Gold miners in Australia look to China for salvation from rising costs - Wealth Managers

Beijing-controlled firms taking methodical steps to amass bullion to back yuan

In recent years China has forged a series of currency deals with other nations, like Russia and Australia, to foster convertibility and facilitate trade. Now new rumblings are emanating from China that it's not content for the dollar to remain the world's reserve currency indefinitely.

"On Aug. 5, an official from the People's Bank of China (PBoC), published an article in a leading Chinese market journal suggesting that now would be a good time to convene a new 'Bretton Woods' conference with the intention of creating and implementing a new gold-backed reserve currency to replace the dying dollar," reported Kenneth Schortgen Jr. in The Examiner. 
Zero Hedge called the article in the China Securities Journal "a somewhat shockingly blunt comment from the mouthpiece of Chinese officialdom." However, "the writing has been on the wall for China's push to end the dollar reserve supremacy for over two years as we have dutifully noted -- since no 'world reserve currency' lasts forever."
China zeroing in on ailing gold miners
And as the mining industry worldwide faces new challenges from rising costs and a dip in gold prices from record levels, some producers are looking to China to help lift them out of their financial doldrums. China, in turn, sees acquisition targets at rock-bottom prices ripe for the picking.

The mining industry's woes have been the focus of theDiggers and Dealers forum in western Australia this week. That nation's second-largest producer, Alacer Gold Corp., sees problems ahead as miners grapple rising costs. "There's going to be a lot more pain to come over the course of the next 12 months," CEO David Quinlivan said. "We'll see a general tapering of production over the course of the next year," he warned, flagging the likelihood that mines in Australia will be shuttered as producers seek to curb costs.

Quinlivan said Alacer expects to seal a deal within a month to sell two gold mines, in a sign that merger activity in the sector may be starting to stir after a slump in bullion prices. Gold miners in Australia have been hammered by asset writedowns, as they grapple with high costs and a financing drought that has left many smaller operators scrambling for cash, prompting speculation of an asset swoop by Chinese buyers. "Certainly some (potential buyers) are Asian-backed operators that already have an Australasian base," heconfirmed.
China's mandate: "Double our production"
Meanwhile, gold miner Dianmin Chen -- which is running Australia's Norton Gold Ltd. for China's biggest gold producer Zijin Mining Group -- says he has been given a mandate to nearly double gold production and is keeping an eye out for potential acquisitions.

"We see this lower market as an opportunity to grow," he said. Chen said "plenty of mines" are for sale in the Australian gold fields and elsewhere in the world. Norton was "always looking," although he declined to give names. "We aren't going to stop at 300,000 ounces," he said. "This year we are looking at an 11 percent increase in gold production." He added: "Our mandate is to double our production from our existing platform. If we have extra M&A activities we would go beyond that."

China also is gaining footholds in other areas of the commodities world. "One of China's top securities brokers has bought parts of the commodities trading unit of French bankNatixis in the latest move by Chinese institutions to expand into natural resources markets," Reuters reported. "A Natixis spokeswoman said China's Shenzhen-listed GF Securitieshad bought Natixis' London-based commodities brokerage unit. ... A statement posted on the Shenzhen stock exchange website said GF Securities' wholly-owned subsidiary, Hong-Kong GF Futures, acquired UK's Natixis Commodity Markets Limited for $36.1 million."
Hong Kong import dip is drop in the bucket
Gold bears will point to news that China's net gold imports from Hong Kong fell 4.8 percent in June, to 101 metric tons from 106 tons in May, as a sign that gold demand is slowing. However, that's just a temporary blip compared with the macro-trends that continue to develop and gain steam in the mining and currency sectors. Though gold prices have fallen as Western investors dump gold ETF shares to chase stocks, China still sees tremendous strategic and monetary value in gold.

So should you. In a broadcast as recent as Aug. 5, CNBC'sJim Cramer lists gold as one of five investments that should be in your portfolio now. "Think of it as insurance against economic and geopolitical chaos as well as inflation," he said. "With governments debasing their currencies left and right to be competitive, investors need to go somewhere, and they've been turning to gold." 

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