Shandong Gold making global move

After being in survival mode for several years, gold companies have finally enjoyed a growth cycle. Shandong Gold Group is embracing the opportunity and has set up an office in Toronto, considered the world's mining capital.

At the office's grand opening on Thursday in downtown Toronto, the company, along with a group of other mining companies, investment banks and officials, gathered to celebrate the recent boom and discuss opportunities.

Ranked No. 1 in China and No. 12 in the world with annual gold output of 47.75 tons, the State-owned company run by the government of Shandong province in East China has made major strides toward its strategic objective of "a world Top 10 mining enterprise" set forth in its 13th Five-Year Plan.

However, according to Chen Yumin, chairman of Shandong Gold Group, gold reserves are limited in China compared with other parts of the world, so the company has to look globally to build sustainable and long-lasting reserves.

"When we are looking for buried gold, its resources are distributed in many parts of the world, and we have come in contact and worked with many major global mining companies," said Chen. "The opening of the Canada office is a milestone for our overseas investment strategy. But we are looking more global than just Canada."

The company, headquartered in Jinan, formed a partnership with Toronto-based Barrick Gold Corp in operating Veladero — the largest gold mine in Argentina, in 2017— followed by an IPO on the Hong Kong Stock Exchange in 2018.

"Our partnership with Shandong Gold in Argentina is transforming relationships at the local, national and international levels," said Rob Krcmarov, vice-president of Barrick.

"Clearly, we have much to do. Shandong Gold's presence in Toronto will help foster new relationships and better understanding of Chinese investors by Western investors and operators. It will add value to the collaboration our two companies are forging," Krcmarov added.

Richard Tory, head of Canadian investment banking at Morgan Stanley, said he admires the Chinese company's courage to face challenges.

According to Tory, because of lower capital expenditures, amid other reasons, gold production is declining. New discoveries are not being made, and reserves are not being replenished. Gold companies therefore will need to get creative to find ways to continue to grow strongly and profitably.

"Chinese investors are willing to respond to these challenges. A company like Shandong Gold has shown the vision to become the leading gold company in China and an emerging leader globally," Tory said. "They have developed partnerships with others by sharing the risks of operating the most complex and prospective mining in the world."

Meanwhile, Chinese investors are being advised to prepare for a possible cultural shock and make an effort to understand local regulations and practices.

For example, Chinese investors will need to have good relations with First Nations communities, local governments and environmental groups.

"By introducing the green technology, we adhere to the safety standards and environmental protection of the community," Chen pledged. "We have to respect the local community instead of challenging the traditions or cultures, and importantly we have to share interests and share rewards with them."

Keith Spence, a member of the board of directors of the Prospectors & Developers Association of Canada, said Chinese investors are welcome despite the current diplomatic rift between Canada and China.

"China has been one of the big funders of mining globally, including in Canada," he said. "If you look around the world, in the past few years, the real two big funders were China and private equity, while the traditional financiers' commercial banks were out of the market, so China was seen as a big source of alternative finance."