Bidding war underway for gold deposit

Zijin Mining Group Co. and China National Gold Group Corp. are preparing for an epic bidding war over the largest gold depostits in China.

Western Mining Co. and Shandong Gold Mining Co. are also in the race to develop the 308 metric tons deposit in the western province of Gansu, Hou Huimin, vice chairman of the association, told Tootoo.com.

China's demand for gold jumped 23 percent in 2007, as rising incomes spurred jewelry buying, making the nation the second-largest consumer. Bullion soared to a record in March, increasing competition for mines in China.

"China National Gold may be the top pick to develop the project because it's a big state-owned gold miner and enjoys a good relationship with local governments,'' Wang Feng, a Shanghai-based analyst at Everbright Securities Co. said. The companies may have to bid more than 6 billion yuan ($872 million) for the right to develop the deposit, he said.

Zijin, China's largest gold producer, gained 5.4 percent to close at 8.19 yuan in Shanghai trading. Shandong Gold, the third-largest, rose 5.2 percent to 46.15 yuan. Western Mining rose 7.6 percent to 15.23 yuan.


"The competition is so tense that no one is willing to give up and cooperate at this stage,'' Hou said. The provincial government of Gansu also wants a stake, he said.

The Yangshan deposit would be more than twice as big as Zijin's Zijinshan mine, currently the largest gold project in China, which has resources of 138 tons. The association didn't define the quality of the resource at Yangshan.

"It normally costs 20 million yuan per ton for the right to develop a gold mine in China, so this deposit, if later proved to be that big, may cost more than 6 billion yuan,'' Everbright's Wang said.

Freeport-McMoRan Copper & Gold Inc.'s Grasberg mine in Indonesia is the world's largest producing gold mine, according to London-based researcher GFMS Ltd. in April. The Grasberg mine has reserves of 39.4 million ounces (1,117 metric tons), according to the company's annual report.

Zheng Yuqiang, corporate secretary of Zijin wasn't available for comment. Western Mining spokesman Hu Handong and Shangdong spokesman Lin Pufang were not available. Li Yueqing, secretary to Zhongjin Gold Corp., the listed arm of China National Gold Corp., couldn't be reached for comment.