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Based in Sydney, Sino Gold has been active in China since 1996 and is focused on exploring, developing and operating gold mines in China. The Company is the leading foreign gold producer in China and has five key projects – Jinfeng, BioGold, White Mountain, Beyinhar and Eastern Dragon.
Sino Gold owns 82% of the Jinfeng gold mine in Guizhou Province, which has Mineral Resources containing 5.3 million ounces and Ore Reserves containing 3.5 million ounces.
Jinfeng is one of the largest gold mines in China as the mine ramps up to achieve initial planned production of 180,000 ounces per annum. Sino Gold aims to increase Jinfeng’s gold production to optimal levels as quickly as possible. The 99.5%-owned BioGold processing facility in Shandong Province purchases gold concentrates and produces refined gold.
The 95%-owned White Mountain project in Jilin Province is now being developed into Sino Gold’s next mine.
The Beyinhar and Eastern Dragon projects in northern China are being advanced towards mine development.
Sino Gold has projects that provide a clear pathway for the Company to produce 500,000 ounces of low-cost gold annually.
Sino Gold Mining Limited is listed on the Australian Stock Exchange (ASX Code: SGX) in December 2002 and The Stock Exchange of Hong Kong in March 2007 (SEHK Code: 1862).
Business Review – For the six months ended 30 June 2008
The results for the six months ended 30 June 2008 represent a turning point in Sino Gold’s history. After years of hard work, the rewards of developing one of China’s largest gold mines are reflected in the Company’s financial statements for the first time. In addition, the results include the BioGold processing plant in Shandong which was acquired in December 2007.
This progress places Sino Gold in an extremely good position to continue to captilise on the opportunity presented by China’s rapidly growing gold industry. China is now the world’s largest gold producing country and Sino Gold is the largest foreign gold company in China.
Close-out of Hedge Book
In early June 2008, Sino Gold completed the close out of all of the Company’s gold forward sales contracts. Following this transaction, Sino Gold has total exposure to rising gold prices and the Company does not anticipate putting in place any further gold hedging.
The close-out cost of A$125 million was capitalised on the Balance Sheet in a hedge reserve account under Equity. Hedge accounting requires that this cost is amortised in accordance with original hedge designation dates.
During the half year, hedging losses of A$11.0 million were realised prior to the close out of the hedge book and a further A$5.3 million was amortised through the hedge reserve account following close out of the hedge book.
Financial Results
Revenue reached a record of A$100.2 million through the sale of 70,532 ounces of gold from Jinfeng Gold Mine and 23,342 ounces of gold and 7,323 gold-equivlent ounces from the BioGold Processing Facility. Mine operating earnings of A$31.9 million were achieved.
A profit before hedging and tax of A$20.6 million was realised. After adjusting for hedging charges (as required under the accounting standards) totalling A$16.4 million and a tax charge of A$5.9 million, the net loss after tax was A$1.6 million. This includes a non-cash charge of A$1.1 million for the write off of exploration expenditure in Shandong Province and A$3.2 million relating to share options being amortised.
Net cash flows from operating activities were A$19.4 million. A total of A$129.2 million was absorbed by investment and acquisition activites, primarily relating to the construction of White Mountain, the construction of the underground mine at Jinfeng and the acquisition of Eastern Dragon.
Sino Gold’s Balance Sheet is very strong with net assets of A$654.9 million, including available cash of A$81.3 million and A$36.4 million Jinfeng project debt.
Operations and Development
Jinfeng is now one of China’s largest gold mines as gold production continued to ramp-up during the half year. Gold production for the half year was 66,388 ounces at an average cash operating costs of US$416/ounce. In June, cash operating costs fell below US$400/ounce for the first time to US$395/ounce.
The processing plant is performing well with all areas now close to achieving design production levels. Higher grade and additional grinding capacity are planned to increase gold production during the second half of 2008. Gold production is forecast to increase further in 2009 as the underground mine ramps up production of higher grade ore.
Sino Gold acquired the BioGold Facility in late 2007, which purchases gold concentrates and produces refined gold. Since acquiring the operation, Sino Gold has implemented a number of significant strategic changes that simplify and reduce the risks of the operation.
For the six months ended 30 June 2008, BioGold realised an average sales price of US$915/ounce of gold and a net tolling profit margin of approximately US$50/ounce for the 23,342 ounces of gold sold.
Development of the White Mountain Gold Mine in Jilin Province is on schedule for the first gold pour in late 2008. White Mountain has a current mine life of at least 10 years at planned average production rates of 65,000 ounces per annum with production in 2009 likely to be lower than average as the operation ramps up to design production
The Beyinhar and Eastern Dragon Projects are both advanced projects that are being progressed towards becoming Sino Gold’s next gold mines.
Beyinhar is being advanced towards a project development decision in late 2008. Current expectations are that a 2.5 million tonne per annum, heap-leach operation could commence production in the northern hemisphere spring of 2010.
The high-grade Eastern Dragon Lode 5 gold-silver deposit has potential to produce gold at very low cost. During the half year, Sino Gold increased its ownership to 80% and commenced field work and permitting.
Eastern Dragon is an important part of Sino Gold’s growth strategy and is an asset that has the potential to be developed into a long-term, high-quality mine.
Reserves and Resources
During the half year, the Group’s controlled Ore Reserves and Mineral Resources increased to a total of 4.8 million ounces and 8.2 million ounces, respectively.
Jinfeng’s Ore Reserves and Mineral Resources increased 11% to 3.5 million ounces and 16% to 5.3 million ounces, respectively. Jinfeng is an outstanding orebody that will provide the platform for the Company’s continued growth.
White Mountain’s Ore Reserves and Mineral Resources increased 81% to 0.8 million ounces and 92% to 1.2 million ounces, respectively. Significant potential remains for further increases, particularly to the northeast and at depth.
In March 2008, Sino Gold announced an initial Ore Reserve estimate for Beyinhar of 0.5 million ounces.
At Eastern Dragon, Sino Gold has commenced the field work required to verify the Company’s near-term conceptual exploration target which is to convert the Chinese resource by the end of 2008 to a JORC Code categorised resource of approximately 600,000 to 800,000 ounces of contained gold potentially in the range of 2.3 to 2.9 million tonnes with grades of 7g/t to 8g/t gold and 70g/t to 75g/t silver.
Sino Gold’s very substantial drilling programs over the course of 2008 are aimed at further increasing identified reserves and resources, as well as discovering the next orebody.
Outlook
Sino Gold’s strategy is to continue to grow its portfolio of quality assets and capitalise on its leading position in China’s gold industry.
The Company’s approach is to develop gold mines in a manner which provides long-term benefits to all stakeholders and optimises the returns from the gold resources. Sino Gold’s management of safety, the environment and community relationships continues at very high standards and we recognize that our continuing performance in these areas is crucial to our long-term success in China.
Sino Gold is poised to report growing and strong operating profits as Jinfeng’s gold production continues to increase and White Mountain commences gold production. Beyinhar and Eastern Dragon are likely to provide further growth in gold production over the coming two to three years.
Sino Gold’s technical skills, financial strength and ability to rapidly progress projects has led to the Company being viewed as a partner of choice regarding opportunities in China.
Aimed at discovering very large gold deposits, our 50/50 strategic alliance with Gold Fields Limited (world’s fourth largest gold company) is another value-creating initiative of the Company.
With the largest gold exploration program in China and a very strong balance sheet, Sino Gold is very well placed to create value for shareholders.
The gold price outlook remains strong and Sino Gold’s shareholders will fully benefit from an increasing gold price as the Company is now completely unhedged.
The coming months promise to be very eventful and recommend regularly visiting www.sinogold.com.au to keep up-to date with the Company’s progress.
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