Shanghai Pushing Gold to $1,600 Thwarts Fight to Shut Mines

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A golden rooster sits on display at the center of a new town square in Yuling, Henan province, China.

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Photographer: Nelson Ching/Bloomberg

A golden rooster sits on display at the center of a new town square in Yuling, Henan province, China. Close

A golden rooster sits on display at the center of a new town square in Yuling, Henan province, China.

Photographer: Nelson Ching/Bloomberg

A gold figurine of Mao Zedong, former leader of China is displayed at Caishikou Department Store in Beijing. Close

A gold figurine of Mao Zedong, former leader of China is displayed at Caishikou Department Store in Beijing.

Photographer: Nelson Ching/Bloomberg

Gold ingots are displayed at a store in Beijing. Close

Gold ingots are displayed at a store in Beijing.

Photographer: Nelson Ching/Bloomberg

She Fazhen holds a bottle of fluid extracted from the lungs of her deceased first husband, Tan Xueping, in Hutouyan village, Hubei province, China. Close

She Fazhen holds a bottle of fluid extracted from the lungs of her deceased first husband, Tan Xueping, in Hutouyan... Read More

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Trucks drive with raw minerals on Xiaoqinling mountain in Henan province, China. Close

Trucks drive with raw minerals on Xiaoqinling mountain in Henan province, China.

Photographer: Nelson Ching/Bloomberg

He Quangui says profits from mining in 2000 enabled him to buy his wife a pair of gold plum flower-shaped earrings. After he was diagnosed with silicosis a few years later, the couple sold them to help pay for lung treatment. Close

He Quangui says profits from mining in 2000 enabled him to buy his wife a pair of gold plum flower-shaped earrings.... Read More

Photographer: Nelson Ching/Bloomberg

Gold shops advertise for purchasing gold in Yuling. Close

Gold shops advertise for purchasing gold in Yuling.

Photographer: Nelson Ching/Bloomberg

Memorial wreaths lay at the grave of Zhang Jianbin. Close

Memorial wreaths lay at the grave of Zhang Jianbin.

Yu Zudong rides an orange truck rattling down Xiaoqinling mountain in central China, past a landscape pockmarked with gold caves and the garbage-strewn tent homes of workers.

“Everybody here wants to earn a fortune,” says Yu, a migrant miner who is taking a 24-ton load of gray rocks to a grinder in the foothill town of Yuling.

Nearby, sitting in one of the shanties, miner Li Shanchi waits for his next payday. He hasn’t worked for two months since officials closed some mines after a fire killed nine workers on the mountain, 800 kilometers (500 miles) southwest of Beijing. His lungs are filled with dust he inhaled during a decade of mining, he says, leaving him with silicosis, an incurable lung disease.

The opposite fates of Li and Yu, both 31, show how China’s hunger for gold will both help drive the price of the metal higher, and at the same time undermine the country’s goal of gaining control of its Wild West mining industry, interviews with more than two dozen miners, analysts and labor activists show.

China displaced South Africa as the world’s biggest gold producer in 2007, the same year Li was diagnosed. Its imports through October also rose almost fivefold from the total shipped in last year, surprising analysts including Yuichi Ikemizu, the head of commodity trading at Standard Bank Plc in Tokyo.

“China is the biggest bullish factor in the gold market,” says Ikemizu, who forecasts gold may hit $1,600 an ounce next year. The price hit a record $1,431.25 an ounce on Dec. 7. “Gold doesn’t have much room to go down.”

Trading Surge

Trade volume on the Shanghai Gold Exchange, set up in 2002 to end the People’s Bank of China’s monopoly on gold trading, surged 43 percent in the year to Oct. 31 from the same period in 2009, Shen Xiangrong, chairman of the bourse, said Dec. 2. The country’s gold consumption may double in the next decade, the World Gold Council forecasts.

Higher gold prices put at risk China’s efforts to clean up an industry that relies on cheap labor working without adequate protection, according to Zhao Qingming, a Beijing-based senior analyst at China Construction Bank Corp. Migrant workers move from mine to mine without contracts, and are often unable to get insurance or even compensation, the miners say.

China cut the number of licensed gold mines from 1,200 in 2002 to fewer than 800 last year. Yet miners are still flocking to the mountain to feed Chinese gold demand that is growing faster than the mines can satisfy it.

Victims Take Action

“The state has repeatedly issued orders to ban illegal mining, but it hasn’t been totally stopped,” says Gao Rukun, an independent gold researcher based in Beijing. “With gold at such a price it means huge interest for local governments, companies and individuals.”

In the past two months, representatives of silicosis- stricken gold miners from Yunnan in the south to Gansu in the north, where more than 130 workers say they got sick in one mine, traveled to Beijing to highlight their plight and seek help. The disease is caused by inhaling too much silica dust, which scars the lungs. It is irreversible, disabling and eventually fatal, according to the World Health Organization.

“Unless the Chinese government takes urgent action, it is going to see more demonstrations by increasingly angry and desperate citizens,” says Geoff Crothall, a spokesman for China Labor Bulletin, a Hong Kong-based workers’ rights group that has helped hundreds of occupational disease victims fight for compensation. “And that is the last thing the government wants.”

At stake is maintaining the balance between China’s economic growth and social stability.

Social Harmony Risk

“Increased protection of worker health is part of the economic development process that China is navigating,” says economist David Cohen, of Singapore-based Action Economics. “In order to maintain its desired social harmony, China will need to safeguard the health of the gold miners.”

The number of workers across all industries that got lung disease from inhaling dust rose by 14,495 in 2009, up from 10,829 new cases the previous year, according to China’s Ministry of Health. About half of the 650,000 victims recorded since the 1950s are coal miners who powered the country’s industrialization. No figure for gold miners is released.

“This is just the tip of an iceberg,” says Chang Kai, a professor of labor law at Renmin University of China in Beijing. “Our problem is a market economy with no proper labor rules and laws.”

Villages of Death

A gold miner typically contracts lung disease faster than a coal worker -- as early as three months into the job -- and can die faster, says Li Yuhuan, the former secretary general of the China Coal Miner Pneumoconiosis Treatment Foundation, set up by the state’s work safety authorities.

Until July, Li Yuhuan ran a medical facility in Beidaihe, on the east coast. It treated victims by administering a lung lavage, an operation to remove dust from the lungs that doctors say can ease pain and prolong life. Tu Mingli, a doctor at Taihe Hospital in Shiyan City where Li Shanchi was diagnosed, says a fifth of the lung disease cases it now sees are gold miners.

On the border of Hubei and Shaanxi provinces, a region which has fed workers including Yu and Li to the mountain 400 kilometers to the north for two decades, local leaders and villagers make their own count of cases. Their unofficial toll in one cluster of eight villages is 64 dead and more than 400 diagnosed or suspected, according to interviews with them.

Gold Earrings

Clinging to steep mountain slopes, the area has no industry, forcing workers to seek jobs elsewhere. In miner Li’s hometown of Hongjun, his next-door neighbor He Quangui says profits from mining in 2000 enabled him to buy his wife Mi Shixiu a pair of gold plum flower-shaped earrings. After he was diagnosed with silicosis a few years later, the couple sold them to help pay for lung treatment.

“We haven’t been able to afford gold since,” He said. The piercings in Mi’s ears are empty, a framed photo on the ledge of their bedroom window the only remaining sign of gold.

Tales of death and sickness are told in villages in every direction. In Fengji, 20 minutes south of Hongjun by road, the noise of car engines couldn’t drown out the wheezing of Zhang Jianbin, sitting on a red wooden chair outside his house on a sunny November afternoon. Hardly able to talk, he was wrapped in four layers of clothing, the bags under his eyes swollen. He spent his nights hooked up to an oxygen tank. Two days later, he died.

Coffin at Home

In Xiaoxinchuan village, 70 kilometers north, Qi Zeming’s living room is dominated by a mahogany coffin his family built with timber from nearby trees.

“They made that for me,” says Qi, 33, squatting in the corner of the porch, his eyes lifeless, trying to warm himself in the sun. “I’ve not been well recently.”

Pleas for help to the township government of Hubeikou, fall on deaf ears, says Yuan Meng, the chief of Xiaoxinchuan. He tallies 19 dead and 24 more diagnosed with silicosis.

“We report the issue each year,” he says. “They simply said we should tell villagers not to go to the gold mines.”

Ha Rongxia, head of Hubeikou township, says there isn’t a policy or budget to help occupational lung disease victims.

“There isn’t much we can do other than show our sympathy,” she says.

China’s State Council announced a plan last year to limit the growth of occupational lung diseases. The sicknesses are caused by irresponsible employers, weak supervision, and poor prevention measures, it said.

Fragmented Industry

The Chinese government has implemented measures to strengthen production safety, Jiang Yu, a spokeswoman for the Ministry of Foreign Affairs, said Dec. 23.

China’s supervision focuses on fatal accidents and doesn’t pay enough attention to chronic disease, says Yang Shaoshan, who retired as director of the Gold Administration in China’s northeastern Jilin province last year.

The fragmented industry on Xiaoqinling mountain, straddling Henan and Shaanxi provinces, illustrates the size of the challenge. All production sites in one 6.3 square kilometer upper stretch of valley on Xiaoqinling are licensed to Wenyu Gold Mines, says Liu Jinlu, an administrator at the company’s headquarters in Yuling.

Wenyu, part of state-owned China National Gold Group Corp., outsources mining to labor companies, which are responsible for workers’ welfare, Liu says. Any private miners who sell ore from the company’s territory are acting illegally, he says.

‘Stealing From Mines’

“On the surface they offer labor, and we pay for that,” Liu says. “But Chinese are flexible on anything. If we know they’re stealing from the mines, we’ll punish them.”

Yu, the migrant miner, secured his spot inside a 1,000 meter-high cave in the area last year from subcontractors of Wenyu, he says. Middlemen get 30 percent of his rocks, he says.

Yu says he hopes his latest load of ore will yield 150 grams of gold, earning him 15,000 yuan profit that he will share with his three co-workers.

“There’s a lot of subcontracting,” Yu says. “It’s the way it is on the mountain. I don’t know the deal between Wenyu and the bosses.”

The practice of parceling out mines to small-scale operators, though illegal, is a countrywide phenomenon that leads to poor safety conditions and damages the mines, says Shen Lei, a researcher at the Beijing-based Chinese Academy of Sciences.

“It will exhaust the resources and breed corruption,” says Shen, who has studied consolidation efforts in Henan, China’s second-biggest gold producing province.

Recycling Waste Rocks

Song Quanli, deputy party secretary of Beijing-based China Gold, Wenyu’s parent, says he isn’t aware of the practice on Xiaoqinling. The group plans to build its own workforce to improve safety and ensure better environmental protection, he says. He didn’t give a timetable for the plan.

As the price of gold rises, the state-owned company is starting to mine low-grade sites and recycle waste rocks, Song says. Its gold mine production this year will be about 32 tons, up from 18 tons in 2006, Song says.

With 4 percent of the world’s known gold reserves, China’s mines may be exhausted within six years, the World Gold Council says. Wang Jianhua, chairman of Jinan-based Shandong Gold Group, is more sanguine. The group may increase mined output this year by 18 percent to 25 metric tons, he said in a Dec. 2 interview at a gold conference in Shanghai.

“I think there’s much potential if we negotiate with nature,” Wang says.

Raising Output

Gold production increased 8.8 percent through October from the same period a year earlier. In recent years, a number of small-scale, low-grade and high-cost mines were rapidly brought into production to feed the boom, GFMS Ltd., a London-based research firm, said in an April report.

In Yuling, in the shadow of Xiaoqinling, more than 100 makeshift storefronts display signs offering to buy gold. Family businesses inside rely on private operators for raw gold, which they heat in ceramic bowls to purify. The shops’ gold ends up with buyers including Lingbao Jinyuan Tonghui Refinery Co., a supplier to the Shanghai exchange.

Business has been slow since the fatal mine fire in October, says shop owner Zhang Xiaokang, 38.

“When there’s an explosion up on the mountain or water gets polluted, the government cracks down hard on the mining,” says Zhang, inside the Switzerland Gold Shop where he keeps track of prices on the exchange by computer. “Everything gets shut down and nobody sells to us.”

No Safety Checks

Yu Yigui, 38, is one of six survivors of the blaze. He kept his face close to a dirty water pool and covered it with a soaked sock as heavy smoke engulfed the cave until rescuers arrived a few hours later, he says.

The miner says he worked for one of several private operators in the cave and earned a profit share from gold sold to collector shops. He says he can’t recall any safety checks on the mine, where colleagues smoked, during the two months he worked there.

The mine’s operator, state-owned Tongguan Tonggold Mine Industry Co., had no valid mining license and safety permits, according to a report on the website of the Shaanxi Work Safety Administration.

Che Xusheng, the company’s chairman, said in a phone interview that labor outsourcing is a standard business practice and the mine was subject to safety inspections.

Defying Doctors’ Orders

In the mountainside shanty, miner Li says he continues to seek work in the mines, even though his clogged lungs frequently leave him gasping for breath.

“Doctors warned me not to drill again,” says Li, whose wife Wang Zhongmei earns 1,000 yuan ($150) a month cooking for miners. Their two-year-old son Xinxin -- whose name includes six Chinese characters for gold -- plays nearby. “Occasionally I still do it. I need the money.”

As he waits for the mines to open, Li says he hasn’t sought compensation, deterred by the difficulty.

“I’ve been out there for too long and in too many places,” says Li. “Who would admit that I got sick in their mine?”

To qualify for compensation, workers need a diagnosis from a hospital and proof of employment. The process can prove bewildering for migrant workers, says Crothall, with the Hong Kong worker rights group.

‘It’s Depressing’

“None of them have work contracts,” says Taihe Hospital’s Tu. “We cannot help but shake our heads. It’s depressing.”

Even as awareness of occupational disease spreads, a new generation of miners from the villages around Hongjun still feels the lure of Xiaoqinling. Among them is 20-year-old Zhu Rongxing.

Zhu first went into the caves in May, earning 3,000 yuan a month, triple what he made in a factory in southern China.

“You don’t earn money without taking risks,” says the long-haired Zhu.

His mother, She Fazhen, doesn’t want him to go. She has reason to worry. Her first husband was swallowed by a mud pool at the mines. Her second spouse has silicosis.

“On the front line, other soldiers go up when their buddies die,” she says. “That’s how the mountain looks to me. The dead are carried back, and the living continue to go.”

--Fan Wenxin in Shanghai. With assistance by Feiwen Rong, John Liu and Yidi Zhao in Beijing, Margaret Conley in Shanghai and Chanyaporn Chanjaroe in Singapore. Editors: Neil Western, Robert L. Simison.

To contact the Bloomberg News Staff on this story: Fan Wenxin in Shanghai at Wfan19@bloomberg.net

To contact the editor responsible for this story: Gary Putka at gputka@bloomberg.net.

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