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Zhongjin acquires two gold mines from parent

By Wang Ying (China Daily)
Updated: 2009-05-28 08:08

Zhongjin Gold Corp yesterday completely acquired the stakes held by its parent company, China National Gold Group Corp (CNGGC), in Hebei Jinchangyu Gold Mine and Henan Qinling Gold Mine for a combined 255.43 million yuan.

This is the first step in its plan to incorporate seven gold mines from CNGGC within the year. After the deal, Zhongjin Gold will become China's second largest company by gold reserves. Information made public by the company showed that the transactions, of Qinling and Jinchangyu, were made at 158.49 million yuan and 96.94 million yuan, respectively.

The Qinling mine has gold reserves of 5.165 metric tons, while the one in Jinchangyu holds 8.555 metric tons, according to Yang Hongjie, an industry analyst with Haitong Securities.

"Although there are potential reserves yet to be discovered, Zhongjin has got a boost in its performance. The two gold mines will immediately account for about 1.7 metric tons of gold production in 2009, meaning a net profit increase of more than 50 million yuan for Zhongjin," said Yang.

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According to Haitong's estimates, with the two gold mines now part of the listed company, Zhongjin's annual gold production will reach 13.5 metric tons this year, and earnings per share (EPS) will jump 0.81 yuan.

An insider close to the matter told China Daily that the decision was actually made as early as the first half of last year, when Zhongjin decided to float 130 million shares in February 2008. "This is also Zhongjin's commitment to its shareholders. If everything goes smoothly after the transferred assets of the mines, the rest five will be done within this year," said the source.

Liu Minda, an analyst with Huatai Securities, said the less than 20 yuan paid for a gram of gold meant this was a good deal. "This is almost the same price that Zhongjin offered to purchase Shaanxi Jiusheng Mining last year. As the gold price is inching close to $1,000 per ounce, its market value is climbing as well."

Additionally, the deal will leave Zhongjin with a considerable profit margin, Liu added. "The cost of producing one gram of gold is about 130 yuan for Zhongjin Gold. Adding the 18.62 yuan in purchasing cost, Zhongjin will have up to 50 yuan as profit for one gram of gold production at the current price," Liu said. Gold prices closed at 208.69 yuan per gram on the Shanghai Gold Exchange yesterday.

"It usually takes five to eight years for a company to produce gold after discovering a gold mine. That can explain why they put the mines under the name of CNGGC initially, and transferred it to the listed arm once it was ready for yielding," added Liu. "This is the industry convention," he said.

Shares of Zhongjin leaped more than 23.78 percent over the past two weeks from 61.99 yuan apiece on May 15 to 76.73 yuan yesterday.