New Silk Road: How China's $16 billion fund will impact the gold mining industry
As part of its Silk Road initiative to revive the historically important international trade route, China has established a $16 billion fund for gold-related investment to increase the country’s trade influence of the precious metal.
The $16 billion investment fund – led by Shanghai Gold Group and Shaanxi Gold Group -- will focus on investing in gold projects, including the launch of gold-backed exchange-traded funds and buying stakes in listed gold companies and mining firms.
According to Shanghai Securities News, over 60 countries are taking part in the fund that is expected to raise the amount in three phases.
The investment fund will be 35 percent owned by Shanghai Gold Group and 25 percent by Shaanxi Gold Group, with the remaining amount owned by financial institutions.
The “New Silk Road aims to create an economic zone by developing trade and transport infrastructures that extend from Shanghai to Berlin--over one third the circumference of the earth. Earlier this year, President Xi Jinping said he hoped annual trade with the countries involved would exceed $2.5 trillion in a decade.
According to economist Song Quinghu, the fund may also boost China’s power over the world gold market and could increase the use of the yuan in pricing gold. China is currently the world’s biggest producer of gold and second-biggest consumer.
Tang Xisheng of the Industrial Fund Management Co. told Xinhua: “China does not have a big say in gold pricing because it accounts for a small share of international gold trade. Therefore, the Chinese government seeks to increase the influence of RMB in gold pricing by opening the domestic gold market to international investors.”
The New Silk Road will require the construction of high-speed railroads, road and highways, including energy transmission and distribution networks and fiber optic networks. It also plans to bring massive opportunity to the mining industry.
“It’s a good bet that giant iron mining companies like Vale, that have seen their business fall to a thirteen-year low, are currently busy figuring how much steel goes into construction of a new, high speed 8,000 mile railroad,” said Robert Berke from Oilprice.com. “If the project is successful, it could very well spark a boom across the entire depressed international mining, commodities, and construction sectors.”
Still reeling with its own struggles, the mining industry could use a boost from Asia very soon.
Gerald Group resolves iron ore dispute with Sierra Leone
Gerald Group, the US commodity trader, will pay Sierra Leone $20mn and cede a 10% stake in an iron ore project as part of the resolution to a nearly two-year dispute that led to the shutdown of production, the two sides revealed.
Gerald's wholly-owned subsidiary SL Mining filed for arbitration in August 2019 over a royalty payment dispute and suspended the Marampa mine the following month. Sierra Leone's government responded by cancelling its mining licence.
As part of the agreement signed on Friday, Sierra Leone will take a non-dilutable 10% stake in a new company that will replace SL Mining and resume operations at Marampa by June 1, Gerald said in a statement.
Gerald will make two $10mn payments this year and will have the immediate right to ship its current stockpile of about 707,000 tonnes of iron ore, it said.
Both sides will withdraw their legal claims before the International Chamber of Commerce (ICC) and International Centre for Settlement of Investment Disputes (ICSID), the statement added.
Gerald’s chairman and CEO Craig Dean commented: "I am delighted that we have been able to resolve our differences and have a fresh start and new beginning with the government of Sierra Leone."
Sierra Leone's Mines Minister Timothy Kabba told a news conference on Tuesday that the agreement was a milestone for the country.
"Whatever the pain we may have borne or dreaded throughout these two years ... this outcome justifies our action," he said.
Gerald estimates that Marampa holds about 1 billion tonnes of iron ore with a potential lifespan of 30 years.
Back in 2019, Dean spoke with Mining about the development of Marampa and commented: "SL Mining offers a substantial opportunity for Gerald Group as our Marampa mine in Sierra Leone is set to deliver six million tonnes of high-grade iron ore during its operational life. If you analyse the iron ore market it has transformed, even from a couple of years ago when prices were very low. Now prices have stabilised we’re in a favourable position with our first shipments leaving for China.
"Our goal is to make ‘Marampa Blue’ an internationally recognised premium grade iron ore brand. We intend to expand the delivery of high-grade 65% iron ore concentrate to markets in Europe and Africa.”