold a 19.45% stake in Australian miner Regis Resources to a broad range of institutional investors in Australia, North America and Europe. Barrick Gold Corp. sold a 50% stake in the Round Mountain mine and 100% of the Bald Mountain mine, both in Nevada, to Kinross Gold Corp.
Article from The Wall Street Journal