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China’s largest gold miner, Zijin, is expanding into ‘streaming’ of precious metals in a bid to secure more bullion supply at a time of skyrocketing prices.
Streaming is a type of mine financing in which an investor makes a payment to a mine in return for a share of future production. The managing director of Zijin’s investment subsidiary said its new streaming fund — the first from a Chinese mining company — is looking to do deals in Africa and South America, and wants to deploy between $200mn and $400mn this year.
“We’re trying to find quality resources that are undervalued,” said Lisa Liu, managing director of Gold Mountains Asset Management, a Hong Kong-based subsidiary of Zijin. “We are really bullish on gold prices,” she added.
Gold prices have risen 27 per cent this year, repeatedly setting new record highs as investors have sought safe haven assets amid the turmoil caused by US trade policy.
State-backed Zijin Mining Group, which is dual listed in Hong Kong and Shanghai, is the world’s sixth-largest gold producer, as well as a significant producer of copper, zinc and lithium.
The $68bn market cap company has been on an international expansion drive in recent years.
It owns stakes in copper and gold mines ranging from Serbia to Colombia, Australia and the Democratic Republic of Congo, and recently invested in lithium with a project in Argentina.
Its asset management unit was set up in 2013 and manages more than $5bn. The unit did its first streaming deal last year and says the financing model offers “very attractive” rates of return, if gold prices remain high, while mitigating some of the risks that come with directly operating a mine.
The gold mining industry has been underinvesting in new projects, Liu said, expressing concern about long-term supply because of declining concentrations of gold in ore.
“Under-investment has been a huge problem . . . It’s really hard to find quality projects,” said Liu, who is a geologist by background.
“The quality of gold mines . . . they’re all decreasing,” she added, but said that Zijin’s expertise in mining gave it an edge over other streamers, an industry traditionally dominated by Canadian groups.
Gold mines have a shorter reserve life than those of base metals — non-precious metals such as copper and zinc — said Michael Widmer, head of metals research at BofA. “Miners are constantly in the business of having to replenish the reserves,” he said.
In October, Zijin teamed up with streaming specialist Wheaton Precious Metals on an $825mn financing deal for a mine in Côte d’Ivoire run by Montage Gold. They provided $125mn in financing, and $75mn for a gold stream.
In April they also committed $25mn to a gold stream deal with TongGuan Gold involving a gold mine in Gansu province, central China.
Around the world, gold mining companies are struggling with depleted and lower grade ores, a problem also faced by copper miners.
Last year, global mined production of gold reached a record high, according to data from consultancy Metals Focus, and is expected to reach another record this year.
