Zijin Mining's world-class gold mine is finally about to resume production

Interface News Reporter | Wang Yong

Interface News Editor |

Zijin Mining (601899.SH/02899.HK), once the largest producing gold mine, is finally about to resume production.

On the evening of December 11, Zijin Mining announced that its Bogra gold mine in Papua New Guinea (hereinafter referred to as PNG) has recently reached all the prerequisites required for full resumption of production, and will officially start production on December 22, and the first batch of synthetic gold is expected to be produced in the first quarter of 2024.

The mine was officially shut down in April 2020 and is one of the top 10 gold mines in the world. After more than three years of "tug-of-war" negotiations, the gold mine has finally settled with a happy outcome for all parties.

The suspension of production was due to the expiration of the mining rights and the rejection of the extension application.

In 2015, Zijin Mining established a joint venture with global gold giant Barrick Gold Corporation (hereinafter referred to as Barrick Gold Corporation) for US$298 million, with each party holding half of the equity and jointly holding a 95% stake in the Bogra Gold Mine, which is equivalent to Zijin Mining obtaining a 47.5% interest in the Bogra Gold Mine.

Hua Chuang Securities said that the acquisition of the rights and interests of the Bogra gold mine represents Zijin Mining's entry into the ranks of the world's leading mining industries. In 2017, the Bogra Gold Mine contributed 7.47 tonnes of attributable gold production.

Prior to the shutdown, the Bogra mine had become Zijin Mining's largest active gold mine, contributing 8.8 tonnes of attributable gold production in 2019. As a direct result of the shutdown, Zijin Mining's gold production in 2020 was lower than in 2016.

In August 2018, the mining rights of the Bogra Gold Mine expired. According to the PNG National Court's ruling, the Bogra Gold Mine can continue to produce until the PNG government makes a decision to extend the mining rights, but on 24 April 2020, the PNG government decided not to approve the application for the extension of the special mining rights of the Bogra Gold Mine, and said it would form a national negotiating team to negotiate the next steps.

Bogra incident combing chart source: Minsheng Securities

Zijin Mining said that BNL has been in close discussions with the PNG government and local landowners for more than three years on the extension of mining rights to secure a new cooperation plan.

Until October 2023, BNL was officially granted a special mining lease by the PNG government. Under the new cooperation plan, the new shareholders of the Pogra gold mine will be 51% owned by PNG stakeholders (local landowners, Nga provincial government, etc.), with BNL holding the remaining 49%.

This means that after the intervention of relevant parties in PNG, Zijin Mining indirectly holds a 24.5% stake in the Bogra Gold Mine, a decrease of 22.5 percentage points.

In addition, according to the announcement, the economic revenue share of the PNG parties and BNL over the total mine life of the Pogra gold mine is 53% and 47% respectively. The economic revenue share is calculated based on the cash flow distribution, and the economic share enjoyed by the relevant parties of PNG includes government taxes and fees, dividends from the project company and other cash distributions.

According to a new article published by Zijin Mining, this means that most of the economic revenue share of the PNG parties will come from the pre-tax income of the project company, and the distribution of after-tax profits by the PNG parties to the project company will be reduced, and the proportion of after-tax profits that can be distributed by Zijin Mining and Barrick is expected to exceed the equity ratio.

Under the agreement, BNL remains responsible for mine operations at the Pogra Gold Mine. According to BNL's latest plan, the Bogra Gold Mine has a gold resource of 417 tons, and after the resumption of production, the mine is expected to produce an average of 21 tons of gold per year, and the remaining life of the mine is more than 20 years.

Based on Zijin Mining's 24.5% interest in the Bogra Gold Mine, the annual gold production attributable to Zijin Mining is approximately 5 tonnes.

Zijin Mining believes that the new cooperation plan will reduce the artificial uncertainty of the mine's future and ensure long-term stable production during the mine's 20-year operation cycle. In the current economic downturn and the price of gold at historically high levels, this is the greatest common divisor in the interests of all parties.

As of December 12, the Shanghai gold futures contract closed at 469.9 yuan / gram, down 0.44%, and the New York Stock Exchange gold futures closed at 1997.6 US dollars / ounce on December 11, down 0.84%, still at a high level.

The resumption of production at the Bogra Gold Mine will be a new increment in Zijin Mining's return on investment. According to the announcement, Zijin Mining has already recovered the investment cost of the project long before the Bogra gold mine was shut down.

Zijin Mining is China's largest gold producer, and its outbound acquisition process alternates between expansion and dormancy.

Before 2009, Zijin Mining was in a period of domestic expansion, starting with Zijin Mountain Gold and Copper Mine, and successively acquired Guizhou Shuiyindong Gold Mine and Jilin Hunchun Shuguang Gold and Copper Mine, but faced a decline in gold mine production in 2010.

From 2012 to 2016, Zijin Mining officially began overseas mergers and acquisitions, and its representative projects were the acquisition of the rights and interests of the Left Bank Gold Mine in Kyrgyzstan, Norton Gold Field Company in Australia, and the Bogra Gold Mine in Papua New Guinea, but after 2017, Zijin Mining was dormant again due to the lack of gold resources in the Zijin Mountain Gold and Copper Mine, the suspension of production of Longnan Zijin due to mining licenses, and the suspension of production of the Bogra Gold Mine.

In late 2019 and early 2020, Zijin Mining made another move, quickly acquiring the Buritica gold mine in Colombia and the Aurora gold mine in Guyana in South America.

Among them, the Buritika gold mine was put into production rapidly, surpassing Zhongta ZGC to become the largest gold mine in Zijin Mining in 2022, contributing 7.68 tons of output.

But the mine was hit by multiple attacks in May. On 17 May, two people were killed and 14 injured in a bomb attack on the Buritika gold mine, and on 30 May, a new attack was carried out on the mine, in which a vehicle modeled Robojet Alpha 30 was cremated and a hybrid vehicle was burned.

Zijin Mining recently said that although the Buritika gold mine in Colombia has been affected by the disruption of illegal mining on the periphery, the project has been operating at full capacity according to the maximum cap since the acquisition. Up to now, the Buritika Gold Project is operating normally, setting a new gold production record in a single month in November 2023, which is expected to exceed the planned production target for the whole year.

Zijin Mining also said that it is actively studying international investment protection agreements and intends to protect its rights and interests through the legal channel of international arbitration.

As of the close of trading on December 12, Zijin Mining fell 0.43% to close at 11.62 yuan, with a market value of 305.9 billion yuan.