Zijin Enters South Africa, Buys Stake in Ridge Miniing
Monday, August 13th, 2007
Zijin Mining Group Co. agreed to buy a stake in Ridge Mining Plc, giving China its first foothold in South Africa’s precious metals industry, the world’s biggest. Shares of Ridge jumped as much as 19 percent.
Zijin, which runs China’s largest gold mine, will pay 8.2 million pounds ($15.4 million), or 45 pence a share, for a 20 percent stake, Ridge Chief Executive Officer Terence Wilkinson said yesterday in an interview from Johannesburg. That’s 40 percent more than Ridge’s closing price last week.
China bought stakes in key industries from Australia to Mexico in the past year to guarantee resources for its booming economy. China expanded at the fastest pace in more than a decade in the second quarter. South Africa is the world’s No. 1 producer of platinum, which rose to a record this year on stronger demand for the metal used in jewelry and anti-pollution devices for cars.
Zijin are entrepreneurial and aggressive,” said Graham Birch, who helps manage the equivalent of $8.5 billion, including shares in both companies, at Merrill Lynch Investment Managers in London. It’s a very measured investment to get a toe-hold South Africa’s platinum industry.”
Wilkinson wants Zijin to help develop the $690 million Sheba’s Ridge nickel and platinum deposit.
They’re hell-bent on getting in,” said Wilkinson. To have group like Zijin, with their expertise in developing this kind of ore body, is exactly what we need.”
The Chinese company’s interest has been spurred by the longest rally in metal prices since the 1950s and its expertise in exploiting large, opencast mines which contain relatively low quantities of metal per ton of rock mined. Zijn has an option to buy a further 9.9 percent of Ridge at 70 pence a share.
Sheba’s Ridge will eventually produce 23,900 metric tons of nickel, 12,000 tons of copper and 390,000 ounces of platinum-group metals a year, Wilkinson said on Sept. 15. Ridge expects to complete a feasibility study in about 18 months. “Zijin’s looking to get first call on the metal offtake coming out of the project,” John Meyer, a mining analyst at Numis Securities in London, who rates the share a `buy’, said in an interview from London. “It just shows how Chinese companies are wiling to push ahead with projects that the western companies have largely ignored.” `Important Step’ Zijin CEO Chen Jinghe is buying mines in China and overseas to bolster reserves of gold, copper and other metals to meet soaring demand in the world’s fastest-growing major economy surges. “The investment in Ridge is an important step in our long- term strategic objective to increase our resources and production base overseas,” Chen said in a statement faxed to Bloomberg by Ridge. “It also represents a breakthrough for Zijin in the South African precious metals industry.” Zijin, based in eastern Fujian province, on Sept. 26 signed an initial agreement to pay at least A$18 million ($14 million) for a 10 percent stake in Allied Gold Ltd., an Australian metals exploration company. Zijin will produce more gold this year than it originally planned, Chen said on Aug. 8, without giving a revised target. The company was set to produce 40 metric tons of gold, 32,000 tons of copper and 500,000 tons of iron ore by the end of the year, it said in March. Metal Prices South Africa is the world’s largest producer of gold and platinum and has the world’s largest reserves of both precious metals. Gold has climbed for five consecutive years while platinum has gained for six of the past seven years and reached a record of $1,340 an ounce on May 12 as demand continued to outpace supply. Anglo Platinum Ltd., the world’s largest platinum producer, owns 36 percent of Sheba’s Ridge and South Africa’s Industrial Development Corp. 26 percent. Ridge owns the rest. If developed, the mine will be Ridge’s second operation. Construction of its $180 million Blue Ridge mine starts in January. That development is being funded by the state-owned Development Bank of South Africa, Investec Ltd. and Standard Bank Ltd., Wilkinson said last month. Blue Ridge, designed to produce 125,000 ounces of platinum-group metals a year, will start production in mid-2008. Platinum-group metals include platinum, palladium and rhodium. Ridge will use the proceeds of the sale to Zijin to maintain its 50 percent stake in the Blue Ridge project, Wilkinson said.