China’s Kingwell Group To Bid For Brazilian Gold (Jun 2013)

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Source: The Australian – China’s Kingwell Group to bid for Brazilian Gold

Notable excerpts:

CHINESE companies are snapping up overseas goldmines in their quest to become international giants like Canada’s Barrick Gold, even as prices for the metal hit a two-year low.

Driven by strong domestic demand for gold, Chinese miners are taking advantage of depressed company valuations to boost gold reserves by acquiring mines.

The challenge they face is that most of the mines large enough to pique their interest are either not for sale, are already developed with dwindling reserves or in politically unstable countries.

New significant mines are always harder to find and more expensive or in a more difficult political environment. If you are a latecomer, you are unlikely to ever become as big as an earlier participant,” said Viral Gathani, head of energy, natural resources and infrastructure investment banking at CIMB Securities in Hong Kong.

Despite a 17 per cent drop in gold prices this year, Mr Gathani also noted that valuations for miners haven’t come down. “Sellers still have robust valuation expectations,” he said.

Deal activity has declined since last year, but Chinese goldminers continue to buy mines as they count on a recovery in gold prices.

On Friday, Chinese goldminer Kingwell Group said it planned to make an offer for more than half of Brazilian Gold, a Canadian mining group with a major project in northern Brazil, taking the value of deals launched by Chinese companies this year to $US436 million, according to data provider Dealogic.

The total is a fraction of last year’s $US2.9 billion, but it is sharply higher than the $US260m worth of deals from Canada, where some miners are seeking to sell non-core assets in response to the decline in gold prices. The nation is home to Barrick Gold, the world’s biggest goldminer, as well its smaller rival Kinross Gold.

“Some companies have lowered their prices about 20 per cent to 30 per cent after the recent gold price correction,” said Kam Kit, managing director at Kingwell.

Kingwell, which owns goldmines in Russia’s Amur region and China’s Shandong province, remains optimistic about the gold market and is seeking overseas assets to boost its reserves. Mr Kam said he expects gold to rise to more than $US2000 a troy ounce in two to three years, arguing that loose monetary policy in Japan and Europe will likely support the market.

There have been other deals in recent months, too. In May, Shenzhen-listed Shandong Qixing Iron Tower Co agreed to acquire Australia-listed Stonewall Resources Ltd’s gold assets for $US140m.

State-owned Zijin Mining Group, China’s biggest gold producer by output, is looking to bid for three of Barrick Gold’s mines in Western Australia.

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