China Gold Int Resources
- TSX: CGG
- Shares Outstanding: 396M
- Share price C$0.65 (17.03.2020)
- Market Cap: C$274M
Interview with Jerry Xie, Executive Vice President and Corporate Secretary of China Gold International Resources Corp. (TSX: CGG, HKSE: 2099).
China Gold is a big gold producer, with a secondary focus on copper. The company orients itself around organic growth of its two large main gold and copper assets. It does have however very deep pockets if required for M&A. What we found particularly interesting was the companies approach to value. They can buy large-scale projects, but will not overpay. Now, given the relatively cheap cost of the money available to them, paying a premium would not be out of the question, which could give them a competitive advantage.
Founded in 2000, China Gold International has 2 main assets. Its main project is the CSH gold mine, one of China’s largest open-pit gold mines. And the extremely large Development play, Jiama Copper Mine. CSH is located in Inner Mongolia, China, the principal product is gold doré bars with silver as a by-product. In terms of measured and indicated (M&I) Resources, we’re looking at 262Mt, averaging 0.60g/t gold totaling 5Moz of gold at 0.28g/t cutoff gold grade, based on the most recent 2012 Feasibility Study. If fully-optimised, investors are looking at 60,000t per day of ore. The life of mine stands at 11-years (as of 2012), with an estimated LOM CAPEX of US$213M, and an impressive AISC of US$713/oz of gold.
Over at Jiama Copper Gold Polymetallic Mine, in Central Tibet, China, Phase II expansion started commercial production on July 1, 2018. Jiama Mine’s Phase II consists of two series. Each series has a mineral processing capacity of 22,000t per day. The full design capacity of ore processing at Jiama Mine will increase to 50,000t per day. Total copper production in 2019 is expected to reach c. 132lbs, and the expected life of mine is 35-years, with gold and silver credits. According to China Gold’s feasibility study, production is expected to grow to 176Mlbs of copper per year at full processing capacity.
While many gold producers share prices were buoyed by rising gold prices during 2H/19, China Gold International saw a slow and steady fall, now standing at CAD$1.06. The market cap is a sizeable CA$420, with 396.41M shares outstanding. Xie claims the share price issue has been mainly related to marketing issues. A potential easy and cheap fix? He claims marketing on the TSX vs the HKEX is very different, and retail gold investors have either not been told the story effectively, or haven’t been told it at all. So now what? Time for the company to step up its efforts.
Big changes for investors to look out for in 2020 will be cost-cutting and significant development of Jiama, maybe into optimised copper-gold production? Communicating effectively with the North American market will be important too. The management team appears very competent. The assets are large, it is producing and sitting on a lot of cash, but the business strategy and marketing needs to be better understood by the market.
China Gold needs to clearly communicate its strategy and focus to potential investors, and it needs to get the word out. This has the potential to be an exciting story: let’s see how this develops, but this one story we are going to follow with great interest.
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1:52 – Company Overview
3:32 – From Start to Finish: What Did They Set Out to Do? Why Do They Choose to Stay Public?
10:21 – Organic Growth and Restrictions to it: Project Overview
14:36 – M&A and Their Criteria: Can They Afford to be Aggressive?
23:13 – Share Price Dropped When Everyone Else’s Rose: What Happened?
27:38 – 2020 Goals: Building Value and Regaining Control
31:26 – Possible Road Blocks and Concerns Company page:
Company Website: http://www.chinagoldintl.com
Matthew Gordon: Hello and how are you, sir?
Jerry Xie: Well, I’m very good. Thank you very much. Well, thank you.
Matthew Gordon: Thanks for joining us. You’re you’re in Vancouver at the moment. And you’re gonna tell us all about China Gold International today, because it’s a good story. It’s a big successful company. But we want to hear about how you’re going to grow it. But before we do, can you give me one minute summary for people new to the story, so they can understand a little bit about this before we start talking.
Jerry Xie: All right. Thank you. I would love to. This company is named China Gold International. The former name was Jinshan. So many long-term investors still remember that name. Actually we changed the name from 2010 from Jinshan Gold Mine to China Gold International. So, for your information, this company’s founder was Robert Friedland. He set up this small company early 2000s and went to China for the gold opportunities and he found one named CSH. And in 2008, our parent company, which is the largest Gold producer, China National Gold Group. Bought it. He owned 42% of the company became the largest shareholder that basically was the 2008. Two years later, we changed the name to the China Gold International. It had already been listed on the TSX. And in 2010, we duel listed on Hong Kong stock Exchange. So right now, this company has two stock exchange listing. And I think 2010 we inject a one polymetallic mine from our parent company. Right now has the two listings, and 2 producing assets.
Matthew Gordon: Perfect. That’s a good start to this. Okay. So, can I just talk about what it was that you… I understand the history there, but what was it that you guys were selling act to build? Obviously, you are a gold producer. Great, but you’ve listed in Hong Kong. You’ve listed on the TSX. Why did you take this thing public first of all?
Jerry Xie: They original strategy. Actually, the market can take China Gold international and the China National Gold Group as one. We share the same strategy, we sit under the same under the same umbrella. So originally back to the year 2008, the China Gold Group was going out of China. They’re looking for the opportunity to grow, grow the group. So after a screening of would be target, they picked up Jinshan Gold Mine, as the first step. The reason behind that.. they set up the strategy, the criteria. Ideally the company should be a public company. Listed on the TSX or like Australia, somewhere like a very mature, stable jurisdiction. TSX is really the ideal place, public company and also ideally the asset, liquidity in China is easier to access, easier to manage, as a first step. That’s why they picked up this company after that…. We still want to keep that platform because obviously the reality is the Western…the North Americans investors… they want… it’s not really about the Chinese factor. Every time when we were in China people just got confused. So keep this platform. I mean, the listing position will ensure we’re not black sheep. And just following exactly the rules, the public rules, to keep the transparency. Follow the rules. So that’s the purpose. So easier to access the partner to look.. to find us a real good opportunity.
Matthew Gordon: I mean, that’s a really interesting thing. You say that because I think when people talk about Chinese companies, there’s a mystery to it, in the sense that it doesn’t feel as open and transparent. But as a public company, you must be. You must follow and comply with the rules of both sets of Exchanges. So when you started off that the needs were very different from today. You have successfully, economically, commercially been producing gold. Okay. You have got a lot of cash that you have created, a lot of cash flow that you’ve created since you started. Do you still feel the need to remain public? Because you don’t need to be. You’ve got you’ve got the cash, you’ve got partners who will give you cash facilities. You are in a very lucky position compared to most. So you’re saying you’re keeping the public persona, because it gives you an air of transparency. Is that the driver today?
Jerry Xie: Yes. So that’s really good question. And also, the challenge as well. The reason I’m saying so is because some, like I said, from the beginning from the long-term investors still remember Robert Friedland’s name. A few remember Jinshan Gold Mine. Even though we changed our name from Jin Chang to China Gold International, since 2010. But people still take us as the ‘new company’, When, people sometimes people introduce that say, ‘hey guys, let me introduce a new company to you’. ‘Hey, come on, we’re not new’. We been here with a new name already for 10-years. So you’re right. And we should be talking to the market. Some people are asking, why do you guys still need us? You don’t need money. You are financing with no problem. You can see that our…We do have access, to very low-cost of financing. I could say we’re sitting on the $500M bond that global issuing, very low-coupon. The last one was 3.25%. So this this year, it’s this 3-year term ending year. So we will need to renew that, maybe not $500M. It depends on our needs, but a CapEx, is not as much as during the construction period. Maybe lower. It really depends if any acquisitions happen in the near future, but still not really a strong need compared to our peers. It’s not really for financing on the equity side. But two reasons. 1. is like we said, keep it transparent. When we approach people, if you know, I mean, like Canadian owners, the peers. 70% global gold owners are Canadian companies? No matter where. Africa, South of America. So we have to approach them here. So when they see China Gold International that are listed in TSX and Hong Kong, so that we can build up more confidence and they feel more comfortable to talk with us. 2. Another thing is if we can run this public… the company better. I mean, the better the stock price, if it performance is better, so we can use our stock, to buy the targets. Not like always with cash. So that way you see a higher multiple, if our share price performs better, the higher multiple to buy a lower multiple, that could be very good deal. It’s not always just in cash. So again, combined, it’s a more flexible.
Matthew Gordon: I hear you and I want to stick with this for now, because the thing that… I’ve looked at your company, we’ve done some analysis of your company, you’re in a very good position. But I want to understand the money side of things a little bit more, if I may? So if I look at some of your peers, you’re talking about your Canadian peers here, who perhaps don’t have readily, or not as readily, don’t find cash as readily accessible, and certainly not the types of rates that you’re managing to pick up. So you’re at a slight advantage to them. But so what is it that you’re trying to build? Because it seems to me you could go and buy a lot more ounces in the ground. You can do that. You are already producing gold with good margin today. So but you’re only a $400M company today. What’s the goal here? Surely with the amount of cash you’re throwing off, the cash that you’ve got access to. There are companies struggling who would like some of your cash. What’s the plan?
Jerry Xie: So that’s really depends on what kind of strategy, how to grow this company. That is the question basically you are asking.
Matthew Gordon: Yeah. Tell me that.
Jerry Xie: So basically all the mining companies are similar. The strategy is how to grow their mining company, it’s both like organic and external M&A. So organically, we have the two producing assets. One is purely gold, which in is Inner Mongolia. Naturally one province in China. It’s not a Mongolia country, just adjacent to the border. That is a pure gold. Open-pit, heap-leaching, really conventional like process. Another one is a polymetallic, mainly Copper, but a lots of Gold. You can see that every year we are sitting are 200,000oz. Part of this ounces comes from the by-product of the Polymetallic mine, named the Jiama in Tibet region. So two assets, have two different natures. So for the pure gold, to the CSS Gold Mine. Right now the peak of the production already passed. Well, we look at, we still have like 2P Reserve is about 2Moz. But every company needs pipeline. So if the gold price sitting on its level or looking even higher. So we can look at the deeper Resource or how to utilize that. The grid could be a challenge. Right now it’s open pit. If we could convert that terms on the ground. Maybe the grade cannot support the economics. So maybe they use some block caving. We really need to look at that. The different scenarios. But it’s still a question mark. So that’s like a 6-7-years to go. The other one is a much, much bigger. The Jiama Mine Polymetallic is a huge deposit. It’s only 9% of the area we own. So right now it’s 6Mt of Copper, plus some like a 100Mt, 100% of the Gold is there. Not mentioning the Silver, Molybdenum and small portion of the Lead and Zinc, mainly Copper and Gold. Now gives us a huge potential. Mine life is like a 30-years. Right now is after expansion, ramping up to the design capacity level, which is 176Mlbs per a year. Right now we’re aiming at 145Mlbs. We’re close, but still on the way to ramping up. But the thing is, we need a pipeline. So even though that’s a huge potential there. Copper is good, even though right now it’s not that strong, but still like Copper is Copper. The need is there. The demand is still there. But we are China Gold. We’re still looking for the bigger, multiple commodity, which is gold. So we keep looking for Gold assets, so which turn the topic to what should be the strategy of how to grow this company is by external acquisition.
Matthew Gordon: So you’ve explained the organic component, the organic growth. The restrictions and the opportunities. I get that. So come to the M&A bit. But because again, we’ve been talking to lots of people… we talked about Equinox Gold before this call started. They have gone through a process of acquiring ounces in the ground. They’ve made some good acquisitions. They’re a bulk gold play, low-grade bulk play. But it’s very clear to me what their strategy is. And I would like you to share with me, and the viewers here. Do you see M&A as a big part of the growth going forward? And how aggressive are you going to be? Do you feel you’ve got the finances in place to be aggressive?
Jerry Xie: For the external acquisitions? That’s another topic, right? But organic gave us very strong capability like we have $200M cash on hand. And we’re like $3Bn asset value and about $1.4Bn book value there. We can see that we’re a medium-tier, a second-tier of players. So when we’re going out, we can, like I said, we share the same strategy and same umbrella with our parent company. So every time we’re talking about China Gold International, keep in mind we were strongly supported and backed up by our parent company. So you can see, if people only look at this China Gold International, maybe the cash capability, even though we can access the bond, let’s say we can easily go for another $500M. We can reach more by leveraging the capability of the parent company. Thick line to short, money won’t be an issue. But the thing is, we funded… here is the thing. Every time, every day almost, so many sellers approach us, but not too many really met our criteria. We have our own metric? Where to go, and what kind of commodity, what time of play?
Matthew Gordon: Well, tell us.
Jerry Xie: Let’s come to thematics. Well, we basically.. the principle is project driven. So good quality. Good quality means. We’re looking for the producing mine with some potential. We’re not really focusing on the green or too early stage. We’re not patient enough to wait for that, and the higher-risk. So producing mines with some potential. And also commodity-wise, we mainly focus on Gold and Copper, or silver if it’s good enough, but nothing too much. Jurisdiction-wise, we prefer stable jurisdictions that everyone prefers too. So like Canada or Australia. We know that Australia is more expensive right now than Canada. And if we can see the trend is there is more and more consolidation there. So that real trend is there. We’re open to some countries in South America, and some countries in Africa. But some where we’re not going to like DRC. Don’t get me wrong, I don’t put any a judgment onto these country, but that’s our own judgment, our own strategy. That is our main metrics.
Matthew Gordon: The hard bit here is, as you say, if you set your targets quite high, there’s a lot of competition looking for the same stuff, you know? Do you think you’re going to be able to… you can compete financially, but you don’t want to overpay, necessarily. But you may decide something is worth more to you than it is to someone else. And you know, you’re paying a little premium is okay for you. But how many of these conversations have you got going on, and how close are you to doing something? Because M&A acquisitions excite the market. You’re buying more ounces, because you’re buying production, you’re buying more potential in terms of Reserve / Resource as well. Where are you today? What can you tell us?
Jerry Xie: So that’s turned into a little sensitive topic right now.
Matthew Gordon: But you can tell us, it’s fine.
Jerry Xie: Let’s continue my words. That’s say there’s so many people approaching us. But, I noticed the trend there is a people approach us, not only us, but it’s the approach the larger scale Chinese mining players, because they know Chinese mining players have lots of cash. That’s why they approach us. People like cash rather than the paper. So that part of the reason, but for us, even though we can access the low-cost financing. We still want to use some paper. If our paper performs good enough. So that way we can avoid too much premium. Reason premium, reasonable, it’s acceptable to us. We can look at the average level what the premium will be, and we can talk about actual re-valuation thing. But the thing is, we emphasize that producing mine plus the potential, that potential, can make-up that the premium. If we just paid premium, there is no money we can make. All the revenue side is a premium, so we’re not going to do that. So that’s why they can explain why China Gold moves so slow. We’ve been talking about this topic been almost 10-years. Since we listed in Hong Kong Stock Exchange, so many, Cornerstone investors keep chasing us, ‘hey, you guys promised us you’re going to buy this, buy that, but you still don’t take any real action’. But our team, we keep doing that, screening the things. Talk to people quite often. So some deal is really close to… I can’t say too much about it, so that I say it was sensitive, almost to the way joint deal process. And we’re close to writing the cheque. Really, really close to it. Open the dataroom, doing the due Diligence, been to site, did the site visit, valuations there. Ready to Ok, you know, external consultants, IBank, lawyers, we spend a lot of money on this. But eventually people were saying that it’s good… when we figured it out. It’s not that good. It does not meet our strategy metric. Or too expensive or the quality is not that good or our competitors, they offer higher than us. So, for a few reasons to make China Gold look not that nicely in this regard. So they really want to give you a example. I can talk to you about something already happened with people I already know. Many years ago before Lundin’s Gold group went to Ecuador ICN Project, China Gold joined the first three rounds of bidding process. And we were in the first rank. But due to some reason the bad communication, we lost the chance. That time was even better deal. So I cannot talk about so many things ongoing. Or is it that people don’t want us to talk too much? I have already done that last year in Africa last year, I talked to the media, but it’s not nice to be very careful.
Matthew Gordon: That’s fine. And I understand that. Well, I guess what I’m trying to get a sense of from you is, I think historically Chinese companies have been branded as cavalier with their cash. They just want to get the asset and therefore they overpay, which makes it difficult to make money. What I’m hearing from you is, you’re cautious with your money. You’re sensible with your money. And you’re not going to… you’ll pay a premium if it’s worth it to you, as the sum of the parts of all of your portfolio. But you’re not going to be foolish. Which is good. Which is good. But that leads me to the share price. You’ve seen the share price come away. It was the last half. Basically, when all producing gold company share prices’ were going up. Yours has been trickling down. Do you know why?
Jerry Xie: Yes. That’s a good good question. That’s actually happened to us last September. And our price was not that nice, but it’s not that bad. We were just stable. But it’s not that really exciting, but not very bad. But when we were in the Denver Gold Show last year, September, we keep talking to our institutional investors. Van Eck, something and we talk very good talk, very quick just in that week and we came back to our Vancouver office and we found our share price had dropped a lot. We were shocked to see that, nothing really happen. And we talked to the… because retailer is one thing, but retailer just the follower normally. But I now this space interactions, but to the institution will be taking a leading role. So one more thing I need to add. We duel list this company. It’s really different to market in Hong Kong market and TSX market. TSX side. The Canadian side. The investors really understand mining investment is a long-term thing. But in Hong Kong side people only look like a short-term. They act more speculative, more than the TSX side, but some investor from mainland China they understand mining, but they go through some channels so called the connection between Hong Kong and the mainland development stock Exchange connection. We tried accessing that, but eventually but sat on that for one year because there’s some criteria. Your trading volume, your market… the market value needs be at some level. But China channel was shut down. We’re back to Hong Kong Exchange. So after 2010, we thought Hong Kong investor was understanding the China factor. They fully understanding what Central Asia know you mean. That’s a really positive factor than Hong Kong. So we pay more attention to Hong Kong than to the TSX. So that’s my fault. So we could be talking to the Hong Kong, and Hong Kong most of them are retail. They’re just following. More speculative. So when last year this kind of thing happened, because our institutional investor ‘oh, awesome it’s North American.’ But we found. ‘Oh, wait a minute. We should pay more attention back to the North American side’. That’s why since last October, we’re starting doing more to make communication with North Americans. There market let people the new story. So that’s why it a shock to me. Surprise people say your a new company, and they both say, ‘look at your solid deposit… Resource base, look at your solid management team and your performance. They said you’re a good company compared with some peers. But why are you undervalued that much’. People say, is there anything bad that we don’t know? ‘No, nothing I can tell you… everything has to keep there on chance. It’s the same. We’re still ramping up. But the stock price dropped down. That’s really our challenge. More people knowing about story.
Matthew Gordon: Well, I buy some of that. I do buy some of that. But, once you’ve kind of got the downward movements, very hard to move. Go back up. So going out and telling a story to retail is, I think, a big part of what you need to do for sure. But can you succinctly, very quickly, say what are the things that you’re going to do.. more than just telling the story… What are you going to do with the company to allow people to believe that you’re going to deliver it? You’ve talked about organic growth. You’ve talk about potential acquisitions, but it’s quite hard to make those acquisitions. But those are the big meaningful numbers that you can you can deliver. But what else can you do?
Jerry Xie: You know what? It’s basically right now we’re emphasising ourselves. First on the organic side for now, it’s because the asset that on the purity gold mine are operating very smoothly. Well, like I said, if the gold price is sitting at this level, even though we you know, we don’t do something deeper, utilise a deeper resource. Keep current operation level, it’s still like 160,000oz per year. So that money, if they went to the channel it to improving our recovery rate in the heap and to the profit the drop down this cut to make a bigger room for our profit. So that’s on the gold mine. But not mentioning if the gold price got higher, we can look at a deeper one, as the next step. So for the Jiama, it’s more that complicated. That’s a huge mine. So we would send that in the past few years we’ve done the expansion. We call that Phase 2. That is a big jump. From 6,000t per day processing capacity to 50, 50,000t processing capacity. Given that elevation, the mill is sitting on 4,400m high. So right now they need more time to ramp up, right now on the waste, ramping up. So we are focusing on reaching that design capacity as quick as possible because the Jiama, we say that it’s complicated. It is because the three type of deposit on the surface, 30s XXXXXX it lowers the grade. On the ground, it’s a skarn type. It’s around 0.8% to 1% at highest. The deep is the Porphyry. We haven’t touched it at all. Not touched it. So right now we’ll only work on the surface and the skarn type. So the challenge is the 50,000t per day. 33,000t comes from the surface. 17,000t comes from underground. So we right now are focus on how to increase in the higher-grades ores comes from underground to increase to 17,000t to like a 25,000t, 26,000t. That could make a huge difference to the current situation. But that’s our effort to put in.
Matthew Gordon: And that’s what you want to focus on this year, because you can control that. You’re in control of that, right? With M&A, you’re not in control, I think is what you’re saying to me. You’re on the lookout, but it makes a big impact, a big noise in the market. But you’re not in control. So the Copper Porphyry seems like a very big target for 2020. So what are you actually going to do in 2020 versus 2021? What are the big moments that you’re going to come back to market, say? We have done this. What what are you going to be able to say this year?
Jerry Xie: Like I said, yes. There we are focused on cutting costs in general. In the Jiama most likely this year and that next year, it’s focused on the ground higher-grade zone, increase that. So that’s what we are focused on.
Matthew Gordon: Are you’re nervous about anything. I mean if you got issues around water, permitting, license, infrastructure, all the usual stuff. Meanwhile, is anything that we know?
Jerry Xie: No. Because everyone thinks Mining in Asia really have that risk thing… everywhere is the same. It does mean… in any country it’s the same, even though.. our parent company, we relied on them because there are a operating genius. We relied on them because they have very strong influence in China. They’re Central ISOE. So they have very strong operation team, that has very good in relation to the local governments and the local community. Some people have a different imagination in China, I can tell you mining is exactly the same in Canada or to … mining is mining? You’ll have to try your best to make relations to the local community. If you don’t, your done. So we’re trying so hard to build up there’s a good relationship between local governments and their community, to acquire their support. So nothing else. Right now the environmental protection in China getting more strict, but they have to be kept at a reasonable level. So right now, the people already saying that the government already tolerates that direct to pay more attention to the environmental protection. But meanwhile keep at a reasonable level. So there’s no concern about the license of some challenge like this. The only thing we cannot control is the market. The metal price. Let’s say right now the Corona Virus. That’s really out of hand. You’re out of control you have no idea by that. You can see that. After all our trying to communicate this to the American market, our stock price is coming back a little bit last December to the beginning of January. Look at now. With that virus attack.. Another thing about our strategy is the China Gold Group has owned this company before, they have very strong support to this company. All can being with us, selling Doré to their smelters. They have few smelters, large-scale smelters. Every smelter with refinery. We sell to them at very favorable price. Because China Gold is vertically highly-integrated. If you have been to China. Terminal 3 International Airport. You can see that very big store, physical jewelry store named China Gold. They over 2,000 physical stores. Very influential. If it, you know, take the whole thing of China Gold. It doesn’t matter if it is China International oo China Gold Group, we share the same strategy, the same strength.
Matthew Gordon: Thank you so much for telling that story. It’s new to us. I really appreciate you talking us through that. I’d love you to come back on the show another time. And let’s get into some of these numbers and how you’re progressing things. But these seem to have a lot of very good options available to you. I think you need to help the market be clearer on what your focus is, and how you’re gonna deliver that. I don’t worry about your access to money. I don’t know. And you’re saying a lot of the right things. So I do appreciate the time you’ve taken today to do that. Let’s stay in touch and speak very soon, please.
Jerry Xie: Thank you all very much. And also welcome to hear the feedback from their market and what people really want know. We are fully open. There is really a high transparency, and we are open to all the questions.
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