Sino Gold Forecasts Return to Profit, Bullion Surge

Sino Gold Mining Ltd., the largest overseas investor in China's gold industry, expects a return to profit this year on higher output and surging prices, which may climb to more than $1,000 an ounce, an executive said.

The expansion of Jinfeng, China's second-largest gold mine, to about 180,000 ounces a year, and gains in the price of bullion may result in a profit, Chief Executive Officer Jake Klein said in an interview with Bloomberg Television today from Sydney, where the company is based.

Sino Gold plans to build three more mines in China to raise total output to 500,000 ounces a year, helping the Asian nation displace South Africa as the top producer. Gold gained to a record last week after surging 31 percent last year.

"We have got them producing pretty healthy profits from here onwards" as output increases and costs decline, said Hunter Hillcoat, an analyst at Austock Securities Ltd. who has a "buy" rating on the stock.

Sino Gold, which had gained 14 percent in the last two trading days, fell as much as 5.2 percent to A$7.30, and traded at A$7.43 at 2:26 p.m. Sydney time on the Australian Stock Exchange. The benchmark S&P/ASX 200 Index fell as much as 2.5 percent today.

'Huge Year'

This "will be a huge year for Sino as we move from a loss- making situation, through our development phase, through to one where you expect to see profits," Klein said. "The planets do seem to be aligned to make gold the star-performing commodity for 2008." The metal may reach "a four-figure number," he said.

Sino Gold reported a cumulative loss for the years 2004 to 2006 of A$67.4 million ($58.8 million) as it invested in new mine capacity and made acquisitions. The first gold from Jinfeng was sold in the June quarter. The company, which made A$3.9 million in 2003, sold A$170 million in shares last month to fund the $90 million acquisition of the Eastern Dragon gold and silver deposit.

China is "one of the most under-recognized opportunities in the global gold sector," Klein said. "We certainly haven't put away the acquisition desire yet, but we recognize we have got to deliver on what we have bought at this stage."

Sino also plans to build the Beyinhar mine, acquired in last year's takeover of Toronto-based Golden China Resources Corp., which may produce 100,000 ounces annually, Klein said in September.

Construction work continues at Sino Gold's $55 million White Mountain mine in Jilin province, northeast China, with first output scheduled for early 2009. Zijin Mining Group Co. is China's biggest gold producer and runs the country's largest gold mine.

'Clear Path'

"Sino has positioned itself there after 12 years to be the largest foreign investor in the gold sector," Klein said today. "We now see ourselves, with these two acquisitions, with a clear path for four, significant low-cost operations producing in excess of 500,000 ounces gold production a year."

Gold surged to a record $868.89 an ounce on Jan. 3, driven by investors seeking an alternative investment to the weakening dollar and a hedge against higher inflation. The metal traded at $859.20 an ounce at 12:39 p.m. Sydney time, and would need to gain 16.4 percent to reach $1,000.

China was set to become the world's largest gold producer in 2007, according to a September forecast from London-based researcher GFMS Ltd. First-half output in South Africa fell 7 percent to 134 tons, while China's jumped 18 percent to 129 tons, making the Asian nation the second-largest producer, GFMS said in a report.