China Gold Report update April
2005
China has emerged as the world's 4th largest gold producing country
Marino Pieterse
Goldletter I N T E R N A T I O N A L
Apr 5, 2005
 China has been a producer of gold for centuries and
also has a history of usage that stretches back to antiquity.
The gold industry has depended entirely on State investment since
1949, when the People's Republic of China was founded. Domestic
private and foreign investors were excluded from the industry.
Driven by domestic demand the government invested heavily in
the mining industry in the 1990's and as a result Chinese gold
production has risen significantly to a level where it has overtaken
Canada as the world's fourth largest producer since 1998. Official
gold production in 2004 was 212.3 tonnes, up 11.75 tonnes or
5.9% year-on-year, although non-official and mostly informal
mining, probably means that the total production figure was higher.
About 160 tonnes comes from primary gold mines and the remainder
from various nonferrous smelting entities.
According to GFMS, consumption of gold in 2003 was 207 tonnes,
making China the fourth-largest gold consumer in the world. Per
capita consumption of gold is only 0.16 grams, much lower than
the world's average of 0.7 grams. Gold jewellery is the most
promising sector in the gold industry. About 250 tonnes of gold
was used to make jewellery in China in each of the recent years,
which number is expected to soar to 500 tonnes in three to five
years.
In the past little has been known about the workings of the Chinese
gold industry. Production (and consumption) figures have been
shrouded in secrecy. However, with the largely successful change
in government policy in switching its planned economic system
to a market economy, China's entry in the World Trade organisation
and the recent deregulation and reformation on the mining and
miners laws in China, foreign investment can be viewed as having
less political risk. China has maintained a double-digit economic
growth for the last few years and is considered the fastest growing
economy in the world.
Gold occurrence
Advanced stage precious metals and base metals projects exist
in China. Large areas of mineral lands with potential exist and,
as a result, there has been a steady growth in the number of
foreign mining companies doing business in China. Despite the
recent surge, the gold industry in China remains fragmented,
archaic and undercapitalised. The China Geological and Mineral
Survey Bureau estimates the gold resources of Chinese ten major
provinces to be over 11,000 tonnes and the country's prospective
gold resources at around 15,000 tonnes.
According to statistics of the China Mining Association, Shandong
Province in east China is the richest area (approximately 40%
of total proven reserves), followed by Shaanxi, Sichuan, Gansu,
Yunnan and Guizhou.
Production today is centred on the eastern provinces of Shaanxi,
Shandong, Henan, Hebei, and Liaoning where 70% of known gold
deposits are located. However, since 1994 Fujian Province has
become a major producer with the opening of the country's largest
mine, Zhijinshan, working an epithermal copper-gold deposit.
About 50% of gold in China occurs in quartz-gold vein structures,
with another 17% occurring in placer deposits and the remainder
is found in polymetallic deposits, often in association with
copper.
Most of China's production comes from small, underground mines
with little mechanisation. There are thought to be over 1,200
small to medium sized mines in operation throughout the country,
equal to approximately 70% of total gold deposits and representing
25-30% of total proven reserves, with the largest mine producing
in the region of 100,000 oz annually, although the annual average
is closer to 16,000 oz.
Under a 5-year industry plan, the government hopes to form 12
internationally competitive gold conglomerates by 2005.
A joint study by the United States Geological Survey and the
Tianjin Geological Academy from 1997 to 2002 identified and reviewed
over 160 gold occurrences in China. Within the category of sedimentary
hosted gold deposits (a broad category including Carlin style),
over 20 million ounces of resources have been identified in China
versus over 70 million ounces in Nevada.
Most of the Nevadan ounces were discovered in the 1970's and
1980's post the recognition of this style of mineralization where
as the major exploration push in China began even later in the
1980's.
The largest deposits of this style discovered to date in China
include Lannigou (> 3.2 million ounces) and Baguamiao (>
2.5 million ounces) but exploration has generally been neither
well funded nor extensive. Most reserve definition programs are
limited.
China's national gold industry
Control and ownership of many of China's largest mines is vested
in the State and administrated through the China National Gold
Group Corporation (CNGC). First established in 1979 and then
reorganised in 1993, GNGC, operating under China Gold Group,
controls the major gold mines in seven out of eight main producing
provinces. The GNGC officially controls 450 mines. CNGC's assets
total 9 billion yuan (US$ 1.1 billion) with 61 affiliates across
China.
In 2004, CNGC produced 42 tonnes, a year-on-year increase of
25%.
The one exception to GNGC's jurisdiction is the most important
producing province of Shandong, which accounts for 20-25% of
Chinese gold production. In Shandong, the largest gold mine Zhaoyuan
has an annual production of approximately 75,000-oz. The Zhaoyuan
group consists of nine mines with a total annual output at about
500,000-oz.
In Shandong and elsewhere, all other production is under the
control of provincial, regional or local mining companies. Many
operations are collective run by townships or villages.
China refines its own gold and many mines have refineries
attached to them.
The buying and selling of gold in China has been centralised
since 1983 at ministerial level. All gold production in the country
had to be sold to the People's Bank of China (PBC), which as
the only official institute technically controlled mine purchases
and sale of gold to retailers.
As well as being the repository of all Chinese miner gold, the
PBC was responsible for setting the price paid to the local miners.
From 1995, the Chinese domestic gold price was floated at a discount
of 10% below the international price, although since 1999 it
has more closely tracked the world price.
The move to bring the local gold price in line with the international
price, occurred from recommendations by the World Gold Council
(WGC) in 1998 as part of a timetable for deregulation of the
market, there motivated by China's acceptance into the World
Trade Organisation at the end of 2001.
The official opening of the Shanghai Gold Exchange (SGE) on 30
October 2002 heralded the start of a new era in the gold market
in China, and is further evidence of the intention of the Chinese
government to deregulate the precious metals markets. Gold trade
volume on the Shanghai Gold Exchange amounted to 665.3 tons last
year, up 41% from 2003. Its gold trade volume surged by 59% year-on-year
to US$ 8.83 billion. China Gold Association was formally founded
in November 2001, with 70 enterprises as standing directors,
and 256 enterprises as directors. ...
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Marino
G. Pieterse
Goldletter I N T E R N A T I O N A L
Goldletter International is published monthly
by Marino G. Pieterse, Gold Research Centre, Castricum, the Netherlands.
Information and investment comments are independently and thoroughly
researched and believed correct. No guaranty of absolute accuracy
can be given however. Investment decisions are fully made for
own risk. Editorial address: P.O. Box 200, 1900 AE Castricum,
the Netherlands tel.:+31-251-320735 fax: +31-251-321110 e-mail:
info@goldresearchcentre.com
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