By Sherilee Bridge
The ethical values of South African mining major Gold Fields have been called into question after its tie-up with an Australian mining junior that plans to build and operate the first foreign-owned gold mine in Chinese-occupied Tibet.
Gold Fields has a 10 percent stake in Sino Gold and has a 50-50 joint venture with the company to acquire and explore gold properties in China’s Shandong province.
Sino Gold is China’s only foreign gold producer. Through a joint venture with the Chinese government, Sino Gold plans to mine for gold in Jinkang, which lies in eastern Tibet.
But Sino, and now Gold Fields, has run into opposition from non-governmental organisations (NGOs) concerned that by going ahead with the project the companies will be publicly backing the Chinese occupation of Tibet.
Human rights groups like the Australian Tibet Council and the Tibetan government in exile have petitioned Sino to “cease exploration of the Jinkang site” until the political tensions between the Tibetans and Chinese had been resolved. They believe the development of the mine will start the expropriation of the vast natural resources of Tibet.
The Chinese government, which needs foreign capital and technology to exploit the virtually untouched resources, has surveys showing that 124 different minerals occur in Tibet, including uranium.
Gold Fields, however, denies direct involvement in these plans.
Gold Fields exploration manager Craig Nelson said the project was still young and nowhere near becoming a threat.
Dismissing a letter written by human rights lawyer Richard Spoor to Business Report this week questioning the appropriateness of Gold Fields’s relationship with Sino as “goofy”, Nelson admitted that he was “sort of ignorant about Tibet”.
“I don’t know if it is just part of, or all of eastern China that was once Tibet,” Nelson said.
He believed Spoor had “got his geography wrong”, saying the joint venture was not in Sichuan but in Shandong, which is about 500km from Tibet.
Jinkang is now classified as being an area of Sichuan province, and while it is not in the special Tibetan Administrative Region – a type of homeland established by the Chinese government after its occupation of Tibet in 1949 – it was once part of the old Tibetan province of Kham.
John Munro, Gold Fields’s executive vice-president and the head of international operations, said this week that it was important a company of the stature of Gold Fields conducted its business responsibly.
Sustainable development was informed by ethics, and the “more we do things properly, the more we find it benefits bottom line”, said Munro. “The real issue is doing the right thing,” he said.
China is a fairly new addition to Gold Fields’s exploration map.
Ian Cockerill, the chief executive of Gold Fields, said at the group’s June quarterly results presentation: “China offers huge potential. If one looks at the next generation, southeast Asia will be very important, not only to the company but the industry.”
Offshore expansion has paid off for Gold Fields. While international operations used to earn about a third of its profits, the offshore and South African operations could contribute equally to the group’s bottom line in the coming year.
Having successfully tried some of the world’s largest companies for occupational health contraventions and won, Spoor has earned a reputation as an outspoken human rights activist.
He said in his letter that the main role of Gold Fields and the other major South African investor in Sino Gold, Standard Bank (through its subsidiary Standard Bank London), was to bankroll the smaller company by taking a minority shareholding in any project that might come up.
“Australian-listed Sino Gold only has a market capitalisation of about $120 million and its association with big players like Gold Fields and Standard Bank is crucial to its success,” Spoor wrote.
And he may be right. Sino’s current cash flow comes from the Jianchaling mine, which produces 91 000 ounces a year and the company is confident its Jinfeng project will produce about 200 000 ounces a year by 2005. Sino’s strategy is to grow production to 500 000 ounces and triple its earnings over the next five years.
Sino reported a profit of A$6.8 million (R32.6 million) for the year to December 2002 and continues to sell its prospects on the huge potential of China.
Jake Klein, the chief executive of Sino Gold, said in the company’s annual report that China’s emergence as a destination for foreign investment presented “countless” opportunities.
“During 2002, the rapid reform process in China continued, with access for foreigners becoming increasingly accepted. Sino Gold, as the first foreign company to operate a gold mine in China, is well positioned to take advantage of this opening,” he said.
Dubbing Shandong, the area where it holds a joint venture with Gold Fields, as the “Kalgoorlie of China”, Sino told Miningweb that it was confident the region would yield deposits of a size that would “make a difference to Gold Fields’s balance sheet”.
Shandong has several million ounces of gold deposits and is China’s largest gold province, accounting for between 20 percent and 25 percent of the country’s total gold output.
Gold Fields paid A$5 million for a 10 percent stake in Sino at the time of its listing almost a year ago and it can earn up to 80 percent in any project.
Nelson said Gold Fields’s exploration strategy was aimed at lowering exploration start-up costs in countries where it had no corporate presence.
The local mining group has bought equity in 12 juniors at a cost of $14 million in the past four years. This portfolio quadrupled to $55 million, of which $20 million was recently liquidated to pay down debt.
Gold Fields says it is committed to spending $80 million a year on exploration. But for now, it must chart its way through the waves of protests pouring in over its relationship with Sino.
Admittedly, the controversial Tibetan mine development in Jinkang has the potential to boost Sino’s production and profit line.
And while this may bolster Gold Fields’s return on investment, the controversy being stirred up over what is being perceived as backing for the Chinese regime has the potential to force Gold Fields into rethinking its entire Chinese play.
Even Sino in its annual report admitted that Jinkang had a strong Tibetan population and noted that it was important for the company to educate itself “on the sensitivities and cultural mores of the local people”.
Sino Gold’s chairman, Nick Curtis, told the Sydney Morning Herald earlier this year that if the project – which would be developed jointly with the Deyang Geochemical Group, a subsidiary of the Sichuan ministry of land and resource – did not benefit local people, it would not go ahead.
“If the Australian government were to say to us, ‘you shouldn’t go in’, we wouldn’t,” said Curtis. “But it is not reasonable for us as a small company to be asked to impose unilateral sanctions.” – Johannesburg
