Gold mining in China

Gold mining in China has recently made that country the world's largest gold producer. For the year 2007, gold output rose 12% from 2006 to 276 tonnes (or 9.7 million ounces) to become the world's largest for the first time -- overtaking South Africa, which produced 272 tonnes. [ [http://allafrica.com/stories/200801180517.html allAfrica.com: South Africa: Booming China is World's New Egoli (Page 1 of 1) ] ] South Africa had until then been the largest for 101 years straight since 1905. The major reasons for this change in position had been due to South African production falling by 50% in the past decade as production costs there have risen, more stringent safety regulations have been implemented and existing mines have become depleted.

On the other hand, gold output in China has risen by 70% for the past decade. In recent years, China's gold mining industry has received increased foreign and domestic investment, and project numbers have increased as more discoveries have been found.

History

Gold mining in China dates back to the Song dynasty.

The Chinese government began reforms in the mid-1990s encouraging small operators to consolidate and allow foreign companies to form joint ventures so that Chinese companies could learn modern management practices, financial controls, and industrial, environmental and safety standards.

In recent years, domestic gold production has risen by 15% annually compared to the 3% decline in global production in 2006.

This tremendous increase has been due to rapid capital expansion and low costs of labor.

Chinese gold producers have gained enormously from the record high gold prices as investors worldwide are seeking stability due to the decline in the value of the dollar.

Scale

Domestic producers still suffer from a lack of scale. In 2000, there were about 2,000 gold producers - most of them relatively small and unsophisticated by international standards with very few able to operate on a global platform, though the number of producers had shrunk to about 800 in 2007 after mergers and acquisitions and restructuring and consolidation. Most of these firms' technological standards and management are weak and inefficient.

The country's oldest and largest gold producer is the China National Gold Group Corporation (CNGGC), which accounts for 20% of total gold production in China and controls more than 30% of domestic reserves. CNGGC also controls Zhongji Gold, the first publicly listed gold mining company in China.

Production and reserves

China's gold reserves are relatively small (about 7% of the world total). Production has usually been concentrated in the eastern provinces of Shandong, Henan, Fujian and Liaoning. Recently, western provinces such as Guizhou and Yunnan have seen a sharp increase, but from a relatively small base.

Zhaoyuan, a Shangdong provincial city of a population of 580,000 has more than 60 gold mines operating in the hills around the city that annually mine about 15% of China's total gold - the most in the country.

Work safety standards are poor.

In the last five years (2002-2007), China's Geological Survey Bureau found that five new gold deposits with reserves of 600 tons were found.

Foreign investment

Top foreign investment has come from Canada and Australia. Though foreign investment still constitutes a very important part gold mining expansion, since 1995 it has no longer been actively encouraged by the Chinese government.

Vancouver-based Jinshan Gold Mines Inc. started production in July at its Chang Shan Hao gold mine in China's northern province of Inner Mongolia, reaching 19,000 ounces of gold by December 18. The mine is designed to produce about 120,000 ounces of gold per year, making it one of the country's largest producers.

Gold Fields and Australia's Sino Gold Mining Ltd., have set up a joint venture focused on discovering large gold deposits in China with the potential to produce about 500,000 ounces a year. Sino Gold has been buying stakes in Chinese gold deposits and explorers. In May it started production at its Jinfeng mine in southern China, with planned gold production of 180,000 ounces per year.

Demand and consumption

Most of China's gold output stays in the country where it's transformed into jewelry and manufactured items, though the country's export role is increasing. In 2007, fabrication rose 18%, helped by demand from China's increasingly wealthy middle- and upper classes.

With a rapid rise in domestic demand China is now the world's fourth largest gold consuming country. Chinese market demand accounts for 9.2% of worldwide gold consumption.

Futures market

In January 2008, China opened its first gold futures market in Shanghai in response to domestic demand for gold, as well as allowing its producers to hedge risks from daily gold price fluctuations. [http://www.forbes.com/markets/2008/01/10/china-gold-futures-cx_jc_0110markets1.html]

Listings

China now has several publicly traded gold-mining companies, among them Fujian Zijin Mining Industry Co., Lingbao Gold Co. and Zhaojin Mining Industry Co. Their IPOs over the past several years provided an influx of investment capital - Zhaojin Mining Industry raised $282 million from its listing - and also introduced the mining industry to shareholder scrutiny for the first time.

See also

*China Gold Association
*World Gold Council
*Gold extraction
*Methods of investing in gold
*China International Mining Group

Notes

One metric ton is equal to about 1.1 short tons, which is the common volume measure in the United States, or 35,274 ounces.

References

External links

* [http://www.usembassy-china.org.cn/sandt/goldw.htm Gold Mining In China: Taming The Wild West] A report from U.S. Embassy China May 1996