Much that glitters will come from the east

Much that glitters will come from the east

China will become the world's largest gold producer by 2010, according to an industry “insider” at the Western China Mining Summit 2007.

Chinese production of gold increased by 162.8 tons to 247.2 tons between 1997 and 2006, a trend that has also been mirrored in other developing countries like Peru, Russia and Indonesia, according to Morino G. Pieterse, editor of Goldletter International, a gold investment report.

Meanwhile, gold production from traditional gold producing countries such as the United States and South Africa has steadily declined in recent years from 362 tons and 527 tons in 1997, to 251.8 tons and 291.8 tons in 2006 respectively. Across the board, gold output from traditional gold producing countries has fallen from 54.3 percent of global production in 1997, to 36.1 percent in 2006.

"China's gold output surpassed Australia's last year, is due to surpass U.S. production this year, and will surpass South African production within two years," Pieterse said, while investment in gold mining in China has rapidly increased over the last few years, rising from $5.1 billion in 2005 to $7.1 billion in 2006. "China is now dictating global markets, not the West. At the same time though, it's in China's interest that the U.S. dollar does not fall by too much," he said.

Steve Ryan, general manager of Oxiana, a precious metals company listed on the Australian Stock Exchange, commented that although local governments are sometimes unwilling to grant foreign companies access to very profitable mines, they are also unwilling to invest significant sums in prospecting and development. "There is plenty of room for exploration expansion by foreign companies in western China," Ryan said.

At present, China only attracts approximately 3 percent of global exploration investment, and given the relative lack of investment in western China, this figure can be expected to greatly increase in the next 20 years, Ryan said. One of the main reasons behind low foreign investment is a lack of confidence in China's legal structure, with western companies uncertain that their investment will be secure, particularly as mine investment can run into hundreds of millions of dollars.

James Moore, president and CEO of InterCitic Minerals, noted that the main problem was in the wording of Chinese mining law. "At the moment, the law states that a foreign company has 'priority rights' to a mine, if that was changed to 'full rights', foreign investment would flood into China almost immediately. However, it is more likely that there will be no change in the law, and it will take several foreign company success stories to increase foreign investor confidence in Chinese mine exploration," he said.

[Summarised from an article published by Interfax China Metals (copyright) 1 June 2007]