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Feb 2004 - New Mining Frontier

CHINA - Australia’s New Mining Frontier

It seems lately that almost every week or so a new “deal” is announced between either a Canadian or an Australian company and a group in one of the Provinces of China. There have been a few recent media comments about the restrictions on geological information available for perusal in any of the recent agreements. However, based on our experiences with Michelago (MIC) we have found any required information to be available in detail.

The Australian excitement towards China was started initially by Sino Gold just over a year ago, and investors can already now invest in two gold producers in the China / Mongolia region that are listed on the ASX, being Sino Gold (SGX) and Central Asia (CGX). That two should become three possibly as soon as June 2004 if Michelago completes its agreement with BioGold according to their current expected schedule.

The share performance by SGX has recently been disappointing, closing at $2.30 on 13 February 2004, and SGX may be wondering that perhaps they should have raised their recent monies in Hong Kong rather than at a >30% discount in Canada. A number of China’s gold producers have now listed in Shanghai and Hong Kong (explorers cannot list or use capital raising facilities there apparently because they need to have a 3-year production history). The most recent gold producer to list was China’s largest gold mine, the 300,000ozpa Zijinshan gold mine in Fujian province.

The Fujian Zijin IPO was 744 times oversubscribed and rose by 72% on its first day (23 December 2003) on the Hong Kong Stock Exchange when 410m shares traded for a total of US$278m. Gold Fields have a 1.4% investment interest (as part of an exploration agreement), which cost them US$7.7m at the IPO cost of US$0.425/share.

The best gold share performances in 2003 (Dec 02 to Dec 03) when measured in US$ were by exploration companies in Guangxi being London based Caledon Resources up by 28 times, followed by Michelago (equal second with a North American company) at 22 times. Michelago’s share price in fact rose 24 times to its peak in October 2003, and has started to recover again as the signing and anticipated approval of its SFJV’s approaches.

However, it is a fact that a number of Australian companies are beating a well-worn path through London to Canada for listing or raising monies. Two of the most recent “deals” by Australian unlisted companies have reputedly commented that they intend to initially list in Canada, being Robert Gardner’s (ex Gilt Edge and Adamus) Hightime Investments (has the Liba 2moz gold deposit in Gansu – see Table 1), and apparently Ian Burston’s (ex Portman and Aurora) Kismet Oberon (which has the Jinshan gold project, also in Gansu).

Some recognised Australian managers have already established Canadian based companies with Chinese interests, such as Steve Deans’ Spur Ventures that focuses on a phosphate deposit in Yichang, Hubei for fertiliser production. Apart from SGX and MIC raising monies in Canada, the new Leyshon Resources / China Metals merger over two properties (gold and copper-gold) in Heilongjang, are also expected to beat a path to Canada.

Not all the “deals” are gold related, or copper-gold related. In fact some of the recent ones have been more diverse such as Apex Minerals’ (AXM) Greenstone Mountain (copper-cobalt-nickel) although its Copper Mountain also in Xinjiang is copper-zinc-gold.

We have compiled a list (as shown in Table 1), of precious and base metal projects and operations mainly from www.ozmine.com.au, and a number of other different sources of agreements by Australian companies with groups in China that we are either aware of or have encountered. There are undoubtedly some that we have missed and certainly more coming.

A number of agreements with Chinese groups are expected to be announced during the coming months to June 2004, with market rumours along the lines of at least 5 Australian companies being involved. Possibly the agreements may even be fairly general like the chequered history of BKM (gold to resources to surfing to modelling to leisure bars and back to gold) and its link with Westralian Resources Pty Ltd to explore for gold in China.

Announcements are also expected from neighbouring countries too as in Kyrgyzstan (Central Asia Gold), Laos (recently by Argonaut Resources, along with further progress by Pan Australian and Oxiana), Mongolia (in which Ivanhoe has a further 8 copper-gold projects besides its well-known Oyu Tolgoi or Turquoise Hill), Myanmar and Vietnam.

Table 1. Australian Listed Company Projects in China

Disclosure and Disclaimer : This article has been written by Keith Goode, the Managing Director of Eagle Research Advisory Pty Ltd, (an independent research company) who is an Authorised Representative with Taylor Collison Ltd, and with his associates, holds interests in a number of the stocks mentioned in this article. The opinions expressed in this article should not be taken as investment advice, but are based on observations by the author. The author does not warrant the accuracy or completeness of any information and is not liable for any loss or damage suffered through any reliance on its contents.

  • Written by: Keith Goode
  • Sunday, 01 February 2004

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