Workers go through their paces at Barrick Gold Corporation's Veladero gold mine in Argentina's San Juan province on April 26, 2017. Shandong Gold Group, in partnership with Barrick, operates the mine. [Photo/Agencies]

Miner opens foreign office in Toronto, looks for sustainable and long-lasting resource reserve

After a multiyear survival mode, gold companies are finally enjoying a growth cycle in the market. Shandong Gold Group has embraced the opportunity and is boosting its development by setting up an office in Toronto, dubbed the world's mining capital.

At its opening ceremony on July 25 in downtown Toronto, the company, along with a group of mining companies, investment banks and officials, gathered to celebrate the boom and discuss the future opportunities in the industry.

Ranking first in China and 12th in the world by reaching an annual gold output of 47.75 metric tons, the company has made remarkable strides toward the strategic objective of "a world top 10 mining enterprise" set out in its 13th Five-Year Plan.

However, according to Chen Yumin, chairman of Shandong Gold Group, the gold reserve is limited compared to other parts of the world, so they have to look more at the global level to build a sustainable and long-lasting resource reserve.

"When we are looking for gold, its resources are distributed in many parts of the world, and we have come into contact and worked with many major global mining companies," said Chen. "The opening of the Canada office is a milestone for our overseas investment strategy. But we are looking more globally than just Canada."

The company reached a partnership with Barrick Gold Corporation in 2017 in operating Veladero-the largest gold mine in Argentina-followed by an initial public offering in Hong Kong in 2018.

"Our partnership with Shandong Gold in Argentina is transforming relationships at the local, national and international levels," said Rob Krcmarov, executive vice-president of Barrick.

"Clearly, we have much to do. Shandong Gold's presence in Toronto will help foster new relationships and better understanding of Chinese investors by Western investors and operators. It will add value to the collaboration our two companies are forging," Krcmarov added.

Richard Tory, head of Canadian investment banking at Morgan Stanley, admired the Chinese investor's courage to face the ongoing challenges.

According to him, after years of cost reductions and lower capital expenditures, gold production continued to decline. New discoveries are not being made, and reserves are not being replenished, so gold companies will need to be creative in finding ways to continue to grow strongly and make profits over the coming years.

"Chinese investors are willing to respond to these challenges. Companies like Shandong Gold have shown the vision to become the leading gold company in China and an emerging leader globally," Tory said. "They have developed partnerships with others by sharing the risks of operating the most complex mining in the world."

Meanwhile, Chinese investors are advised to be prepared to face a culture shock and make an effort to understand local regulations and practices. For example, Chinese investors need to have good relations with First Nations communities, local governments and environmental groups.

"By introducing green technology, we adhere to the safety standards and environmental protection of the community," Chen said. "We have to respect the local community instead of challenging traditions or cultures, and more importantly, we have to share interests and rewards with them."

Keith Spence, member of the board of directors of the Prospectors & Developers Association of Canada, said Chinese investors are welcome in the country.

"China has been one of the big funders of mining globally, including in Canada," said Spence. "If you look around the world, in the past few years, the real two big funders were China and private equity, while the traditional financiers-commercial banks-were out of the market, so China was seen as a big source of alternative finance."