The ASIA Miner electronic news service continues this week to provide extracts from Goldletter International"s report on China"s gold industry. In the Third Quarter July-September 2007 issue of The ASIA Miner magazine, we present Marino Pieterse"s overview that China will emerge as the world"s largest gold producer by 2010.

This week we present the topic of China"s major national gold producers from Goldletter International.

China National Gold Group or China Gold, is a large-scale, state-owned enterprise. As an investment organization authorised by the central government, China Gold directly reports to the government and is also a pilot company of which the government is a sole shareholder.

Being the earliest company mining gold in China, and processing total assets of more than 10.2 billion Renminbi (US$800 million), China Gold has rich management experiences and strength in technology and capital. China Gold has its gold operations all over China and contributes 20% of total gold production in China. It controls more than 30% of the total reserve in China, which guarantees its promising prospects.

According to 'Gold Review 2007', published by GFMS, London, China Gold is ranked in 9th place in the world with production of 45.7 tonnes of gold.

On July 30, 2003 Zhongjin Gold, 57%-owned by China Gold, became the first listed company in the nation's gold industry after it launched an initial public offering (IPO) on the Shanghai Stock Exchange. The company issued 100 million shares at a price of 4.05 yuan (US$ 0.49) per share. The IPO earned 388 million yuan (US$ 46.7 million) in proceeds, excluding issuance expenses.

Zhongjin Gold, based in North China's Tianjin Municipality, produced 6.3 tons of gold from its mines in 2006, and refines and processes approximately 30 tons of gold a year. Production may climb to 4.8 tonnes in 2007. Zhongjin also controls 51% of Hubei Sanxin Gold Copper, which owns two large gold deposits, Jiguanzui and Taohuzuazui, both of which are skarn type. Ore reserves are 20.93 tons, including 50 tons of gold, 360,000 tons of copper, 5.47 million tons of iron ore and 1.81 million tons of troilite.

Hubei Sanxin has a mining and processing capacity of more than 600,000 tonnes of ore every year; daily capacity is 1800 to 2000 tonnes. The annual production of mining gold is 1 tonne, copper 9000 tonnes, iron ore concentrate 70,000 tonnes, sulphur concentrate 30,000 tonnes and mining silver 4 tonnes. As of year-end 2005, Zhongjin had a reserve of 60 tonnes (1.9 million ounces) of gold and 30 tonnes of copper.

Zhongjin recently announced that it plans to raise as much as 4.4 billion yuan (approximately US$340 million) in a private placement this year to buy mines from its controlling shareholder, state-owned China Gold.

On December 22, 2003, Fujian Zijin Mining Industry, based in the eastern Fujian Province, made its debut on the Hong Kong Stock Exchange. The retail tranche of its IPO was 744 times oversubscribed and priced at HK$3.30 per share. Due to the huge investor interest, Zijin lifted the retail portion of its offering to 50% from 10%. Zijin raised HK$1.15 billion by selling 348.3 million shares.

In January 2004, Zijin and Gold Fields announced a strategic partnership by which Gold Fields bought about 18 million shares out of 318 million issued in the initial IPO of Zijin on the Hong Kong Stock Exchange. This was equal to roughly 5.7% of the company's float of 27% and represented a value of US$7.73 million.

The company changed its official English name to Zijin Mining Group in June 2004, as its business is not limited to Fujian Province. As China's largest gold producer, Zijin, operates six gold mines, including the largest open pit operation in China - Fujian Zijinshan Gold Mine - as well as the Guizhou Shuiyindong Gold Mine and the Jilin Shuguang Gold-Copper Mine.

Zijin produced 49.3 tonnes of gold (673,864 ounces) in 2006, including 20.7 tonnes of mine produced gold, representing almost 9% of China´s total gold output. Profits recorded by Zijin were RMB 1.7 billion representing more than 20% of the total profit recorded by the gold industry in China.

At the end of 2006, Zijin controlled gold resources of about 455 tonnes or 14.5 million ounces (including 57 tonnes gold associated with other metals), platinum and palladium of about 151 tonnes, copper of about 6.7 million tonnes, zinc of about 2.38 million tonnes, nickel of about 0.54 million tonnes, lead of about 0.4 million tonnes, molybdenum of about 0.26 million tonnes, tin of about 0.1 million tonnes, iron of about 188 million tonnes, and coal of about 300 million tonnes.

At the end of 2006 the Group had 179 mine exploration rights, covering an area of 5972sqkm.

Zijin is involved with three overseas mining projects, including the Rio Blanco copper mine in Peru (through the recent acquisition of Monterrico Metals), a laterite nickel project in Myanmar and the Blue Ridge platinum mine and Sheba Ridge polymetallic mine in South Africa through the purchase of a 29.9% equity interest in London-listed Ridge Mining.

Lingbao Gold, based in Henan Province, is principally engaged in gold mining and smelting. The company was listed on the Hong Kong Stock exchange on January 12, 2006. At an IPO price of HK$3.33 net proceeds from the sale of 297.3 million shares or 38.59% of the enlarged capital, was approximately HK$834 million (US$107 million).

In 2006, Lingbao produced approximately 333,500 ounces of gold and net profits amounted to RMB 219.8 million (approximately US$28.5 million). Lingbao mainly extracts its mineral resources in Henan, Xinjiang and Jiangxi. The company, with 40 mining and exploration rights, had gold reserves of approximately 3.5 million ounces as at the end of 2006. It has earmarked RMB 60 million (US$4.8 million) for further expansion and acquisitions and is continuing to identify suitable acquisition opportunities.

In August 2006, Lingbao purchased an 80% controlling interest in a mainland mining company for RMB 68.64 million (HK$67 million), in a move aimed to gain a foothold in Inner Mongolia. The company is acquiring the majority stake in Chi Feng City Zheng Ji Mining, which has exploration rights in Kalaqin Banner County. Recently, Lingbao entered into a Letter of Intent pursuant to which the company was granted an option to acquire certain equity interests in Shaanxi Jiusheng Mining Investment Company.

Zhaojin Mining Industry, controlled by China Gold's affiliated company

Shandong Zhaojin Group (37.3% interest), was successfully listed in Hong Kong on December 8, 2006 and issued 198.7 million shares for proceeds of HK$2.4 billion. Zhaojin Group is in East China's Zhaoyuan district of Shandong Province and can annually process 25 tonnes of gold. It holds 300 tonnes of gold reserves, and its potential reserve is over 1000 tonnes covering approximately 10% of China's total national reserves.

Zhaojin has five operating mines - namely Dayingezhuang Gold Mine, Jinchiling Gold Mine, Xiadian Gold Mine, Hedong Gold Mine and Jintingling Gold Mine. The company achieved a record aggregate gold production in 2006 of approximately 503,000 ounces, representing an increase of 25% compared with the previous year. The annual sales revenue amounted to RMB 1164 million (US$150 million). Under the Australian JORC, lode reserves as at June 30, 2006 were 4.2 million ounces. In addition, Zhaojin has mines under construction in Hainan and Xinjiang.

Marino Pieterse was a key presenter at The ASIA Miner Investing in Mining Conference held in Sydney in May. His topic explored the opportunities of investing in gold. For more information on Goldletter International go to www.goldletterint.com or e-mail: info@goldletterint.com