China’s top gold mine operator eyes investment in Lepanto

Zijin Mining Group Co. Ltd., the largest gold producer in China, has expressed interest in investing in Lepanto Mining Corp., the company said in a disclosure to the Philippine Stock Exchange (PSE).

Lepanto said top officials of Zijin are now in the Philippines for a due diligence study on the local mining firm’s operations.

"A team of technical and financial personnel and executives from Zijin had just arrived at the minesite to do due diligence work on one of Lepanto’s mining projects. Zijin, listed at the Hong Kong Stock Exchange, is keen on investing in Lepanto," the company said.

The arrival of Zijin officials came at the heels of a work strike staged by Lepanto’s labor union due to a dispute with management over pay increases.

Employees are asking for a P27 per day salary increase for the first year, P27 for the second year and P40 for the third year. Other benefits such as the supply of liquefied petroleum gas (LPG) and two sacks of rice every year are also included in the collective bargaining agreement (CBA) proposal.

The Department of Labor has already assumed jurisdiction over the case and directed Lepanto employees to return to work.

Lepanto also urged government to help convince union members who are on strike at the company’s Victoria/Teresa mining area in Mankayan in Benguet province to resume work.

The company has expressed concern that the momentum the mining industry gained with the pro-investment ruling made by the Supreme Court in December 2004 should not be broken by any perception that the legal system does not work in this country.

The Philippines, which reportedly has $1 trillion worth of unexplored mining resources, is wooing foreign investors to help re-open or develop new mines following the Supreme Court’s landmark ruling allowing foreign firms to take full control of local mining ventures.

Lepanto produced 96,070 ounces of gold last year, up seven percent from the previous year’s 89,420 ounces.

The company incurred a net loss of P43.05 million in the first quarter this year, largely due to lower sales and increasing finance cost. This was a reversal from the P57.21-million profit reported in the same period a year ago.

Gold sold fell to 16,951 ounces compared with 25,264 ounces the previous year.

Lepanto said while the reduced tonnage may have significantly reduced costs, it impacted negatively on gold production for the quarter as the company was able to produce only 16,998 ounces or 33 percent lower than last year’s 25,359 ounces.

The mining firm’s notes and loans payable rose by 77.5 percent, representing the difference between fresh loans obtained mainly from Ivanhoe Mines and the settlement of various outstanding loans from local banks. Its long-term debt, on the other hand, amounted to P1.23 billion.

Lepanto has yet to fully settle its hedged position with NM Rotschild & Sons (Australia) Ltd. and Dresdner Kleinwort Wasserstein.

Of its P629.9-million capital budget for the year, P145.2 million had already been spent for the first quarter.

Bulk of the programmed capital budget or P333.3 million will go to capital development of mining projects. Special projects in support of mining operations will account for P27.4 million while exploration for new mining areas will add another P82.7 million. Tailing dam costs will entail another P47.4 million while additional mine machinery and equipment will cost about P137.4 million.