(Corrects analyst comment in fourth paragraph of story that moved on Oct. 19.)
Oct. 19 (Bloomberg) -- Zijin Mining Group Co., China’s biggest gold producer by market value, said it plans to borrow bullion from banks to sell in the market as the company is betting prices will rise.
“We’re borrowing gold from banks,” Zheng Yuqiang, Zijin’s company secretary, said by phone today. “This is completely new in China and banks will choose companies with a good record of repaying debt. We will be borrowing from Industrial & Commercial Bank of China for a start.”
Gold has risen 21 percent in the past year as Europe’s sovereign-debt crisis and falling global equities spurred demand for the precious metal. Zijin expects prices to increase in the short term, according to Zheng.
“The company is using this financing alternative to save borrowing costs,” said Richard Leung, a Hong Kong-based analyst at CLSA Asia-Pacific Markets. “The cost of funding of this alternative would be only 3 to 5 percent which is cheaper than borrowing money from banks.”
Zijin will borrow gold for not more than one year and the total amount is not to exceed 10 metric tons in 2011 as permitted by the Shanghai Gold Exchange, the company said in a statement yesterday. Zijin produced 33.7 tons of gold in the first half, down 9.6 percent from a year earlier.
“Borrowing gold is a low-cost option for financing,” Vice Chairman Lan Fusheng said by phone today, declining to comment if Zijin is planning any acquisitions. “There’s no special reason. All companies need short-term funding for operations.”
The gold producer, based in China’s Fujian province, closed unchanged at HK$3.05 in Hong Kong trading, compared with the 1.3 percent gain in the benchmark Hang Seng Index.
Debts, Credit Lines
Zijin’s total borrowings were 8.7 billion yuan ($1.4 billion) as of June 30, of which the amount payable within a year was 5.9 billion yuan, according to its six-month earnings statement. It also had about 45 billion yuan of credit lines from banks for general purposes, the statement showed.
Daily capital requirements were financed from internal cash flow, the metals producer said in the statement. Cash and cash equivalents rose 73 percent from a year earlier to 7.5 billion yuan as of the end of June.
Immediate-delivery gold dropped $9.28, or 0.6 percent, to $1,648.57 an ounce by 9:28 a.m. in London. Gold for December delivery fell 0.2 percent to $1,650.10 on the Comex in New York.
--Editors: Rebecca Keenan, Andrew Hobbs
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