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Higold│Chifeng Gold’s Acquisition of Laos Copper and Gold Mine
Views:17492   Time:2018-08-28

Higold   By Zhang WeichaoSince 2016, Chifeng Gold has set its sights overseas to find gold resources suitable for its “appetite”.

In the past two years, they have investigated many gold projects in the countries and regions along “the Belt and Road” such as Russia, Mongolia, Indonesia, Australia, South Africa, South America and Southeast Asia.

Sepon Copper and Gold Mine is a large open-pit copper and gold mine located in Savanakhet, a southern province of Laos.

Finally, Sepon open-pit copper and gold mine in Laos became the first step of Chifeng Gold’s “going out”.

The release of Chifeng Gold’s acquisition of Laos copper and gold mine for 275 million dollars raised praise from industry, and people were uplifted, excited and proud.

“The investment target must be the country along ‘the Belt and Road’. We must conform to the general trend and practice the national advocacy. ‘Going out’ will provide opportunities for development.” Lyu Xiaozhao, chairman of Chifeng Jilong Gold Mining Co., Ltd, mentioned this overseas merger with a convinced and confident look.

Chifeng Gold is a private gold enterprise listed in China, and it has set its sights overseas to find gold resources suitable for its “appetite” since 2016. In the past two years, they have investigated many gold projects in the countries and regions along “the Belt and Road” such as Russia, Mongolia, Indonesia, Australia, South Africa, South America and Southeast Asia. Even after filtering, the gold project information handed to the Lyu Xiaozhao’s desk was no less than 20 or 30.

It cannot be too prudent for Chifeng Gold to choose the most appropriate project. Lyu Xiaozhao believes that the most appropriate gold resource has many characteristics, among which the country along “the Belt and Road” comes to the forefront. Of course, political situation, resources, transportation, taxation, laws, mining policies, etc. are also important.

“Going out” for Gold Mine

Chifeng Gold started in two gold mines in Inner Mongolia and develops rapidly in recent years relying on good resource endowments. Under the leadership of a team of professional managers headed by Lyu Xiaozhao, Chifeng Gold was successfully listed in 2012. Since 2013, it has started to expand its “territory”, and successively acquired Liaoning Wulong Gold Mining, Xiongfeng Technology, and Guangyuan Technology. It has embarked on the “two-wheel drive” development path of gold mining and integrated resource recycling.

In fact, the acquisition of Wulong Gold Mining was just a start, and more mergers and acquisitions of gold resources have been launched in succession. “Since 2014, our professional team has been investigating and collecting relevant resources information throughout the country, but there is a lack of large-scale gold mines that can be merged and acquired” said Lyu Xiaozhao. In order to give investors greater returns and further increase the growth point of company’s future development, the existing resources are far from meeting the needs of company’s future development.

They have to face the extremely competitive domestic gold resources market. With large-scale exploitations and explorations of domestic gold resources, the new discoveries of medium-scale gold resources or above have been decreasing in recent years.

In recent years, new large-scale gold resources such as Xiling, Shaling, and Haiyu once discovered have been acquired by other large gold group companies. At the same time, the domestic stricter security and environmental protection policies have gradually raised the industry threshold, which undoubtedly causes higher investment costs and operation costs of the acquisition of gold mines.

“Gold, copper and other domestic scarce mineral resources belong to the resources encouraged by the state to ‘go out’ to obtain, and ‘going out’ is also the demand of the company’s own development.” After much analysis, Chifeng Gold finally chose to look for gold resources in the countries along “the Belt and Road” and take advantage of “the Belt and Road” Initiative.

No comparison with the past, China’s gold production has ranked first for 11 consecutive years, and has formed a leading edge in gold’s prospecting, mining, dressing and smelting and other technologies in global. These production capacity and technological advantages have enabled domestic gold group companies to build and develop in the overseas mining market. The successful cases of “going out” of domestic large-scale gold group companies such as Zijin Mining, Shandong Gold and China National Gold have given Chifeng Gold great courage and confidence.

As the gold resources of the country along “the Belt and Road”, Laos Sepon open-pit copper and gold mine came into the consideration of Chifeng Gold’s mergers and acquisitions. After the release of the information on the sales of this asset by MMG in 2017, Chifeng Gold immediately organized due diligence to find out the basic situation of this mine. At the same time, Chifeng Gold hired international renowned accounting firm, law firm, international investment bank and other intermediaries with Chinese and foreign qualifications and financial and investment consultants to conduct due diligence in strict accordance with international M&A standards and procedures. Since Australians had been operating the mine and adopted international reserve standards, Chifeng Gold also hired an independent assessment team of geology from Australia to evaluate the resource model.

Settling on this asset, Chifeng Gold won from 20 or 30 bidding companies in the process of sealed bid, and then won in the binding quotation and entered into the business negotiation. On June 21st this year, the board of Chifeng Gold agreed to conclude “Shares Purchase Agreement” attaching effective conditions with the seller Alum Investment Private Limited and the seller’s guarantor MMG for the acquisition of 100% equity of MMG Laos Holdings Limited held by the seller.

It is no doubt that Chifeng Gold’s acquisition of Laos Sepon Copper and Gold Mine for 275 million dollars becomes another major event in China’s gold industry overseas acquisitions. At the same day, the release of this acquisition ignited the whole industry.

The Copper and Gold Resources Suitable for Chifeng Gold’s “Appetite”

Sepon Copper and Gold Mine is a large open-pit copper and gold mine located in Savanakhet, a southern province of Laos. According to the announcement disclosed by MMG on the Hong Kong Stock Exchange, as of the end of 2017, there were still 10.9 million tons of gold resources with an average grade of 3.9g/t and a rough calculation of the gold of about 40 tons; 25.3 million tons of copper resources with an average grade of 2.1% and a rough calculation of the copper of about 530,000 tons. In 2017, the operating income of Sepon Copper and Gold Mine in Laos was 390 million dollars, and the EBITDA was 120 million dollars. Its income exceeded the income of Chifeng Gold’s domestic assets.

“This is a mature mine in production, and its current cash flow is very powerful, as well as its future profitability.” Lyu Xiaozhao emphasized repeatedly.

Sepon Copper and Gold Mine had ever been in the hands of Rio Tinto Group and other large international mining companies, and was acquired by MMG in 2009. MMG relied on the original operation team and production system for production. In this open-pit mine, copper and gold are not associated in deposits but are independent geological bodies. In view of this, there are two separate mining, dressing and smelting production systems. It is understood that this mine had produced gold for 10 years, from 2003 to 2013, with a maximum annual output of 6 tons. In 2003, with the depletion of the gold oxide on the ground surface and the unprecedentedly severe situation of gold market due to the cliff-like drop in the gold price, this mine stopped its gold mining and processing system and turned to the single production of copper from the parallel production of copper and gold.

At present, the mine’s reserves of the ground surface copper oxide are only 170,000 tons, According to the current production scale of more than 70,000 tons per year, the production life is only 2 years and then it will enter the mining of underground primary ore. So, it means the existing mining and processing production system and technologies need to be adjusted to the change of ore property. This is the major problem that Chifeng Gold must focus on solving after taking over the mine.

The surface oxidized ore of Sepon is exhausted. However, the direct cyanidation process of concentrating mill is only applicable to oxidized ore, and not applicable to the future production of primary ore. Therefore, the process needs to be changed.

Lyu Xiaozhao said: “There is no problem. The mining and dressing of primary ore is our advantage. The primary ore of this mine is similar to that of Guizhou Lannigou Gold Mine and Guizhou Shuiyindong Gold Mine, and our country has already overcome the technical problems in the dressing and smelting of complex ores in recent years. The next step is to combine the specific ore property of this mine and conduct scientific research to confirm optimized indexes of dressing and smelting.”

In recent years, China’s gold industry has made rapid progress in science and technology. It has mastered international leading technologies such as bio-oxidation gold extraction, primary ore roasting and high-pressure chemical catalytic pre-oxidation and has overcome the difficulties in the treatment of refractory gold ore. In addition, Sepon Copper and Gold Mine will turn to underground mining from open-pit mining, and the undergrounding mining is also one of Chifeng Gold’s strengths.

Lyu Xiaozhao pointed out that underground mining is the main mining mode of China’s gold mining industry, and Chifeng Gold has an edge in technology and management in the mining of primary mine. We intend to take two and a half years to stabilize the existing copper production and strive to extend it to 3 years. We will carry out scientific research in two years, and make full use of the underground primary copper and gold resources by reforming existing processes, technologies and system equipment to extend this mine’s service life and life cycle.

In particular, the grade of Sepon copper and gold resources is much higher than that of domestic copper and gold resources, and its prospects are good. In its prospecting and developing area of 1,274 square kilometers, there is a gold metallogenic target with great resource potential. At present, the work scope of identified resources is only 15 square kilometers and more areas need to be prospected and developed.

Embarking on “Springboard” and Rushing to Overseas

After Chifeng Gold and MMG signed the contract in Beiijng on June 21st, Lyu Xiaozhao often went to Laos to inspect and coordinate and he has already had a clear understanding of Sepon Open-pit Copper and Gold Mine in Laos.

At present, there are over 1,600 employees coming from Singapore, Philippine, Australia, the United States, Chile and other countries in Sepon Open-pit Copper and Gold Mine in Laos. This mine has been operated by Australians and there will be no change in the basic situation here after Chifeng Gold’s acquisition of this in-production mine with rich copper and gold resources. Chifeng Gold will keep its international staff team, advanced management system, powerful cash flow and stable community relations.

Lyu Xiaozhao said that in the future only a part of professional and technical personnel and high-level managers will be dispatched to the site. We will further develop the advantages of domestic gold production technology and management, retain strengths and offset weaknesses; conduct scientific research and reform on original production processes and technologies; refine the management of unreasonable production costs; improve production efficiency and reduce costs without decreasing workers’ wages; maintain the original management structure; ensure the on-site production and operation is stable and orderly; and enhance the existing inclusive culture.

“If a person has a serious illness and needs to change blood, it should be treated seriously. Because even a bit of errors may cause shock” Lyu Xiaozhao said figuratively. In his view, Sepon Open-pit Copper and Gold Mine in Laos is just the first step of Chifeng Gold’s “going out”. In the future, Chifeng Gold needs to cultivate an international talent team, and then lay a foundation for Chifeng Gold’s international development.

After several years of development, MMG, the partner of this acquisition, has become an international company with many overseas high-quality mineral resources, excellent international management team, rich experience in international mining development, and strong management strength. It is the leader and pioneer of China’s mining overseas M&A. It is also the beginning of the overseas cooperation between Chifeng Gold and MMG.

At the signing ceremony, Lyu Xiaozhao mentioned that both the two sides will take this cooperation as an opportunity to carry out multi-level and in-depth exchanges and cooperation in overseas M&A, mining exploration and development, and technology research in the future. Besides, Gao Xiaoyu, General Director of China Minmetals Non-ferrous Metals Co., Ltd, and Non-executive Director of MMG, also said that based on their respective development strategies, Chifeng Gold and MMG reached a cooperation agreement, which is just the beginning of a series of in-depth cooperation and this cooperation lay a foundation for in-depth cooperation between the two sides in the mining entire industry chain.

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