SINO GOLD MINING LIMITED
SGX - Sydney Mining Club - Mr Jake Klein, President and CEO
Wed, 8 Oct 2008 09:15AM
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SINO GOLD MINING LIMITED (SGX)
ASX code: SGX
Website: http://www.sinogold.com.au
Industry: Materials
Principal Activities:
An operating gold mining and development company.
Address:
, 44 Market Street, Level 22,
SYDNEY
NSW
Phone: (02) 8259 7000
Fax: (02) 8259 7070
Executives & Directors
Mr James E Askew , Chairman, Non Exec. Director
Mr Jacob Klein , CEO, Executive Director
Mr Hanjing Xu , Executive Director
Mr Peter W Cassidy , Non Exec. Director
Mr Brian H Davidson , Non Exec. Director
Mr Peter John Housden , Non Exec. Director
Mr Liangang Li , Non Exec. Director
Mr Thomas David McKeith , Non Exec. Director
Mr Roger Howe , Investor Relations
Mr Ivo John Polovineo , Company Secretary
Company Podcasts
Company ASX Announcements
Company ASX announcements can be viewed on the ASX website.
Announcements from the preceding six months are shown below.
Please refer to the relevant stock exchange if any of the above information is incorrect
SINO GOLD MINING LIMITED (SGX) Events
Australia/NSW
SINO GOLD MINING LIMITED (SGX)
| Ceasing to be a substantial holder from CBA | Mon, 29 Jun 2009 |
| Change of Director`s Interest Notice - Revised for H Xu | Wed, 24 Jun 2009 |
| Becoming a substantial holder from CBA | Tue, 23 Jun 2009 |
| Appendix 3B - Issue of Directors` Options | Tue, 23 Jun 2009 |
| Change of Directors` Interest Notices | Tue, 23 Jun 2009 |
| Change of Director`s Interest Notice - P Cassidy | Thu, 18 Jun 2009 |
| Final Director`s Interest Notice - T McKeith | Thu, 11 Jun 2009 |
| Appendix 3B - exercise of employee options | Wed, 10 Jun 2009 |
| Ceasing to be a substantial holder from CBA | Wed, 10 Jun 2009 |
| Becoming a substantial holder | Fri, 5 Jun 2009 |
Please note: This company appears on this website as a result of its listing on the Australian Securities Exchange. Boardroom Radio does not claim any association with any company listed on this site.
PRESENTATION BY MR. JAKE KLEIN, PRESIDENT AND CHIEF EXECUTIVE OFFICER OF SINO GOLD MINING LIMITED (SGX)
“Sydney Mining Club”
http://www.brr.com.au/event/52068
WEDNESDAY, OCTOBER 8, 2008, 10:15 AM.
SGX Thanks Julian and great to see so many familiar faces and friends of Sino over the years.
10
It’s been about 3½ years since we presented at the Sydney Mining Club and it’s a great opportunity to update you as to the progress we’re making in delivering on that strategy we spoke about some 3½ years ago. We’re going to be talking about China, so let’s start getting some scene setting. China’s a
15 big country so it’s got some big numbers, $4 trillion is the GDP of China today. That’s up from 1980, a $100 billion, so it’s grown 40 times since 1980. It’s only been open for 30 years since Deng Xiaoping open China, 1995, $500 billion, at 2007 $4 trillion, 3rd largest economy in the world. So that’s the place we’re talking about. Just by comparison, Australia’s GDP $1 trillion, so
20 we’re talking about a country that is four times the size in terms of economic terms. It’s one-third geographically larger in terms of land mass.
I think this number, you’ve probably seen a few times, $28 billion, that’s the exports to China. China today, the largest trading partner of Australia -- 60%
25 of this is minerals trade, so we’re selling a lot of minerals to China. We’ve got a huge opportunity. We’ve got a Mandarin-speaking Prime Minister. We’ve got an embassy in Beijing and an Ambassador that really understands China and it’s pro-business. But I guess, I just wanted to reflect in the early part of this talk as to whether we really are taking advantage of the opportunity that
30 we should because we talked about a lot of that complementarity of the two economies, and what is complementarity really means? Because the reality is that at the moment we’re selling lots of raw materials, but on the ASX top 20 companies, there is not one Chinese director. So, we’re selling them raw materials. They become our largest customer and complementarity surely
35 needs to lead to integration, ultimately. The picture which I see of the future of companies that are affective in this integration and complementarity, are going to be truly integrated and that’s our senior leadership team. Of the 20 photos you see up there, more than 50% of them are Chinese. All of our main sites are now run in Mandarin, and by the same token, it’s the same
40 thing we should expect of Chinese companies coming to Australia, because whilst the trade statistics are large and impressive, the actual direct investment, cumulative direct investments by Australians to China, is only cumulatively $3 billion. By the same token, by the end of 2006, Chinese investments in Australia had also only reached $3 billion. It quadrupled in
45 2007 and now, the government has $30 billion of investments in scheduled or request for investment by Chinese company.
But if we’re really serious about integration, I think it’s going to be integration at a people level. Sino’s integrated on a people level -- it’s probably one of our biggest achievements moving to a fully Mandarin-speaking site management team. It’s away from the expat model that we’ve started with of
5 having an Australian trying to be effective in China. But this is real complementarity in terms of bringing together the safety, environmental, community standards, productivity measures, technology, which Australia has to offer and delivering it effectively in China. We’re integrating even further because now one of our major sources of funding is Chinese banks. We
10 recently announced that we had a $34-million project loan for the White Mountain Project delivered by the China Construction Bank in (inaudible) locally, and to me, this is going to be the model for integration for Chinese companies coming to Australia. We should demand it, likewise Australian companies going to China should be ready to truly integrate as well.
15
Talked about it being the third largest economy in the world, well there are 35,000 foreign joint ventures approved in China last year. So, this is not a place which is has not been well trodden over by foreigners. It’s the largest foreign direct investment destination in the world. Mining fits within the same
20 regulatory and corporate framework as those 35,000 joint ventures. But the reality is and this is what turns a lot of people off, the bureaucracy in China is 1,000 years old and the legal framework of China is only 30 years old. So, there is no doubt that if China didn’t invent bureaucracy, they have certainly perfected it. It’s a real challenge in terms of doing business in China
25 effectively. You’ve got four levels of government. You’ve got multiple ministries. But I’ll put to you today that really China is the flipside of many parts mining destinations. It’s bureaucratically very complicated, but it’s geopolitically very stable. Lots of perceived hot mining countries or geopolitically unstable, bureaucratically simple but you’re contract on your
30 tenure is only often as good as the president’s rule. So for us, it’s a real opportunity. It’s about learning how to deal with that bureaucracy. There going to be bumps in the road, but it is a system that can be navigated.
But here is the key driver why there is such a substantial opportunity, 80% of
35 the rivers in China are too polluted for fish to live in. Anyone who watched the Beijing Olympics would have recognized that one of the most significant issues which the leadership would have been kept awake at night thinking about was the pollution over Beijing. It is going to be a key driver. Some estimates suggest that 50% of this economic growth and miracle which has
40 been China’s emergence on the economic stage, 50% of that growth is being -- you need to reduce it by the cost of the environmental damage that is being done. But there have been changes, may be not enough, the regulation still on enforce uniformly but there have been changes. When we first went to China, the environmental and safety departments were part of the department
45 in the Economic Trade Commission -- the ministry responsible for driving economic growth.
Today, they both have ministerial status. For the first time in our period in China, we’re starting to see small scale operation shutdown. But if that’s going to be the catalyst for change, why go and deal with the bureaucracy? Why go and deal with the challenge? Because actually, China today, is the largest gold producing country in the world. South African production is at its lowest level in 85 years. Australian production is at its lowest level in 20
5 years. Mature country, production is on the decline. You want to be in the countries which are geopolitically stable and geologically very prospective, and have a legal framework that if you accept its evolving can be relied on.
Sino Gold is also the number 1 foreign gold producing company in China.
10 We first started going to China in 1995. I just want to take you through a snapshot of the changes we’ve seen because from those changes -- from change emerges opportunity and the gold industry in China is definitely on re-transformational period. But in 1995, really all mining was done by the state. There were no foreign companies. There was no mining law. There were no
15 listed companies. In fact, the average scale of production still today in China is 16,000 ounces of gold a year, largely driven by explorers who are state funded. During the economic reform period, state funding became more and more difficult to obtain and really what they did was they started mining what was in front of them and you had essentially a subsistence mining
20 environment. No focus on safety and environment and no foreign miners. Very little exploration from that period, lots of state funded exploration prior to that, and that is where I guess the opportunity lies because a lot of that data can now be used in a different way. But essentially, these guys were mining for cash.
25
2008 -- that’s today 13 years after we went to China. You have five listed Chinese gold companies. You have Zijin which has a market capitalisation of US$12 billion, making it the fourth largest global gold company. You have four foreign gold mines, two of which are owned by Sino Gold. You have only
30 five mines with more than 100,000 ounces of gold production a year. One of which is run by Sino Gold -- 20,000 exploration licenses have been granted. You have probably 30 or 40 foreign juniors, who have put their foot on some properties, and you’ll hear from one in a few minutes, and you have this ministerial status for safety and environment which is driving change.
35
So if we look forward and we say, well 2020, what can we expect the Chinese gold industry to look like? I think it’s fair to say that in the past, the world’s largest gold producing countries have posted the world’s largest gold producing companies and I think it’s hard to argue why China would be
40 different. So, I think you’re going to see listed Chinese miners -- we certainly would put Sino there in some of the larger gold companies. We’re going to have a much more active listed junior group. You’re going to see a focus on sustainability. That is something that definitely has to change and you’re going to be seeing something that occurred really in Australia in the 1980’s, a
45 consolidation, a focus on largest gold mines, and you’re going to see Chinese companies emerged as global mining industry leaders.
But you know, 13 years of going on that bumpy road to China, you know, what keeps us going. Yes, it’s the largest gold producing country in the world, but I think it’s what we’ve called iceberg strategy. China produces all that gold but from so many small little gold mines, all that data has been collected and I think it’s fair to say that you are unlikely in China to walk up to a Greenfield sites and think that no one else has identified that gold is there,
5 start drilling, and find the major deposits, and that’s really the highest risk of the exploration phase. Now, what you can do over here is walk up to a small-scale mine. You can walk up to an exploration license which already has some workings, some identified mineralisation, and hopefully, you’re in the search for icebergs because there’s been no real exploration as to what the
10 scale of that deposit is -- it’s just being worked for cash, it’s at the surface, there’s no money being spent on exploration. So, the opportunity in China is really a little different, lower risk, I would put to you, because you’re looking for things which have not been recognized for what they are but they’ve already been identified as gold mineralised areas.
15
So recognizing that, we’ve put together a database of some 8,000 gold deposits covering the whole of China. Using that historical data, we’ve focused on three core areas, each of which, we believe are district opportunities. We have a presence there but we believe that the presence is
20 only a starter into what will unfold as a district opportunity. I think it’s something which is a bit overlooked, but you know, things in China are cheap. Most of the things I buy are from China. You know, the same cost advantages apply in the mining industry. These are real costs which we have in China, at Jinfeng, at White Mountain -- decline developments, $1,700 a
25 meter, Shaft Sinking $4,000 a meter. So, ounce for ounce, a mine in China should really be more profitable than a mine in Australia, and I think you’re going to see lower cost mines emerging or you know, as we grapple with this cost inflation, we’re going to see that China will deliver on the lowest part of the cost curve.
30
But then, I mean the thing -- that’s one thing dealing with hard costs, but I think one of the real challenges which our industry faces, is what about the soft costs of people. We’ve got used to an industry where a 35% turnover rate in Western Australia is considered okay. That people cost and that
35 people movement cost is huge. At Sino Gold, we have a turnover rate of less than 3%. We’ve integrated it into China. We have a graduate recruitment program where we’re taking 20 young graduates out of the best technical universities in China and putting them through training. They see being part of a foreign company, being part of a pioneering company which is changing
40 things in China and doing things differently as very valuable. But it’s certainly, is a huge advantage to growing a gold company.
Moving towards the company, I thought I’d look at a snapshot of where we were when we last spoke to you, 3-1/2 years ago and where we are today.
45 We now have resources on a 100% base of 8.2 million ounces, that’s up from 3.5 million ounces. Our reserve base has grown from 2.1 million ounces to 4.8 million ounces. Jinfeng, we were talking about early construction. It’s now in production and China’s second largest gold mine. White Mountain, I think, we’ve drilled our first hole into and the next couple of months, it’ll be in production. Beyinhar, we haven’t even thought about, it’s now a feasibility project. Eastern Dragon, again we haven’t thought much about, it’s now in pre-feasibility stage. So, we’re building a portfolio of high quality assets and where we focus all those three districts, Jinfeng -- our 82% property, high
5 grade, long life mine in Guizhou, China’s second largest gold mine. White Mountain -- due to produce gold in the next couple of months, Easter Dragon -- up in Heilongjiang, Beyinhar in Inner Mongolia, by gold the processing plants which we have.
10 In addition to that, our major shareholder, Gold Fields, who owned 20% of Sino Gold. We have an alliance with them which is looking for plus 3-million-ounce deposits. We’ve gone through outside of these districts to review of the 58 gold belts which we have identified in our database as prospective in China. We’ve identified four priority belts. We run the ground drilling in the
15 alliance and we’re starting to get some initial success there.
Just moving to Jinfeng, it’s an open pit mine with the underground mine coming on stream at the moment. We’re fitting all our material from the open pit, but as I’ll show you in a few minutes, we’re well advanced in the
20 underground. It’s a significant deposit. It’s 5.3 million ounces today at 4.5 g per tonne. That’s up from the million ounces add when we acquired it in 2001. Of that 5.3 million ounces, 3.5 million ounces is in reserves at 5.2 g per tonne. The processing plant is a high quality, efficient operation. It would not look out of place in any context or any mine which you’ve visited and it has a
25 15 to 20 year mine life with great district potential.
I guess some of the things which we’re most proud about is the fact that our safety record is at least as good or better than an Australian operation. Our last time injury frequency rate is 0.6. Next month, we’ll be launching with the
30 Sydney University, a sustainability program that over five years we’ll bring (inaudible) government officials out to the mine then to Australia to be trained at the Sydney University on sustainability. We have a community development program in progress. At this stage, we’re focusing entirely on the open pit. The underground ore is starting to be mined, that is a high
35 grade and you’ll see that that will make it a significant difference to our production profile as it ramps up. In the first half of this year, we’ve produced 66,000 ounces at $416 an ounce and we’re looking to try and up that to over 80,000 ounces at less than $400 an ounce for the second half of the year.
40 The BIOX something which was meant to be, give us all the challenges with respect to technology has been pretty straightforward and worked very effectively. It is a world class orebody, 5.3 million ounces, 35 million tonnes at 4.5 g per tonne, the open pit reserve grade at 4.4 g per tonne, the underground reserve at 5.8 g per tonne. We now have two sublevels
45 available or ready to be accessed for the underground material, and as that starts to ramp up over the next couple of years. Next year, we’ll be doing about 400,000 tonnes from the underground. We’ll start to get a blended higher grade. It does remain open at depth. You know, one of the interesting things is that this deposit is not closed off. As it plunges to the east southeast, it remains open, and there is a tantalising exploration target down where the Triassics sediments make contact with the limestones. In this Jinfeng district where we own 42 exploration licenses, there are several deposits which occur primarily in the limestone, the some which occur in the
5 Triassics and in the limestones. It’s too deep for us to currently test to a roughly a kilometre down, but as soon as we get the decline with inside of that limestone contact, we’ll be trying to drill that out, because the intensity of mineralisation seems to be increasing as you go towards that limestone contact.
10
White Mountain is our second mine. It’s an underground mine with 650-tonne-per-annum CIL plant and then just putting that in context over the last 12 months, we have built this mine. This costs roughly US$60 million to build. For that, we’ve got almost 4 km of decline developments, a 650,000-
15 tonne-per-annum plant. All constructed for US$60 million. Four years off to the first discovery hole. So you know, may be the permitting and processing of things in China is not so bad. But certainly, that’s capturing the cost advantage of China. It’s got a 1.1-0million-ounce resource of which 800,000 ounces is reserves and our forecast production is roughly 70,000 ounces at
20 $300 an ounce, long term, although as we commission the plant over 2009, it will be higher than that. It’s near very good infrastructure and again, it’s one of those properties which is not closed off and we continue to get some encouragement to the northeast. We’re building our land position there and it’s part of the same strategy of anchoring ourselves in a district and then
25 growing our ground position, exploring extensively whilst we operate there.
As I said, it’s been really 12 months since construction started at White Mountain, five months of those were winter. So, there was no plant construction during those five months. So, if you want to get things done in
30 China, it is possible. We’ve used a team of people who have worked with us on our previous two mine developments. The prime contractor is a group who have worked with us on all our developments and we’re starting to get in sync with respect to the safety, environmental standards, and productivity standards we expect, but we’re also capturing that China cost advantage.
35
We also run a processing plant in Shandong. Shandong is the largest gold producing province in China. It produces roughly 25% of China’s gold. That processing plant, we acquired late last year. It was really a state-owned enterprise and I’d say the experience we’ve had from operating that
40 processing plant for the last 12 months is giving us confidence that we can takeover an operation with way too many employees -- employees we think they’d just running the plant at full capacity will somehow make you money by focusing on productivity, by focusing on profitability -- we’ll be able to make a substantial turnaround to that operation to the point where it stopped bleeding
45 cash, it’s even contributing a little bit, but it’s more than, it’s us given confidence and experience at taking over an operation and that of course, opens up a whole new field of potential opportunities for us as we potentially look at existing operations in China.
Moving to our development projects -- you’ve got Beyinhar which is in Inner Mongolia there. We’re finalizing the feasibility study. It’s a 1-million-ounce resource, 0.5-million-ounce of reserve. We demonstrating that it’s a robust 2.5 million per annum heap leach operation which will give you around 50,000
5 to 60,000 ounces of production a year. We’ve got two rigs testing there. It seems that it’s relatively low grade 0.7 of a g and it’s was to this heap leachable. It’s one of those assets which I guess has been somewhat undermined by the next asset which I’m going to introduce to you because this is an asset which I think is a real sleeper in our portfolio. We acquired
10 80% of it for US$101 and I think that put pave to the theory that foreigners can only acquire low quality assets. Because I think here, we have the highest quality asset which we’re aware of which is available for the development in China. We acquired 80% of it. The initial target is 600 to 800,000 of JORC resource, targeted grade is 7 g to 8 g and 70 g to 75 g
15 silver. This is a deposit which we believe will produce gold at around US$100 an ounce. We acquired it when it had 45 holes drilled by the Chinese partner. It had been developed on three sublevels. It’s part of a very small lease, at the moment, load five lease. We’re working and we’re making progress at acquiring the surrounding 53 km2 at ground. But we believe that this is
20 prospective for multiple loads and we think we are in it again a district opportunity.
Again, the quality of the resource, I think speaks for itself. Here are some intersections which we’ve got through our drilling campaign over the summer
25 -- 20.7 m at 10 g per tonne, 71 g per tonne silver, 5.2 m at 17.8 g gold, 242 g silver. Again, in context, my understanding say of the mining industry where we’ve been in Western Australia is that there’s been one mine opened, new mine from a new discovery, Higginsville, are both have done very well at developing on opening that mine, one mine in the last seven years. Here,
30 we’ve walked into an opportunity, several opportunities but particularly this one, Eastern Dragon, $400 million. You know I think, this one is the sleeper asset for us. A very rare that you can get assets which are going to be producing gold, that’s somewhere in the order of $100 an ounce. So, the plan here is clearly not to hesitate.
35
Cobb Johnstone, our Chief Operating Officer was up there a few weeks ago, came back celebrating at the prospect of developing this. It’s simple to treat metallurgy. It’s good ground conditions. A little cold in winter given that it’s close to the Siberian Peninsula, but you know, will dress you warmly and off
40 you go. This is not a case of whether we develop it -- it’s a case of when we develop it, and you know, that story comes together that asset base comes together where we’re running. At the moment, the largest exploration program in China, we’ll be able to bring exploration perspectives on things, exploration capital in the last few years to these deposits which you know
45 we’re in the search for icebergs and the best way we can add value to our shareholders is by delivering discovery ounces, essentially acquiring the tip of the iceberg cheaply and hopefully finding a few icebergs. Of course that doesn’t include Eastern Dragon at all.
That, you know, from 3-1/2 years ago, when I last spoke to you, brings today a totally different company. A company which is now covering exploration, evaluation, construction, and operations, and really building in some ways, the complete gold company, a phrase which our a 20% shareholder, the Gold
5 Fields is very keen to use and we thought we’d plagiarised that. So, we’re building the complete gold company in China.
What can you expect from Sino over this remainder of this year? Jinfeng production at more than 80,000 ounces for the second half of this year, we’ve
10 just finished the third quarter. It’s been pleasing to see that Jinfeng continues to make progress. It’s fair to say that we’ve now consistently, at least, achieving or exceeding design parameters on all aspects of that plant. Our first gold at White Mountain and moves us out of the single mine company, I think the curse mine company where we have a second operation. Of
15 course, Jinfeng will also have underground, all coming through next year. The Beyinhar development decision, and looking forward to revealing that initial Eastern Dragon JORC resource and reserve.
So, if Julian, Chris, you invite me back in 3-1/2 years’ time, what can you
20 expect? Well, you can expect us to deliver on this growth profile. You can expect us to be capturing the cost advantage which exists in China, and on the geological prospectivity at all our properties, were none of them are closed off and drilling and exploration will continue to expand, and we’ll be looking at those 60 exploration licenses which have acquired in several joint
25 ventures in those key districts. We’ll be looking at that Gold Fields alliance, hopefully, developing something from that alliance. We’ve, of course, closed out all of our hedging last quarter. I’m very happy to be a non-hedged company in these volatile times and we have something which I think is going to be enormously valuable in the next 18 months as opportunities emerged.
30 We’ve obviously got operating cash flow, but in addition to that, we have a very strong balance sheet. We finished June with US$80 million in the bank and we you know, we think we’ve made substantial progress in delivering the strategy in what is today the world’s largest gold producing country, and I’m looking forward to coming back in 3-1/2 years or sooner to tell you more
35 about how we’ve progressed.
Thanks very much.
INTERVIEW CONCLUDED
Contact brr@brr.com.au for more information
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