-- Lu Xiaozhao, Chairman of Chifeng Jilong Gold Mining Co., Ltd. talked about the opportunities and challenges of gold enterprises

　　China Mining News Liu Xiaohui started in June this year，International gold prices are rising rapidly，It jumped from a long-hovering $1,250 to $1,500 an ounce，And from July onwards，It has experienced a series of trade disputes and geopolitical tensions such as Sino-US trade friction, Saudi oil depot explosion, Brexit and so on，It is still hovering around $1,500 an ounce。But there are views that gold prices are beginning to enter a new period of upward movement。

　　Will gold prices return to the 12-year upward cycle that began in 2000 and ended in 2012？What is the next high for gold？What do domestic gold enterprises pay more attention to when they go out to expand new markets？In the context of the continuous improvement of domestic ecological civilization construction requirements, how to achieve the transformation and upgrading of gold enterprises and high-quality development？At the 2019 China International Mining Conference, Lv Xiaozhao, chairman of Chifeng Jilong Gold Mining Co., Ltd. elaborated on the above issues in an interview with a reporter from China Mining News。

　　The development trend of the international gold market is closely related to the international situation and supply and demand

　　The rising gold price has a positive stimulating effect on the development of gold enterprises and mining enterprises。To predict the development prospect of gold mining enterprises and study the law of gold price change in a period of time is a reference factor that cannot be ignored。

　　"In the 50-year period from 1969 to 2019, the gold price has experienced two periods of rise, two periods of decline, and two periods of oscillation。And the cycle after 2012 is very short, about 2-3 years, which should be related to our complex and changeable international situation。Lv Xiaozhao analyzed from the perspective of changes in the international gold price, 2019 May enter the third rising period, or it may be an oscillation period。He said that the world's major brokerages, investment banks on the gold price forecast base line is about $1350 / ounce, lower than the current price, but the future continued rise in gold prices is full of uncertainty, there is also a downside risk of gold prices。

　　Another determinant of the price of gold is changes in supply and demand in the market。HSBC's analysis of gold supply and demand over the past few years shows that from 2014 to 2018, gold has been in excess of demand;Supply is expected to continue to exceed demand in 2019 and 2020。Standard Chartered Bank's gold market analysis report released on September 12, 2019, came to the same conclusion about supply and demand as HSBC's report - supply has always been slightly higher than demand, and the rise in gold prices is not supported。

　　Changes in the price of gold in the short term cannot be directly reflected from the mine production and supply side of gold。In this regard, Lv Xiaozhao said that from the characteristics of the mining industry, most of the supply of gold comes from the mine, the certainty of its supply is relatively high, and the industrial demand for gold is not high, and more stable, so the elasticity of gold demand mainly depends on the changing market and investment psychology。

　　Mergers and acquisitions of domestic and foreign gold enterprises are frequent

　　In recent years, global mergers and acquisitions, including overseas mergers and acquisitions of Chinese enterprises, have continued to be hot。According to the 2018 Global M&A Market Annual Report released by Bain & Company, the total value of global mergers and acquisitions in 2018 reached 3.$4 trillion, up 11 percent from 2017.5%。However, hindered by factors such as rising global political uncertainty and stricter regulations, overseas mergers and acquisitions cooled in the second half of 2018。The impact is particularly acute in the mining sector。Energy and mining remained at the top of the list, accounting for $37.5 billion, or about 40 percent of all overseas M&A, said Zhang Zhao, partner and head of the China corporate and M&A practice at law firm White & Case。Technology ranked second。

　　However, the foreign direct investment data of China's mining industry released by the Ministry of Commerce in recent years show that from 2013 to 2017, the amount of overseas mergers and acquisitions of the domestic mining industry, the number of mergers and acquisitions and the proportion of the whole industry have declined sharply。Overseas investment has been cooling for years, and the recent rise in gold prices was hoped to revive it。

　　In terms of mergers and acquisitions in the international gold market in recent years, the largest merger and acquisition is the merger of Newmont Gold Corporation and Goldcorp of Canada, with a total transaction value of $12.7 billion。After the merger, Newmont became the world's largest gold company。The merger of Barrick and Randgold, formerly the world's largest gold companies, was the second-largest, with a deal value of $5.4 billion。Lu Xiaozhao analysis said that in order to fight for the advantages of scale, Barrick is very likely to have follow-up mergers and acquisitions。Many domestic companies have participated in the bidding for the Matabi project in Indonesia, and the final transaction value reached 11.$500 million。Barrick Gold's acquisition of Acacia, which was taken off the market, brought the transaction value to 3.$6.2 billion。Barrick had asked for $3 billion to sell gold to China。

　　In recent years, the largest overseas acquisition of domestic gold companies is Zijin Mining's acquisition of Fuso Resources, with a transaction value of 12.$400 million。Followed by Shandong Gold 9.$600 million acquisition of Barrick's Belladero project。In October 2017, Chifeng Gold began formal due diligence on the sepon Gold and Copper Mine in Laos, and in November 2018, the company completed a 2.$7.5 billion cash closed。In the past two years, the amount of overseas mergers and acquisitions of China gold companies is not large, relatively conservative and stable。

　　Analyzing the trend of future mergers and acquisitions, Lu Xiaozhao tends to be more optimistic, "Perhaps in the near future we can see companies refresh this merger and acquisition record.。But in his view, "a good asset after the completion of the merger, only 30% of the success, there are 70% in operation management, community relations, religious culture, local politics and other aspects need attention.。”

　　Lu Xiaozhao said，The more important part that can determine the success of the merger is the subsequent resource extraction and operational management，The factors affecting the implementation of a series of links include multiple uncertainties such as nationalism risk, cost control risk, social responsibility risk, labor shortage risk, project execution risk, price fluctuation risk, infrastructure risk, fraud, bribery and corruption risk in the country where the project is located。Before the merger and acquisition need to be fully considered, after the merger and acquisition should be carefully managed and dealt with。Therefore, for a company with the purpose of developing resources, "mining enterprises need to first improve the quality of their own development in order to have enough confidence and confidence to 'go out'."。”

　　Despite changes in government policies in China and target countries, China still appears to have a strong appetite for overseas mergers and acquisitions, and there are still likely to be plenty of deal opportunities in 2019 and beyond。

　　In view of the current merger and acquisition risks and opportunities in the international gold market, Lv Xiaozhao said that in view of the current international situation and supply and demand forecasts, the future trend of gold prices is still unclear。Higher gold price assumptions and valuations create systemic risk for the industry and M&A。Shares of gold-producing companies are valued at 1.5 times the net assets per share, the acquisition of listed companies at a premium, there is a higher risk relative to the acquisition of projects, but if the suspension of mergers and acquisitions may lose the opportunity for gold prices to continue to rise, it is a dilemma。There are still opportunities for gold exploration company valuations, with resource prices averaging around $56 / oz today, compared with $42 / oz in 2018 and $59 / oz in 2017, according to RBC's research report。Therefore, taking into account multiple factors, the more noteworthy M&A targets are currently in-production projects in underdeveloped or medium-risk countries, and should be considered as far as possible from the asset level acquisition。

An overseas expansion strategy wants more than just assets

　　As early as 2015, Chifeng Gold set its eyes on overseas, looking for high-quality mines or project acquisition opportunities, and looking for opportunities for overseas assets to enter the international capital market in a timely manner, through comprehensive enhancement of strength, to create a new international management model combining Chinese and Western, and gradually grow into the world's leading large gold mining company。

　　For the target areas of M&A projects, Chifeng Gold pays more attention to the surrounding areas of China, the surrounding areas of the Belt and Road, as well as Canada, Australia and some countries in South America with relatively stable investment policies and African countries with controllable risks。

　　Located in south-central Laos, the sepon mine was once one of the largest mines in Southeast Asia, accounting for 7% of Laos' GDP at its peak and contributing $1.4 billion in direct revenue to the country。From 2005 to 2013, the sepon mine produced gold and copper together。It was first discovered by Rio Tinto and later acquired by Osianna, which was later renamed OZ Minerals, which was then acquired by Minmetals and then again by Chifeng Gold last year。

　　After the sepon mine was acquired by Chifeng Gold, all walks of life still have relatively high attention to the status quo and future of sepon mine。At present, the sepon mine has an annual output of about 70,000 tons of cathode copper, with a processing capacity of 3 million tons/year, and has also ranked among the international large-scale mines in terms of personnel composition, environmental standards and community relations。

　　The acquisition of the sepon copper and gold mine in Laos is the first and important step for Chifeng Gold to internationalize。"The next step is to continue the copper production cycle of sepon Copper Gold mine while actively resuming gold production。At present, research is being carried out on the beneficiation and smelting of gold mines, and the transformation of the beneficiation plant is promoted, and the gold mine production is planned to resume by the end of next year。In Lv Xiaozhao's view, the significance of sepon mine for Chifeng Gold is not just a mine, "through sepon copper gold mine, Chifeng Gold has cultivated and trained an international management and operation team, on the other hand, it has accumulated mature experience in international mining development, which feeds the future development of Chifeng Gold.。"Lu Xiaozhao said。

　　Inward development requires strengthening weak links and advancing in multiple ways

　　At the beginning of listing in 2012, Chifeng Gold's main business was gold mining and sales, which belonged to the upstream of the mining industry chain。With the development of the company, Chifeng Gold acquired Chenzhou Xiongfeng Technology in Hunan Province, which is engaged in comprehensive recycling and utilization of non-ferrous metal resources, and Anhui Guangyuan Technology, which is mainly engaged in waste electrical and electronic products, and extended to the downstream of the mining industry chain in order to effectively disperse business risks。

　　Recently, Chifeng Gold intends to acquire Hanfeng Mining in order to obtain a mature complete industrial chain related to copper, lead, zinc and molybdenum mining business, expand the scale of copper, lead, zinc and molybdenum business, improve the situation of excessive concentration of gold in mining and mining, disperse the price fluctuation risk of a single resource variety, and alleviate the succession pressure of listed companies on subsequent resources。"This will promote the development strategy of Chifeng Gold from 'gold-based' to 'copper and gold based, taking into account multiple metals', which also means that Chifeng Gold has opened a diversified development route.。”

　　In the past two years, the construction of ecological civilization has put forward more and higher safety and environmental protection requirements for mining enterprises, which has affected the production of many substandard enterprises in the short term, and the output has declined to different degrees。

　　In this regard, Lv Xiaozhao believes that the improvement of safety and environmental protection standards is conducive to promoting China's mining enterprises, especially gold production enterprises to constantly improve their own infrastructure, improve safety and environmental protection investment, strengthen scientific and technological innovation, promote the transformation and upgrading of enterprises, so as to enhance the core competitiveness of enterprises, and boost enterprises to "go out".。"Although from the surface, China's gold production has continued to decline in recent years, the mining situation is still grim, but the industry concentration is significantly increased, the future situation of China's mining industry is bound to be better.。Lv Xiaozhao said that with the continuous improvement of the development quality of China's mining enterprises, the anti-risk ability of enterprises in response to "going out" is also constantly improving。