China’s Silk Road Gold Fund – The South-East Asian Gold Deposits
As we examined in the previous article in this series, China has established a Silk Road Gold Fund, and has begun trading this on the Shanghai Gold Exchange. Over 60 countries have invested in the US$16 billion fund, which aims to provide financing to extract gold from existing, but underutilized deposits. The previous article dealt with the Central Asian nations and their gold reserve holdings and known gold deposits; in this article we deal with South-East Asia.
Although India has not signed up to China’s Belt and Road Initiative, it has invested heavily in both China’s Asian Infrastructure Investment Bank and the Silk Road Gold Fund. This is significant because China and India are collectively the world’s two biggest producers and consumers of gold.
In this article, we look at each of the South-East Asian nations that have signed Belt and Road MoUs with China, in addition to India as it is also a shareholder in the Silk Road Gold Fund.
Gold reserves are the amount held by the Central Bank. Known gold deposits are estimates of unmined gold. Figures mentioned are in metric tons.
|Country||Gold reserves *||Known gold deposits **||Key areas|
|Cambodia||12.44||51||Angkor, Okvau, Phum Syarung|
|Laos||1||500||Muang Ang Kham|
|Malaysia||37.63||50||Terengganu, Kelantan and Pahang|
|NewZealand||–||140||Macraes, Reefton and Waiha|
|Philippines||196.36||8000||Didipio, Malibao, Mindanao|
|Singapore||127.4||–||Acts as financier|
|Sri Lanka||22.25||10||Ambalantota, Seruwawila|
|Thailand||108.29||200||Palitapan, Kabinburi, and Chatree|
|Vietnam||10||300||Bong Mieu, Phouc Sun|
* Data from Trading Economics
** Data from Mining Technology & Rare Gold Nuggets.
The geophysical make up of South-East Asia is immensely varied, and also contains regions that are both remote, with difficult terrain, and are relatively unexplored in terms of ascertaining mineral wealth. This is in contrast to the Central Asia gold deposits, where the erstwhile Soviet Union was able to provide very detailed mineral maps of much of the region. In South-East Asia, a lot of what is in the ground remains unknown.
In terms of the China Silk Road Gold Fund, there are a number of challenges. Firstly, India is a dominant partner in much of the region, and is against China’s Belt and Road Initiative. Instead, Delhi is cherry picking; it is an investor in the Silk Road Gold Fund and the Asian Infrastructure Investment Bank, but has stopped short of endorsing the BRI. It also yields considerable political and trade influence throughout the region, where Chinese encroachment on its space will not be welcomed. This extends to countries such as Bangladesh, Myanmar, Nepal, and Sri Lanka, of which, the latter three possess significant gold reserves.
Elsewhere, much of South-East Asia remains unexplored, although countries such as Cambodia and Laos are pro-China, difficulties remain with extraction. But the big players in the search for gold are Indonesia and the Philippines. While Jakarta is more open to Beijing than Manila is, again, a great deal of exploration needs to be carried out to pinpoint exactly where to mine. On the other hand, both Jakarta and Manila have shown they can and will stand up to Beijing. Extracting gold is an emotive subject, it is relatively easy to incite local media over the nasty Chinese “stealing our gold”. Anti-Chinese sentiment is never far below the surface in many of these nations, meaning Beijing will need to play a long-term, patient, and diplomatic card to win over many of their neighbors.
On a nation by nation basis, Cambodia is close to China and possesses significant reserves, and is likely to welcome Chinese or Silk Road Gold Fund investment. India is an interesting case in that the country has not undergone sufficient exploration as to mineral deposits, yet, it is known that the type of geological structure the country possesses, especially in south India, could mean the country is sitting on massive reserves. Although regional political difficulties exist, India could well partner with Russia especially to examine what lies beneath. It is known that current Prime Minister Modi favors a return to gold exploration.
Indonesia, meanwhile, possesses the world’s largest gold mine; at Grasberg, currently producing over 28 tons of the metal each year. Chinese gold mining companies are also looking at other, relatively unexplored sites, hoping to find the “new Grasberg”.
Malaysia also continues the theme of relatively unexploited gold mining, the country currently has 15 active mines. The Pahang mine alone produces 99 percent of all raw gold used in Malaysia. Surveys have shown the probable existence of large deposits in the Johor area. This will also be of intense interest to Chinese miners and the government.
Myanmar is also relatively unexplored, its mining industry has traditionally focused on jade and rubies. Kachin State, however, is a major source of gold, with many small mines being spread around the region. However, the area remains restive and currently unsuitable for commercial exploitation. When surveys can be carried out, Myanmar’s known gold deposits should show a marked increase.
Nepal is also a country that has long produced local alluvial deposits, with locals panning for gold for millennia among the country’s flood plains. This is highly suggestive of rich gold seams existing in the Himalayas, and the government has been willing to sell mining licenses, although the country has no operational gold mines at present.
The Philippines, meanwhile, is sitting on the world’s second largest gold reserves, with mining a government priority. Over 70 potential sites are under consideration for extraction, with another 35 already in production. At present, though, the country is not a major producer, meaning there is plenty of potential to come from the national output once policy and environmental concerns are overcome. The gold reserves alone would be enough to see the Philippines economy grow at a rate of 6 percent per annum for the next decade – if and when they can be extracted.
Singapore has also been relatively active in the gold mining business – but in raising finance. Several Singaporean companies are involved in mining in Asia, most notably CNMC Goldmine Holdings, Wilton Resources Corporation, and Anchor Resources, and have listed on the Singaporean bourse. Results have been spectacular – for example with CNMC Goldmine Holdings’ Sokor Gold Field Project. The stock achieved a one-year total return of +84.8 percent in 2017.
Sri Lanka also has significant gold deposits, although again, much of these remain uncertain in terms of size and economic viability. The country, of course, has a long history of mining. Much still needs to be done to examine Sri Lanka’s potential, but it could become a major player in Asian gold production in years to come. Both the Chinese and Indians will be keeping a close eye.
Thailand is also a major gold producing country, and almost certainly possesses more deposits than currently known. However, concerns over environmental damage have prompted the military government to curtail operations for the time being.
Timor-Leste has long been known for its gold, with surveys carried out in the past by both the British and the Russians. However, the national legislation does not currently support mining activities; much needs to be done in diplomatic and trade terms to develop the country in a manner that does not see its natural wealth exploited. Consequently, it is likely to be some time before Timor-Leste is productive.
With gold being mined at an average cost in Asia of about US$300-400 an ounce, there is plenty of room for large profits to be made. Today’s price per ounce on the open market is US$1,330.
The search for gold, however, in terms of China’s objectives is not just for financial gain. There is a serious political element too – being seen to possess larger gold reserves than the United States. Today, China has Central Bank gold reserves of 1,842 tons, Russia 1,828, and the United States has 4,582 tons. Together with Russia, the two countries wish to project themselves as serious economic global players, and downplay the role of the United States. China and Russia, both, wish to get to a stage where they can claim their wealth is based upon physical assets; the United States, they argue is an economy based on credit. It is an emotive subject, and come 2023 when both nations are likely to overtake the U.S. in gold reserves, the impact on the value of the US dollar may well take a hit. That could lead to a re-balancing of the global economy, and to some extent underlines China’s medium and longer term intentions over imposing greater influence over the global economy. It remains to be seen what the American view on this is. Washington has largely been silent on the issue.
However, South-East Asia, in terms of gold production, may be a nearby play for Beijing, but its regional dynamics and deep-rooted mistrust of China may make it relatively difficult for China to exploit. With Russia seemingly open to Chinese investment to extract Siberian gold, with its massive deposits of some 12,500 tons, China is more likely to have successes in Central, rather than South-East, Asia. Plus, there is also investment in Africa and South America – regions with perhaps less baggage to carry for China than South-East Asia. We will examine China’s potential for gold mining and production in these two areas in the next two articles.
Silk Road Briefing is produced by Dezan Shira & Associates. The firm provides business intelligence, investment advisory, due diligence, tax advisory, corporate establishment and structuring, accounting, payroll and related professional services throughout China, India, ASEAN, Russia and the Eurasian region, servicing both Governments and Multinational clients. To contact us please email email@example.com or visit us at www.dezshira.com
Dezan Shira & Associates´ brochure offers a comprehensive overview of the services provided by the firm. With its team of lawyers, tax experts, auditors and consultants, it is Dezan Shira´s mission to guide investors through Asia´s complex regulatory environment and assist with all aspects of establishing, maintaining and growing business operations in the region.