China’s Golden Silk Road

China has risen to become the world’s biggest consumer and producer of gold representing around 30% of world demand and now Chinese gold miners want to spread their wings and start snapping up foreign producers. Chinese firms are cash rich and looking to buy at a tough time for miners thanks to low gold prices ( and indeed most metals), which means there will be bargains to be found as firms struggle to stay solvent.

International gold prices are finally picking steam up since reaching a new low of below USD 1100 oz last December, but they remain cheap by historical comparisons. There is a belief among producers that the gold price will now continue rising so now is the ideal time to invest in the industry.

China’s most prominent gold miner – state owned Zijin Mining Group have already kick started this trend by buying a 50 per percent stake in the Papua New Guinea based Porgera gold mine which will further internationalise the firm’s portfolio, it already has operations in Russia, Australia and Tajikistan.

Where Zijin has led, others will surely follow, Shangdong Gold Group, Shaanxi Gold and Zhaojin Mining have consolidated domestically over the past few years and are now looking overseas to emulate Zijin. It is only a matter of time before it takes further stakes in operations in Southern and Central Asia and beyond.

The government’s promotion of its Belt and Road initiative across Eurasia should provide these miners with new opportunities, last year the government set up a USD 16 billion Silk Road Gold Fund. Shandong Gold Group and Shaanxi Gold Group will take 35% and 25% stakes in the fund respectively, with other private firms making up the rest. This new Fund will look to develop new mining projects, as well as the infrastructure around the precious metal’s distribution and gold related financial products. The Fund will neatly complement the Belt and Road’s chief aim of transforming economic cohesion, connectivity and infrastructure across Eurasia.

However Chinese gold mining abroad has a chequered history. Chinese artisanal miners in Ghana caused serious ructions when they were arrested in a remote part of the country and deported en mass (around 4000 people), after being found illegally mining there.

Further Chinese investment and control over the global gold market (and other resources) could raise hackles in many countries as resource nationalism rises its head, but when you have roads, rail and new infrastructure being built for you by your giant wealthy neighbour then it can be very difficult to say no.

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