Chinese infrastructure giant eyeing Canadian gold

Sona Resources says it has brought a Chinese engineering, procurement and construction firm, China Machinery Engineering, on board to help arrange financing for a gold mine restart in BC.

Author: Kip Keen
Posted: Friday , 15 Feb 2013



Another - and perhaps groundbreaking - source of Chinese money may be opening up to cash-starved Canadian mineral resource companies.

Sona Resources said late on Tuesday that it and China Machinery Engineering, a Chinese state-controlled engineering, procurement and construction (EPC) giant, had signed an memorandum of understanding (MOU) covering plans for China Machinery Engineering to help fund Sona’s Blackdome-Elizabeth gold project in southern British Columbia and provide contracting services during a proposed mine refurbishment.

According to the terms of the MOU as set out by Sona in a press release, China Machinery Engineering (CMEC) is to help the group arrange debt financing for 85 percent, or up to C$55 million, of the cost required to get the Blackdome-Elizabeth project running again.

Blackdome, a past producing mine, was shuttered in the 1990s, but there were mineral resources left behind.

In two separate deposits, Sona has defined a small but high grade indicated and inferred resources - in all about 300,000 ounces gold in the 9-12 g/t Au range - and proposed to restart a 200-tonne-per-day mill, producing about 24,000 ounces gold a year over an eight-year mine life.

While examples of Chinese resource companies buying Canadian resource assets abound, for a Chinese EPC firm, the Sona deal appears to be a first.

“I think this will be precedent setting,” said Sona Resources Chairman Nicholas Ferris speaking with Mineweb on Thursday.

Indeed it is easy to think of examples of Chinese metal and mining companies investing in Canadian juniors (e.g., Selwyn Resources, Canadian Zinc), but not of an EPC firm agreeing, at least tentatively, to help provide a junior the necessary funds via debt to build a gold mine in North America.

In this case the gold mine, while undoubtedly high grade, is a small one, thus raising the question of whether CMEC, a huge contracting conglomerate which generates more than $3 billion in revenue a year, is looking to get a toehold into the mining industry beyond its typical markets in developing countries.

Could Sona be a test case for CMEC on Canadian shores?

While Ferris said it wasn’t for him to answer this question, in speaking with Mineweb he described CMEC as wanting to expand its business into the gold mining sector and also the West.

To explain the interest in Canadian gold projects, Ferris, who said he met with CMEC officials in Beijing this past December to go over the project, noted strong demand for gold in China.

“They do really value gold,” he said.

While an interview with a CMEC official could not be arranged at presstime (about 2 AM Beijing time), it has stated its goals are to expand its international engineering business. CMEC recently completed an initial public offering on the Hong Kong exchange, from which it raised $500 million, and in prospectus documents said it would use about 90 percent of proceeds to fund such an expansion outside of China.

Finance and mine building plans

If the financing comes, Ferris said the Blackdome-Elizabeth mine could get back into production within about 15 to 18 months. 

The plan is to produce about 24,000 ounces gold a year, using an existing 200 tonne per day plant. Owing to its small size the permitting process could prove less onerous than might otherwise be the case were Sona planning higher throughput.

Ferris said in permitting the mine, Sona would not have to go through a full scale environmental review.

The bulk of funding would be used to develop underground workings and Ferris said that so far it had not been decided if CMEC would provide equipment for the mine or become the operating mine contractor.

Ferris also said that a definitive agreement would likely include some level of ownership by CMEC of Sona. The amount has yet to be determined, he said.

While the end of February was set as a tentative date for a definitive agreement between CMEC and Sona, Ferris said that because “we’re into the Chinese New Year” it might take longer to get a potential definitive agreement signed.

Nonetheless Ferris, at one point during the interview, said: “I know they’re very keen to do this deal.”