Jinshan Gets US$31M Loan From China National Gold

Having China’s largest state-owned gold producer in its corner is starting to pay big dividends for Jinshan Gold Mines (JIN-T, JINFF-O).

China National Gold Group, which owns about 41% of Jinshan, is offering a non-revolving US$31- million credit facility to the Vancouver- based company’s subsidiary, Inner Mongolia Pacific Mining.

The credit facility is unsecured and carries an interest rate of 5.31% per year. The loan is repayable in full by Sept. 30, 2009, but that maturity date can be extended.

With the new funding, Jinshan believes it can complete its new crusher system at the Chang Shan Hao (CSH) gold mine in China’s Inner Mongolia region.

Jinshan says the crushers should be online in this year’s third quarter. The company is also working on expanding its processing capacity at CSH. Construction on the second phase of the leach-pad extension began in early June.

About 90% of the infrastructure for the crusher system is complete and the installation of the crushers and related equipment has already started. Initial testing of each of the crushers is scheduled to begin in mid-July.

The low-cost, unhedged credit facility demonstrates the beauty of having a strong relationship with a Chinese partner that has deep pockets. In addition to the US$31-million loan, China National Gold has assisted Jinshan previously with advance payments of US$20.5 million for future gold deliveries. The Chinese state-owned enterprise is also helping Jinshan cut costs at the CSH mine through its bulk purchasing power, lowering mining and processing costs.

Jinshan is working with China National to identify projects that have a high potential to be developed in the near term.

Jinshan started production at CSH in July 2007 with commercial production beginning on July 1, 2008. Total gold production through to the end of March 2009 has reached more than 88,830 oz.

In the first quarter of 2009, Jinshan sold 8,605 oz. gold at an average selling price of US$893 per oz. for total gold revenues of US$7.7 million.

For the three months ended March 31, production averaged 3,110 oz. gold per month. The company’s target monthly production level is 9,000 oz. per month.

The primary contributor to lower production in the winter months is the cold weather, which slows the cyanide solution flow and its reactive properties.

As the weather began to warm up, gold production in April reached 5,435 oz.

Total cost per oz. gold sold in the first quarter was US$650 per oz., while cash costs per oz. reached US$507.

The company’s other properties in China include the Dadiangou project in Gansu province, where the company has completed 14,910 metres in 68 diamond-drill holes. Jinshan also has two exploration permits in the Eastern Xinjiang Uygur Autonomous Region of northwestern China, known collectively as the Xinjiang project.

At presstime, Jinshan traded at $1.09 per share in a one-year band of 39¢-$2.69.

The company has 163.9 million shares outstanding.