Gold Fields Enters Chinese Mining With Aussie Operator Sino Gold

---

Researched by Industrialinfo.com (Industrial Information Resources Incorporated; Houston, Texas). The Chinese government, through its ministry of land and resources, is making positive signals and statements to encourage foreign firms to be 'optimistic' about investing in China's mining sector. They claim to be working to overcome investment disincentives such as poor guidelines, limited geological data, and a lack of market mechanisms for mining rights.

One aspect of China's mines which needs attention is the terrible safety record. An estimated 10,000 miners die each year in accidents. Many mines are relatively primitive with poor infrastructure and rely on the support of cheap labor which is willing to take risks for above average wages. Thousands of unregulated mines have been closed in recent years but many of these have reopened after inspectors have left and local officials have been bribed. China has a vast number of mines, ranging from huge state concerns to tiny pits run by private owners or local townships.

The ministry says that it is willing to protect the interests of foreign investors in mining in ways reflecting international norms. Regulations will be revised to give mining firms guaranteed rights to exploit new deposits that they discover.

One company that is making headway in the Chinese gold mining sector is the Australian company Sino Gold, which intends to list on the Australian Stock Exchange in November. Gold Fields of South Africa (JSE:GFI) (NASDAQ:GOLD) (Johannesburg, South Africa), the world's fourth largest gold miner, along with financial based companies Colonial First State, International Finance Corporation, and Standard Bank London, has taken a combined $36 million stake for an aggregate holding of around 40% in Sino Gold. The anchor shareholders give Sino Gold added clout and credibility as it heads for the listing.

The deal gives Gold Fields access to lower cost production outside South Africa and a small, manageable and strategic entry into China that it has been seeking. China is the world's sixth biggest gold producer after South Africa, USA, Australia, Indonesia, and Russia. Last year China produced 165 tons of gold.

Gold Fields currently produces 4.3 million ounces per annum while Sino Gold produces 100,000 ounces per annum from the Jianchaling underground mine, which is the first and only internationally managed and operated mine in China. It has a gold resource of about 222,000 ounces of recoverable gold. Jinfeng, the company's second mine, will produce 200,000 ounces per annum. Sino Gold has or is negotiating interest in other gold projects which could add around 250,000 ounces per annum and would see it over the 500,000 ounce per year mark. It is also looking to recover nickel sulphide from the footwall of the Jinchaling deposit and produce 4,250 tons per annum of contained nickel and 150 tons per annum of contained cobalt in the concentrate. The deposit currently contains a resource of 5.4 million tons of ore with a grade of 1.14%.

Gold Fields bought the St. Ives and Agnew gold operations in Western Australia in 2001 at what was thought locally to be an above top price of $233 million. Both mines have done very well with Agnew producing 199,000 last year and giving the South Africans the pleasure of putting one over the Australians. They are hoping the Sino Gold move will have equally beneficial results, this time in a team including with the Aussies.

Sino Gold was formed in 2000 when it was spun off from the state owned Sino Mining International along with broker Refco International. Each retains 16% of the company.

Central China's Hunan Province is also open to foreign investment. This region is one of China's most important nonferrous metal mining areas. Gold and stannum, which is widely used in homeopathic medicine, are the main focus of the invitation from Hunan which hitherto has had few dealings with foreign enterprises. Competition is likely to be limited because of the risk and considerable investment required. The Hunan provincial geology and mineral resources prospecting and developing bureau is not opening the project to public bidding or auction, but it will do everything necessary to protect the rights of foreign investors in accordance with international practices (the central government and region are singing from the same score).

Once positive results are obtained, the bureau will allow foreign investors either to buy the developing rights or conduct follow-up development through a joint holding company with the bureau. A South Korean company, with a $247,200 contract, is already prospecting for lead and zinc and expects results in November.

In the past few months, it has become common cause that the road to ruin is to follow the dream of sheer demographical and geographical size when entering the Chinese market in any sector. Rather make sure that your own vision and operating style is strong and sturdy, start with local knowledge and assistance, and grow from a point of high quality activity. This is what Sino Gold and Gold Fields are doing and what Hunan is offering.