Further to the last item above, China is getting very active in the gold space.
Rumors had been circulating the past year of big international expansion plans from China’s gold miners. And this week’s mega-deal between Shandong Gold and Barrick shows it’s go time.
Yarra Square Partners returned 19.5% net in 2020, outperforming its benchmark, the S&P 500, which returned 18.4% throughout the year. According to a copy of the firm's fourth-quarter and full-year letter to investors, which ValueWalk has been able to review, 2020 was a year of two halves for the investment manager. Q1 2021 hedge fund Read More
(Another key point: China has been “money off” in terms of outgoing investment the last few years — due largely to an anti-corruption drive in the country. But reports from Hong Kong a few months ago showed that cash was building up on mainland for a new international investment push. Gold may be one of the first sectors showing the taps are indeed on again.)
We know that China’s miners have a lot of money for new projects. But this week’s deal on Barrick’s Argentina and Chile assets was critical for another reason — showing that Chinese gold firms are stepping out geographically.
Up until now, groups like Shandong Gold and Zijin Mining have been focused largely in their backyard. Doing deals in places like Papua New Guinea and Australia. Just last month, I was in Southeast Asia on a property that Shandong is looking at for investment.
Zijin made a step-out when it bought into Ivanhoe Mines’ Kamoa project in the DR Congo. But Shandong Gold going all the way to Latin America this week is the biggest leap yet.
That suggests it’s now fair game for Chinese gold investment around the world. So where might be next?
As I discussed yesterday, Shandong Gold’s deal with Barrick plays to the strengths of both companies. Barrick made some very good technical discoveries in Latin America, like Pascua Lama. And Shandong has the capital and patience to develop these high-cost, politically-challenging projects.
If high-cost and challenging is indeed the sweet spot for incoming China firms, it’s tempting to think that the world’s giant, low-grade gold deposits might be the next targets. Especially in light of Goldcorp’s move this week to buy into the Cerro Casale and Caspiche deposits in Chile — which hold tens of millions ounces, at about 0.5 grams per tonne average grade.
But history isn’t on the side of the low-grade projects. With Chinese companies having traditionally favored grade over size. Some of the first international acquisitions made by Zijin Mining were small, high-grade pods in Australia.
The tendency toward higher-grade ores may spring from China’s mining history. Which doesn’t have the same track record of low-grade project development that Western firms do in places like Nevada.
To be sure, the Valedero mine that Shandong Gold bought into this week isn’t a high-grade operation. But for a bulk tonnage mine, it’s not bad — at around 0.8 grams per tonne.
And there may be another aspect that attracted China to this project.
Barrick has recently been under the gun at Valedero — with the mine facing possible suspension from Argentina environmental authorities after a pipeline leak.
Having China as a partner will be helpful for Barrick. With Chinese firms tending to have a lot of government-to-government support coming behind them — often making regulators more forgiving.
China’s gold firms won’t enjoy that kind of political clout in popular investment destinations like the U.S., Canada and probably even Mexico or Peru.
Scratch those countries from the go-to list, and where’s left for China’s gold miners to look for asset purchases from Western firms?
Here are some potential spots that fit the bill — established gold projects with good grade, in places where China’s government influence is an asset.
Recent political turmoil and a state budget crisis should make Brazil’s lawmakers receptive to incoming investors. The country has a long gold mining history, and some great prospects. AngloGold’s Cuiabá complex (average grade 5.6 g/t) or Yamana Gold’s Jacobina (2.9 g/t) could be targets.
Another spot where the government badly needs foreign investment. AngloGold’s Cerro Vanguardia is a perfect candidate — the aging mine needs sustaining and development capital, but holds a high-grade, open-pit resource grading over 6 g/t.
Western majors have largely moved on from Tanzania’s gold sector — and firms might be very willing to sell remaining assets here, such as AngloGold’s Geita mine (2.8 g/t). The Tanzanian government has also been agitating miners over taxes and export rules, which may speed the exit of the West and play into China’s government-to-government prowess.
Here’s a key question: how long will it take before China’s gold miners start buying junior developers? Right now, Chinese firms are largely sticking to partnerships with big mining companies — but the logical next step after gaining experience is to buy new deposits full-out.
Time will tell. Watch for the next moves from gold companies like Shandong, Zijin and beyond. The rise of these investors is changing the face of the global gold mining sector.