China’s unending quest for gold aimed at meeting domestic demand

In March this year, top Chinese gold producer Shandong Mining announced it had discovered what is expected to be the largest gold mine in China, the Xiling gold mine in Shandong province. The company said the deposit has a deliverable gold resource of up to 550 tons after completion of exploration, and is worth $22 billion by today’s gold rates,

In April, Canada’s Barrick Gold, the world’s No.1 producer of the precious metal by value, sold a  50% stake in Veladero mines in Argentina  to Shandong Gold Group in a transaction worth $960 million.

Shandong is seeking up to $1.26 billion in loans to fund the acquisition of a 50% stake in Barrick Gold’s operation.

As part of the deal, the Shandong province-based gold miner will help Barrick move forward with the long delayed Pascua-Lama gold, silver and copper project, straddling the border between Chile and Argentina. Both companies will also evaluate additional investment opportunities in the area, known as the El Indio Gold Belt.

Close on the heels of Shandong’s Argentinian foray, a consortium of Chinese buyers led by Chinese private investment group Fosun International has decided to buy a 15% stake in Polyus Gold International, the largest gold miner in Russia.

Fosun and two subsidiaries, Hainan Mining and Zhaojin Mining, will pay $887 million for an initial 10 per cent stake in the company. The deal also includes a one-year option to buy an additional 5 per cent stake for $490 million. Fosun, led by billionaire Guo Guangchang, owns the Club Med holiday chain and the Cirque du Soleil entertainment business. Its investment in Polyus will be its first purchase in Russia.

The two companies hope teaming up can help take advantage of demand in China, the world’s largest gold consumer.

The Russian Polyus foresees using the capital for purposes such as developing gold mines. According to an announcement from Fosun International, Polyus is the largest producer of gold in Russia and one of the top ten gold miners globally by ounces produced. As of 2015, its total gold reserves amounted to 2,000 tons — the fourth largest amount in the world.

The company seeks to enhance synergy with its Shanghai-listed subsidiary Hainan Mining, which owns iron ore mines in China. According to the statement, investment in a world-class mining project will “accelerate the transformation of its business structure, and strive to become a resources group with global investment and financing capabilities.”

Data from the World Gold Council indicate that global demand for gold grew 2% year on year to 4,315 tons in 2016, of which 2,040 tons were for jewellery. China’s share was about 30% and highest in the world. Demand for gold is projected to grow steadily thanks to the country’s expanding middle class and Fosun’s investment is designed to strengthen its gold operations to keep up with increasing demand.

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