• Increase font size
  • Default font size
  • Decrease font size

Nov 2004 - Gold Producer

Could China become the world’s largest gold producer ?

The latest GFMS Gold Survey 2004 lists the top 5 gold producing countries in 2003 as a still declining South Africa (376t), United States (285t), Australia (284t), China (213t) and Russia (182t).

We have visited China about 3 times so far in the past year and produced research on Australian listed gold companies such as Berkeley Resources (BKY), Michelago (MIC) and Sino Gold (SGX), that can be seen and downloaded from the various company websites. These three gold companies have joint ventures in some of China’s current and potential major gold provinces in what has been a very steep learning curve for Eagle Research.

It is often stated that based on known exploration, 70% of China’s gold resources are refractory. However, this is a simplification, because refractory in a Chinese context means anything that is not free-milling/cip/cil, and hence includes by-product gold from base metal production. Of the current annual gold production of ~210tpa from China, only about 30t to 50tpa is believed to come from “refractory ores”, with the bulk of the production coming from the gold-rich Jiaodong Peninsular of the Shandong Province, which reputedly contains at least 25% of China’s 4,500t of measured (excluding potential) gold resources.

The geology of China can be broadly subdivided as having been influenced by 4 major cratons, namely Tarim in Xinjiang, North China, and Yangtze, with the fourth (Indian) along the southwestern border. The gold-rich Jiaodong Peninsular of the Shandong Province is believed to have formed due to the influence of the ne/sw trending Tan Lu fault which was particularly active in the Indosinian (270 – 208Myrs which led to the collision between the North & South (Yangtze) China cratons) and the Yashanian era (208 – 90Myrs, influenced by the subduction of plates beneath Eastern China), with the Yashanian granites intruding Late Archaean metamorphic rocks in the Jiaodong Peninsular.

Shandong’s gold mineralisation and/or remobilisation is believed to mainly have occurred during the Yashanian era of the Mesozoic, resulting primarily in two types of gold deposit, being the Linglong type (gold-quartz-sulphide veins) and JiaoJia type (shear hosted disseminated sulphides), with the sulphides dominated by pyrite. Four stages of gold mineralisation have been identified from pyrite-quartz to gold-bearing pyrite-quartz to gold-bearing sulphides and quartz to finally quartz-carbonate, with the middle two stages being the most prolific. The mineralised intrusions predominantly occur in the 3 types of granites shown in Figure 1, being the Linglong and Luanjiahe types of granite, and Guojialing type of granitoid.

The Shandong Province is literally littered with mines and headgears, ranging from a windlass through to a full-size Cassidy-style (KCGM) shaft such as at Xincheng, and yet quite often the shaft depths may only be ~300m to 400m. A mine as represented by one of the yellow dots in Figure 1 could quite easily consist of 3 or 4 shafts such as at Laizhou Jincheng’s Dongji or HeXi’s operations both of which we visited underground in early July 2004. Plans of the Jiaodong Peninsular resemble a pin-cushion with the greatest concentration of mines and shafts in such a relatively small area that we have ever seen in the world, possibly resemblant to some degree of turn-of-the-century Kalgoorlie.

The general perception is that China’s gold production comes from more than 1000 generally very small mines which is true to some degree. What is not really elaborated on is the size of the resources of the original mines. Admittedly the resources are not JORC, though there is some debate that they are in some ways possibly as good as JORC, especially once the mining industry moves to the approved United Nations classifications. However, some of the resources for the mines are given in Figure 1 where it should be noted that such resources on that plan are in fact totals and include what has been mined and what remains to be mined often only down to a depth of about 500m.

Also there is a perception that the China’s gold mines are still very primitive (eg the picture on page 61 of the AFR of 2 September 2004), whereas the reality is extremely different and covers a range up to relatively small producing underground gold mines where the standards are very high, well ahead of a number of mines in developed countries, such as at HeXi’s mine on the Jiao Jia fault in Shandong Province.

Up until that July 2004 visit, I had only seen the remnants of flying foxes at historical mine sites that were used to transport ore in steep canyons or terrains around the turn of the century, so it was interesting to see them in operation at Norwest’s phosphate mine in Sichuan Province. Driving through the canyon almost all types of hydropower station could be seen for generating enough power for each mine including dropping the water in a pipe down a near vertical cliff and then through a hydropower station.

On climbing up the steep scree slope and branch ladders it was a surprise to find a motorised loader, ventilation fan, ducting and jackhammers in the adit. The loader had been dismantled and carried or ferried up to use in each adit. The ore was transported in one-ton cocopan buckets to a tip and then gravity fed into trucks, which to maximise the amount of ore each truck could carry actually had 4 level high ore-stone-walls built up around the rim of the back of the truck.

In contrast, the HeXi mine in Shandong Province mines its orebody using the conventional cut-and-fill technique of stoping upwards using a cemented fill floor, except that HeXi applies it to a complex multiple stacked lode ore system that is a total of 190m wide by 300m on strike. There are three main structures at 40, 80 and 100 degrees with the stopes lines 30m apart and detailed geological sections 60m apart. HeXi uses front-end loaders, electric trains (drawing one-ton cocopans using an overhead cable), and supports ground conditions as and when required.

The HeXi mine has been subdivided into main levels at about 30m intervals with sublevels at 7m intervals, and the cement fill content is about 10% for the main fill, with each level additionally having a 50cm thick 25% cemented fill floor. HeXi has also re-started an open-cut above its main ore zone. Current production was down to about the 200m level, with our visit going to 220m below surface, and then returning up the main hoisting shaft that extended to about 270m below surface. The mine has been developed well ahead, with the decline extending to 680m below surface, and a new shaft was being sunk to a depth of about 760m. HeXi having already mined about 1moz, currently has an estimated life of 30 years based on resources of 7 to 8mt at 5 to 6 g/t for about 1.0 to 1.2moz.

Resources appear to often only extend to a depth of about 500m in many of China’s gold mines which seems to have been a perceived limit. The orebodies do continue down and are being mined deeper, but numerous old mines appear to have been closed or demolished on surface once they reached that level, and then a new mine opened elsewhere. The mines certainly appear to have been designed to provide labour and spawn other stand-alone industries as illustrated by HeXi having four subsidiaries that produce foodstuffs (biscuits, jellies, seafoods, tofu etc), fruit and vegetables, forestry and gold. HeXi’s “Zhaoyuan Inaco Foodstuffs” is in fact an operating SFJV between HeXi and an Indonesian company. HeXi is Berkeley’s JV partner.

Most of the mines we have visited appear to have only applied one of two mining techniques namely cut-and-fill or shrinkage stoping regardless of the ground conditions, which offers significant upside potential if say sub-level open-stoping could be applied. In Shandong Province, though the grade was variable in the mines visited. The mineralisation at HeXi is very similar to that at Dongji, with red/pink coloured potassium (K) alteration of the feldspars in the granite, and gold grades dependant on the pyrite stringers running through the granite.

The grade appears to be almost impossible to identify with no visible gold, as shown in and a walk up an incline through the ore zone at HeXi showed a grade of ~1g/t followed ~5m later with a grade of 3g/t and then a further 5m for a grade ~100g/t. In contrast we visited a stope at Laizhou Jincheng’s (Michelago’s JV partner) again with similar red/pink altered granite but with spectacular values of up to 15oz/t (450g/t or so). Also again it did not contain visible gold, with the values being in the matrix or in the pyrite stringers running through and across the granite, and sometimes forming nodules of pyrite.

The mines in Shandong Province are not refractory though they may need concentrating if they have a high pyrite content. This appears to apply mainly to Western Jiaodong, Eastern Jiaodong ore mineralisation appears to be more conventional gold-in-quartz such as at Kong Xi Shan (a JV that BKY has with Shandong BGMR’s 3rd brigade).

Other areas of China known (so far by us) as being non-refractory are most of the NE of China being Heilongiang, Hebei, Liaoning and Jilin, and then in the south : the eastern side of Guangxi (Golden Tiger (GTX)’s tenements in the Dayaoshan area), and some parts of Xinjiang. Refractory (arsenic – rich, requiring bacox/bactech or roasting (where still permitted) treatment ores appear to mainly be in the massive Golden Triangle Carlin-type area of Guangxi, Guizhou and Yunnan, Jianchaling in Shaanxi and appear to be in most parts of Xinjiang.

Sino Gold’s new 3 to 5moz open-cut and then underground Jinfeng mine in Guizhou Province is expected to be in production in 2006 at initially 200,000ozpa and may be increased up to 350,000ozpa. Placer Dome has recently announced a US$300m deal with the 100t gold resource mine at Lingnan (see Figure 1, north of Shandong Province’s gold-city - Zhaoyuan). There is speculation of a new IPO consisting of up to 10 gold mining companies in Shandong Province raising up to US$300m for initial production of about 200,000ozpa to be listed in Hong Kong, to add to the spate of Chinese gold mine company listings over the past year, with a number of individual others in the pipeline to be listed.

The scene is set, bring in the Australian (and other countries) geological and mining techniques and take China’s gold mines up to the typical production rates achieved by those country’s companies, and yes China could easily become the world’s largest producer of gold. Fortunately the GFMS have also forecast gold demand in China to increase to perhaps 600t per year within the next 10 years.

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 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.

Figure 1. Gold Mines of Western Jiaodong in Shandong ProvinceGDNnov04

  • Written by: Keith Goode
  • Monday, 01 November 2004

Kitco Spot Gold Price

   Click Chart for Spot Gold Price[Most Recent Quotes from www.kitco.com]

Stock Quote

  (Add .ax for ASX)