China Could Pace Gold Production In 2014, Lack Of Transparency An Issue

By Alex Létourneau of Kitco News
Friday December 6, 2013 11:30 AM

(Kitco News) - With sagging gold prices weighing on gold mining companies’ operations, resources and reserves, analysts aren’t very positive regarding production highs in 2014.

While struggling gold miners will affect the production picture of countries, CPM Group’s senior commodity analyst Mu Li sees gold production out of China rising in 2014.

Li pegs gold production for 2013 coming out of China at 14 million ounces and expects that number to rise to 15.4 million ounces.

“We still expect a strong pace of production growth, especially Chinese gold production, mainly because the number of gold mines that came online this year and the past year, and that are continuing to ramp up to production next year,” Li said. “We also see a lot of expansion that will bring up production.”

Li noted that six mines came online in 2013 which added half a million ounces to the country’s production totals. She said those mines are continuing to ramp up, which will add to production.

However, other analysts are not sure what to expect with production coming out of China based on the speculative nature of what goes on in the country regarding metals.

“There’s not enough transparency on what they do, and you can only speculate,” said James Wilson, senior resources analyst at Morgans Financial Ltd. “My view would be that China tends to disappoint people generally; disappoint people on the forecast and then surprise on the upside.”

“In China, I’m still waiting for someone to show me where the big production’s coming from,” said Brent Cook, geologist and founder of Exploration Insights. “I would love to see a list of the top ten mines in China and what they’re producing. I’m not aware of any big mines, aside from a few big porphyry copper mines, any mines that are producing a lot of gold.”

Information regarding China’s gold mining outlook is not readily available and determining where the gold it produces comes from is difficult.

“There definitely is a scarcity of information from China because the reporting system is very different,” Li said. “The gold mining industry in China is more or less concentrated, so you do have a fair portion of production coming from the country’s top producing companies.”

Li notes some of the major producers as China National Gold Group, Xinjiang Xinxin Mining Industry Co., and Shandong Gold Group Co. Ltd.

“One thing to bear in mind is that the average scale of Chinese mines are not as large,” said Li. “There are a lot of small mines that produce 500 metric tons, so, these are relatively small, but you do see some of the bigger gold mining companies with quite a few small mines like these across the country.”

Cook remained skeptical.

“All the major mining companies went over there looking, I went over there as well, and no one to my knowledge made an acquisition, except for Eldorado and one company out of Australia, and no one found a big new ‘Carlin Trend’ or anything like that,” Cook said.

Citing a Natural Resource Holdings report which outlined 580 gold deposits over 1 million ounces in the world, Cook counted six coming from China.

“None are impressive, yet they are the biggest gold producer,” Cook said. “Something’s funny here.”

Wilson thinks that Chinese gold production could taper off in 2014 with China’s government reviewing more regulations for mining industry.

“I would actually not be surprised if gold production in China did plateau a little bit, more from a regulatory perspective and a cost of production perspective rather than a demand perspective,” he said.

Wilson alluded to more restrictive and ‘by the book’ mining regulations that could see costs rise for gold producers.

He also noted that China’s Plenums are looking to ease laws regarding the country’s Hokou system, a household registration system required by law to prevent people from different provinces owning land and housing in other provinces, as paving the way for more affluence among the Chinese people.

“What that’s going to do is make people vastly more profitable,” Wilson said. “There’ll be a lot more money flowing around in the system because farmers will be able to sell their land to developers, and because of that they’ll get more money for it and become more affluent.”

Wilson said that for a country with a culture that values gold as much as China does, it could significantly boost demand.

By Alex Létourneau of Kitco News aletourneau@kitco.com

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in precious metal products, commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.
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