With a premium of 40%, Zijin Mining has a layout of 7 billion yuan in Ghana! With only four months left on the gold mining rights, the cost of sustaining has soared

Source of this article: Times Finance Author: Zhang Tingwen

Image source: Picture Worm Creative

Before the market on October 9, Zijin Mining (601899.SH/02899.HK) announced that the company and its wholly-owned overseas subsidiary, Jinyuan International Holdings Co., Ltd. (hereinafter referred to as "Jinyuan International"), signed the "Share Acquisition Agreement" with Newmont Corporation (hereinafter referred to as "Newmont") and Newmont Golden Ridge Ltd (hereinafter referred to as the "target company"), a wholly-owned subsidiary of Newmont.

Newmont is the world's leading gold company and producer of copper, silver, zinc and lead, with assets, resources and reserves in Africa, Australia, Latin America and the Caribbean, North America and Papua New Guinea.

Jinyuan International plans to invest US$1 billion (about 7.071 billion yuan) to acquire 100% of the shares of the target company held by Newmont. Based on the target company's net assets of $709 million at the end of 2023, the transaction represents a premium of more than 40%.

The Akyem Gold Mine is one of the largest gold mines in Ghana, but its mining rights are currently only valid until January 2025, and applications for renewal of mining leases are still subject to approval by the Ghana Parliament. In terms of total sustaining cost (AISC), an important indicator of gold production costs, the total sustaining cost (AISC) of the Akyem gold mine has also risen sharply in line with the global gold mining all-in sustaining cost.

Regarding the acquisition, Times Finance called the Zijin Mining Securities Department several times on October 9, but could not be contacted as of press time.

It is proposed to acquire a gold mine in Ghana at a premium of more than 40%.

In the first half of this year, Zijin Mining achieved revenue of 150.417 billion yuan, a year-on-year increase of 0.06%; the net profit attributable to the parent company was 15.084 billion yuan, a year-on-year increase of 46.42%; The asset-liability ratio was 56.65%, down 3.01 percentage points from the end of the previous year.

The transaction accounted for nearly half of Zijin Mining's net profit attributable to the parent company in the first half of this year, a premium of more than 40% based on the net assets of the target company at the end of 2023.

As of the end of 2023, the target company has total assets of $1.227 billion, total liabilities of $518 million, and net assets of $709 million. In 2023, it will achieve sales revenue of US$574 million and net profit of US$128 million.

The target company owns a 100% interest in the Akyem Gold Project in Ghana. The Akyem Gold Mine, one of Ghana's largest gold mines, is located in the Eastern Province of southern Ghana, approximately 180 kilometres from the Ghanaian capital, and commenced commercial production in October 2013 with a concentrator design capacity of 8.5 million tonnes per annum. In 2021~2023, its gold production will be 11.90 tons, 13.10 tons and 9.20 tons, respectively.

The project is currently open pit mining, and according to Newmont's production schedule, it will be converted to underground mining by 2028, with a service life of 2042 and an average annual gold production of about 5.80 tons per year over the life of the mine.

In terms of reserves, the Akyem Gold Mine has 19 million tonnes of open-crop ore grading 1.55 g/t Au and 29.50 tonnes of ore from the stockpile (proven + credible) of 6.7 million tonnes grading 0.77 g/t Au and 5.20 tonnes of Au.

According to Zijin Mining's announcement, the Akyem gold mine (open mining + underground mining) has a proven + controlled resource of 10.6 million tons at a grade of 3.57 g/t and a gold metal content of 37.80 tons.

In addition, the target company also holds four prospecting rights on the periphery of the Akyem gold mine, three of which are adjacent to the Akyem prospect, with a total area of 79.59 square kilometres.

Zijin Mining believes that under the current and future expected gold price conditions, the project still has great potential for resource reserves, and the project has great development prospects, and it is expected that through further exploration, economic and technological re-evaluation and technological transformation, the project's resource reserves and production will be further improved.

Since the beginning of this year, gold prices have risen several times and are still relatively at historical highs. Gold futures prices have come under pressure as the market's expectations for future sharp interest rate cuts by the Federal Reserve have cooled, with Treasury yields and the U.S. dollar index continuing to remain at two-month highs. As of the close of trading on October 8, the December gold futures price of the New York Mercantile Exchange closed at $2,635.40 per ounce, down 1.15%.

On October 9, Xu Yongqi, chief analyst of Huaan Metal New Materials, told Times Finance that in the short term, gold may not have good investment attributes, and it is susceptible to the impact of the Fed's interest rate cuts less than expected, resulting in insufficient momentum for gold prices. In addition, the stock market is relatively hot, and the bias of funds to invest in gold may decrease.

The mining rights are valid until January next year

Zijin Mining's proposed acquisition of Akyem comes after Newmont's board of directors approved a portfolio optimization plan in February this year, in which Newmont plans to divest six non-core assets and one development project, including the Akyem gold mine.

It is important to note that the current mining rights of the Akyem Gold Mine are only valid until January 2025, and the mining rights consist of two mining leases in the east and west, and all resources and production facilities are now in the eastern mining rights. At present, the application for the renewal of the mining lease was approved by the Ministry of Land and Natural Resources of Ghana in September this year, and it still needs to be approved by the Ghanian Parliament.

In response to the uncertainty surrounding the continuation of the mining lease, Zijin Mining noted that the transaction consideration is US$1 billion, of which US$900 million will be paid at closing, with the remaining US$100 million to be paid on the date on which the extension of the eastern mining lease is confirmed by the Ghana Parliament, or the date on which the Eastern mining lease is changed by the Parliament, or five years after closing, whichever is earlier.

In addition to the transaction consideration, the two parties will settle the target company's cash, working capital, ore stockpile and process gold, production gold, reclamation deposit, etc. separately in accordance with the procedures and standards agreed in this agreement. In the event that the Ghanaian Parliament's retrospective recognition of the extension of the mining lease results in losses to Golden Resources International, Newmont shall compensate Golden Resources International up to a maximum of US$200 million, subject to the agreed conditions.

It is worth mentioning that although Zijin Mining has a global footprint, it has no gold mines in Africa before, and Ghana is a "new map" for Zijin Mining. Since the target company involved in this transaction is registered in Ghana, Africa, according to the Ghana Mining Law, the government has the right to pay 10% dividends when the target company pays dividends to shareholders.

Previously, many listed companies had already set their sights on Ghana's rich gold resources. Among them, Chifeng Gold (600988. SH) has partnered with Jin Chengxin (603979.SH) to develop the Venus Vaassa-Wassa gold mine in Ghana, the Namutini gold mine project owned by Ghana Catino Resources Co., Ltd., a subsidiary of Shandong Gold (600547.SH), is also in the construction phase, and Xiaocheng Technology (300139.SZ) owns three gold mines in Ghana, namely AKROMA, AKOASE and FGM.

"Although the price of gold is relatively at a historical high, the willingness of enterprises to invest in gold mines is still very strong. On the other hand, gold mines have a long investment cycle, so even though prices are at a high level, companies can still make enough profits to sustain capital expenditure in the long term," Xu said.

However, Akyem Gold has not been spared against the backdrop of a significant increase in the global gold mining industry's all-in sustaining costs.

In 2023, the global gold mining industry's all-in sustaining costs increased by 6% year-on-year to US$1,295/oz; During the same period, the Akyem gold mine had an all-in sustaining cost of US$1,210/oz, up 24.49% y-o-y.

In the first half of this year, the total sustaining cost of Chifeng Gold's Wassa gold mine in Ghana was US$1,177.80 per ounce, up 1.13% year-on-year; In the second quarter of this year, the Sustaining Cost of Akyem gold mine soared to US$1,952/oz, up 33.61% year-on-year.