By Allen R. Gibson.  
June 16, 2004 

“There’s gold in them ‘thar hills!”

The cry is ringing out once again, in hills from Nevada to Canada, Mexico to Chile, Russia to Turkey, and of course in China. Gold, and to an even greater extent Platinum Group Metals, have emerged from their mid-90’s slump in a big way, and the mining sector is hot once again.

And with good reason, according to Sprott Asset Management (http://www.sprottassetmanagement.com) who’s “Fundamental Reasons to Own Gold” was featured at the recent World Gold, PGM, and Diamond Investment Conference.

-          Since mid-2001, the price of gold has surged over $100/oz., to a point where mining can be profitable again after a seven year slump.

-          There is insufficient production to meet the increasing demand. Gold production is around 2500 tons annually, which has been less than demand for some years, meaning Central Bank gold from various countries has been making up much of the difference.

-          There is a need for new mines, as production is expected to begin falling over the next four years and few mines have been prepared during the lean years. The rush is on – not so much to find the gold as to find economic production sites.   

-          The US dollar may weaken further. With unprecedented debt levels at all levels of our society, US and foreign money supplies are expanding in an effort to keep the dollar high and to avoid inflation. So far, the inflation threat has been tame, but the half a trillion dollar deficit will require lots more bonds to be issued. If interest rates rise in response, the consumer debt load might suddenly come home to roost. Personal savings dropped over 75% from ’91 to ’01, while household debt more than doubled. If consumer confidence goes south, or even more importantly if the rest of the world no longer sees the US as the best place for their money, the US economy will be on shaky ground. Historically, when things are shaky, gold is the place to be.  

So gold makes sense again. And since opening to partnerships with foreign companies, the Chinese government has unleashed a rush of prospectors. Already the world’s 4^th largest producer, China still holds large underdeveloped supplies of precious minerals, if official government evaluations are credible, which remains to be seen.      

But to the Chinese themselves, there is little doubt about the allure of gold. When it first floated its shares on the Hong Kong exchange last December, Fujian Zijin Mining Industry, operator of China's largest gold mine, rose 73 percent on the first day. Gold Fields, the world’s biggest gold producer, bought a small stake in the Chinese company, and announced plans to set up a joint venture to explore further in Fujian province. Class A shares in Shandong Gold Mining have more than tripled since their debut in Shanghai in September. Shares in mainland rival, Zhongjin Gold, are up 135 percent since they began trading last August on the country’s first Gold Exchange, which opened in Shanghai last October, although only licensed Chinese companies are so far allowed to trade there.

To play in the Chinese gold market, investors must look to companies that have set up licensed joint ventures with Chinese partners.

Many of the North American players in this new gold rush are Canadian-based, as Canada’s Venture Exchange has long been a player in financing junior resource exploration around the world. Companies like Mundoro Mining Inc., who’ve been in China since 1997 and are currently developing a prefeasability study on their gold resource in northeastern China. Minco Mining and Metals Corporation has been active in the country since ’94, and has two gold properties in its portfolio located in the Qinling Gold Triangle. The Afcan Mining Corporation owns 85% of the TJS gold mine in Qinqhai province.

Earlier this year, Linux Gold Corp. ventured into China with a joint venture on a hundred square mile property in Hebei Province that already has a 50 ton a day mill in place. Samples averaged over 23 grams of gold per ton.

Even more recently, Chinese officials announced a major discovery in  Huadian City, an area that has seen gold production for over 180 years. In China, it seems, the gold rush has never ended.

Allen R. Gibson

Allen R. Gibson has over twenty-five years of experience in media and corporate communications.  He has been a reporter, television producer, and marketing communications consultant for public companies in both the US and Canada.

Disclaimer:
InvestorIdeas.com and/or www.China-Asiastocks.com did not receive compensation from any of the companies in the report and has no direct affiliation with any of the companies in the report. www.InvestorIdeas.com/About/Disclaimer.asp
 
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