“Chinese Gold Could Pay 100% More than US Gold over theNext Two Years”

by Travis Johnson, Stock Gumshoe | January 5, 2011 2:48 pm

If you’ve been a citizen of Gumshoe Nation for more than a
year or so, this latest teaser from Matt Badiali for his S&A
Resource Report might sound a bit familiar, it’s all about buying
Chinese gold miners because of China’s voracious appetite for gold
— and because these particular miners have the state’s backing.
Familiar? Yes, that’s because he made a similar pitch back in 2009,
with many parts of the teaser ad being identical — but because
it’s been so long and there have been changes at the companies he
teased back then, including at least one of them being taken over
at a nice premium, I thought I should come back and see what he’s
teasing now. Here’s the lead-in, just to get the juices flowing:

“It’s no secret that China has gone crazy for
gold. “Over the past five years, the country’s gold consumption has
grown by whopping 84%. “The Standard Bank says Chinese officials
have been secretly buying massive quantities of gold from South
Africa, Russia and South America. “And not long before that,
National Geographic Magazine reported that for the first time China
had surpassed the U.S. as a buyer of gold jewelry. “But here’s the
amazing thing few investors realize… “Behind the scenes, in a
move that has gone almost completely unreported in the Western
press, the Chinese government has helped create a gold investment
that could dwarf the returns of gold bullion, ordinary gold stocks,
or any other type of gold investment you’ve heard of before. “I
wouldn’t be surprised if you see gains of 500% or

I won’t go into all the details in the
tease and bore you, but basically what Badiali is saying is that
the Chinese are creating publicly-traded “champions” in the gold
mining business, much like they did with China Life Insurance,
PetroChina, China Mobile and the other industry leaders that were
formed from and with the backing of the state and state-owned
companies. And, naturally, in a shot across the Gumshoe’s bow, he
teases us about some of his faves in this new class of Chinese gold
investments. Here are the hints:

PARTNER #1: “The first gold company I want to tell you about has
deep connections with the Chinese government.For example, they have
a long–term deal with the China National Gold to “review third
party mining operations and exploration projects in China that may
be of interest to both parties.”Also, part of this company was
actually formed by key members of China’s National Non–Ferrous
Metals Industry Corporation, a state–owned company. “It’s no
surprise, of course, that this company is the largest gold foreign
producer in China today… and controls the country’s 2nd largest
mine. “In short, there’s no foreign company in China that can get
projects done like this firm can. I think it’s absolutely a
no–brainer to own the biggest foreign producer in the world’s #1
gold–mining country. “The important point is, this is the best gold
producer in China and among the top gold producers in the world. “I
believe very strongly that this company will become the next major
gold producer, right up there with Goldcorp, Barrick, and Newmont.
The time to get in is now.”

OK, so this one
doesn’t need to stew very long in the Thinkolator — this is
Eldorado Gold (EGO), and they do indeed have that agreement with
the China National Gold Group (though the agreement dates from
2003). They operate gold mines in China and Turkey and an iron ore
mine in Brazil, along with earlier-stage projects in all those
countries and in Greece. They also took over one of the companies
that Badiali teased last time around, Sino Gold, which in turn did
own that second largest gold mine in China (the Jinfeng mine).
Eldorado has grown nicely over recent years, and is now one of the
largest gold miners in the world as measured by market
capitalization — it is not quite up there with Goldcorp, Newmont
and Barrick, but there aren’t many other miners that are bigger
(EGO has a market cap around $10 billion, similar to Agnico-Eagle
and large enough so that they each make up roughly 5% of the gold
miners ETF (GDX)). They have kept costs relatively low, claiming
themselves to be one of the lowest cash-cost producers, so they’re
experiencing some margin expansion thanks to the climbing gold
price, and they’ve also become profitable and upped their reserves
numbers considerably over the last few years — which is why the
market cap has climbed. The PE is right in line with Agnico-Eagle,
meaning it’s about twice as high as Barrick’s — which is probably
fitting, given the growth prospects of those two companies relative
to the far larger Barrick, which has a big hump to climb (either
through exploration or acquisition) to make meaningful production
growth at their size. Eldorado’s biggest single mine is in Turkey,
but Jinfeng and Tanjianshan in China together are roughly similar
in terms of annual production. They seem to be well underway at
exploring and developing some additional mines and have recently
brought a couple smaller projects on line, so there is probably
some growth potential. I don’t know EGO well, but certainly many of
the gold fans out there have also been noting that the large cap
miners in general are now undervalued relative to the gold price
and to junior, more speculative miners — largely because margins
have picked up over the past year (keeping fingers crossed on
energy prices, which are a large input cost), so these miners
should continue reporting blowout profit numbers in future
quarters. Of course, only the huge or the challenged ones look
genuinely cheap based on things like the PE ratio, but that’s
rarely the driving force in valuing a miner — heck, it’s only the
top tier miners who are reliably profitable at all. So that’s one
of the Chinese gold guys — how about another?

“GOVERNMENT GOLD PARTNER #2: “The next China gold
company I recommend you own signed a 30–year joint–venture
agreement with the provincial mineral resource agency Qinghai
Geological Survey Institute in 2003. “It spent the next six years
exploring and drilling what will soon become a very profitable new
Chinese gold mine. “The company also received a 35–year business
license from the Chinese government (which allows it to work in
China through 2033) and recently signed a deal with China’s largest
national gold producer. “This company is likely to skyrocket in the
next few years, as production takes off. It will probably take
about 9 years to get the full 1.5 million ounces of gold out of the
ground. Early investors have the opportunity to make an absolute
fortune during that time. ”

This one, according
to the ruminations of the mighty Thinkolator, must be Inter-Citic
Minerals (ICI in Toronto, ICMTF on the pink sheets) — a new one to
me, and not one that was part of my article for Badiali’s last push
along these lines. They do have the largest Chinese gold producer
as a major shareholder (19% — that’s Zijin Mining), and a couple
big Hong Kong families own about a third of the shares, so there is
some strong local connection and backing. Their main asset is the
Dachang project, which incorporates a few different target zones
and has 43-101 compliant resources estimated (1.8 million ounces of
measured and indicated resources so far, though they think they’ll
be increasing that number with additional exploration). They do
indeed have a business license extension, which brings them out to
2033, and they say their exploration permits are all up to date,
though I have no idea when they propose to actually build the mine
— their investor presentations talk much more about their
strategic shareholders than about their development timeline, so
I’d infer that this means there’s a bit of waiting ahead, though I
didn’t look closely enough to tell you for sure. And that’s because
there’s yet another stock teased, and I’m but one Gumshoe —
intrepid or not, we must keep moving.

“GOVERNMENT GOLD PARTNER #3: “The third gold company I recommend
you buy immediately is a direct spin–off of China National Gold… a
state–owned enterprise. “In fact, the government still owns nearly
40% of this small company, and the company can leverage the
government’s ‘engineering, operating, and financing capabilities
globally.’ “In short, the Chinese government plans to turn this
small operation into one of the world’s largest gold producers… and
I believe early investors have the chance to make 2,000% or more
over the next five years, as this all plays out.

This one, like Sino Gold/Eldorado, was part of
the original teaser back in 2009 — though it had a different name.
Formerly known as Jinshan and indeed 40% controlled (almost) by a
state-owned enterprise (China National Gold), this one changed
names over the Summer and is now called China Gold International
Resources (CGG is the new ticker at home in Toronto, but they kept
the old pink sheets ticker of JINFF). CGG’s main asset is the
producing Chang Shan Hao gold mine in China, which has seen big
increases in production since coming online a couple years ago, and
they have a still relatively small producing copper mine in Tibet
called Jiama that they’re trying to dramatically increase in size
in the near future (they issued new shares recently to take over
the remainder of Jiama from their partner, Skyland). They do also
say repeatedly that they are partnering with China National Gold to
leverage that parent’s access to international deals, with a mind
to adding projects outside of China, but they don’t say anything
specific about where those projects might be (other than that they
might be in neighboring countries, like Russia or Mongolia, or not,
like Africa or Australia) — so that part is apparently quite wide
open. So what do you think? Any interest in these three Chinese
miners? Worried about a gold bubble? Any other thoughts to share?
Let us know with a comment below.

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  1. Avatar
    Jan 5 2011, 05:51:48 pm

    Sorry Travis but you are not accurate on number three. That is not one of Matt's current recommendations. Also he has EGO as fully valued right now not a buy…….

  2. Avatar
    Ira Cotton
    Jan 5 2011, 06:22:06 pm

    China Gold International Resources’s symbol is CGG on the Toronto Exchange.

    So subscribers, what is the correct 3rd recommendation?

    Here’s the description of CGG on E-Trade’s global trading platform:
    “China Gold International Resources Corp. Ltd. (China Gold International), formerly Jinshan Gold Mines Inc., is a mining company based in Vancouver, Canada and its principal property is the Chang Shan Hao Gold Mine (CSH Gold Mine), which is located in Inner Mongolia, China. China Gold International holds a 96.5% interest in the CSH Gold Mine, while its Chinese joint venture partner Brigade 217 holds the remaining 3.5% interest. The CSH Gold Project hosts two low-grade, near surface gold deposits, along with other mineralized prospects. The deposit is called the Northeast Zone, while the second, smaller deposit is called the Southwest Zone. On August 30, 2010, the Company entered into an agreement to acquire the Jiama Mineral Property (Jiama) which is a significant copper-polymetallic mining project consisting of copper, gold, silver, molybdenum, and other minerals located in the Gandise metallogenic belt in Tibet, China.”

  3. Avatar
    Jan 5 2011, 06:39:19 pm

    I have watched Jinshan Gold , China Gold International, very carfully for the last two years I bought in Jan 09 and I am up 1400%since. I have no intention of selling ,as I think they are a very well managed company and being 40%owned by the Chinese Government is no great impediment to futher progress.

    • 15
      Nov 4 2016, 01:51:41 am

      Doug Casey is now saying that a new Isamic Financial Law is coming soon that will allow 1.4 billion people to own gold investments that are backed by a 1-1 ratio of the commodiy, unlike ETFs and others that are selling more in paper than they can back in real gold. He also says that China is now the largest owner of gold and plans to start setting the price of gold rather than letting banks in the US and Europe control the price.

      • 9943 |
        Nov 4 2016, 04:54:17 am

        amedeist1…your post is relevant, but do you realize you responded under a comment that is five years old ?

  4. Avatar
    Myron Martin
    Jan 5 2011, 11:07:20 pm

    Nostalgia, bought Jinshan way back when it was selling for under a buck, still hold shares since the name change. Bought a Chinese miner listed in Toronto that was then bought out by Sino Gold of Australia, and eventually got shares in that company which in turn got taken over by Eldorado. Have held Inter-Citic for years, all of them made me really good money.

    Still doing well with junior gold miners but these days I take profits on doubles and triples instead of holding through thick and thin. Turning over capital every 2 to 6 months is better suited to the junior market then buy and hold.

  5. Avatar
    Jan 6 2011, 03:25:29 am

    JNFF was teased by Greg Coach just before it collapsed, along with other gold stocks. I bought at the wrong moment. However, it is back on its feet and up and running again. I am holding.

  6. Avatar
    John Smith
    Jan 6 2011, 10:26:26 am

    These were recommended months ago, but remain "best buys" —- Our three China Gold companies – Inter-Citic (TSX: ICI), Minco Silver (TSX: MSV), and Minco Gold (AMEX: MGH) – top the list.

    Other recs —– Royal Gold (NYSE: RGLD), our source for Golden Paychecks, is a Best Buy. In addition, Yukon Gold junior miners ATAC Resources (TSX V: ATC) and Kaminak Gold Corp. (TSX V: KAM) also make the honor roll.

    Jinshan sold —– The market has slammed gold stocks, and Jinshan's share price slid nearly 12% on Monday, May 3. That meant the stock closed below our trailing stop. It's hard to part with such a good performer, but the market is telling us to take profits from this spectacular stock. If you haven't done so already, sell your shares of Jinshan Gold Mines (TSX: JIN).

    We're booking a 339% profit on this trade in just 290 days. Spectacular.

  7. Avatar
    Stansberry CS
    Mar 12 2012, 11:11:37 am

    If you have any questions about Stansberry and Associates, please do not hesitate to call customer service at 1-888-261-2693, or for international subscribers (443) 839-0986. We would be happy to assist you. We are open Monday – Friday 9-5 EST.

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