Chinese Gold Mining Giant Targets Overseas Buys as Demand Gains

  • Shandong Gold says North America, One Belt region are focus
  • `We have trained our eyes on the global market,' Li says

Shandong Gold Group Co., owner of China’s second-largest gold miner by market value, is seeking to expand overseas to feed rising local demand following bullion’s best quarter in almost three decades.

The Jinan, Shandong province-based miner is targeting assets in countries that have good legal systems and stable political environments, according to General Manager Li Guohong. The focus is both across the One Belt One Road region and in North America, Li said in an interview in Shanghai.

Shandong Gold’s ambitions signal that mining companies in Asia’s top economy are intent on extending their reach as retail demand rises and the country’s central bank boosts its bullion holdings. While China is already the world’s largest gold producer, it’s also the biggest bullion user -- and demand far outstrips local supply. Consumption per person remains below the global level, according to Xu Zhong, deputy director of the financial market department at the People’s Bank of China.

‘Have More Say’

“Going overseas will allow Chinese companies to have more say in global resource exploration and influence pricing,” Li said in a speech on Tuesday at an event in China’s commercial capital to mark the start of local price-fixing process. “We have trained our eyes on the global market.”

Gold has rallied in 2016, snapping three years of losses, as investors scaled back expectations for U.S. interest rate rises and financial-market turmoil spurred demand. Spot bullion traded at $1,251.41 an ounce on Wednesday, 18 percent higher in 2016. It gained 16 percent in the first three months.

The metal’s advance has benefited miners’ shares. Shandong Gold Mining Co., the company’s listed unit, rose 2.1 percent to 30.41 yuan in Shanghai on Tuesday. It’s surged 45 percent this year, outstripping the 14 percent loss in the benchmark Shanghai Composite Index.

The so-called Silk Road Economic Belt and 21st-Century Maritime Silk Road -- or “One Belt, One Road,” for short -- encompasses more than 70 countries in Asia, Europe and Africa and sits at the center of President Xi Jinping’s effort to bolster geo-economic clout by forging stronger transport links. Shandong’s Li didn’t identify specific countries for potential investments.

Gold output in China gained 0.6 percent to 515.9 metric tons last year, according to the China Gold Association. Local consumer demand, excluding central bank purchases, totaled 984.5 tons in 2015, according to an estimate from the London-based World Gold Council. The PBOC has been expanding its reserves by about 15.6 tons a month, according to recent statements.

There’s scope for gold to extend its rally, at least through to the start of the third quarter, according to Li. The price may peak at about $1,330 should the U.S. central bank refrain from raising rates, Li said. After that, expectations for a hike may resurface, suppressing prices, which may average $1,200 this year, he said.

— With assistance by Feiwen Rong, and Winnie Zhu

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