Asia Now Resources Makes Tracks in China

In China, having the right connections can be the tipping point between success and failure.

That’s why Kaihui Yang, the Chinese-born president and chief executive officer of Asia Now Resources (NOW-V, AINWF-O) may be worth his weight in gold — literally.

The 43-year-old spent a decade working at the Ministry of Geology and Mineral Resources in Beijing, now the Ministry of Land and Resources, after receiving his degree in geology at the China University of Geosciences.

After a stint abroad at the University of Toronto and later as a consultant to Barrick Gold (ABX-T, ABX-N), Noranda, Inco, Falconbridge, and the World Bank, he returned to China to look for gold mining opportunities. His connections with government officials served him well.

“I’ve had a lot of support from my former friends and colleagues,” admits Yang from his Toronto office. “In China, the golden rule is friendship first, business second.”

Friends in government agencies helped guide him through the maze of policies and regulations, Yang says, and pointed out the “right, fast, short, direct route for joint ventures.”

In 2002, Yang chose to begin his quest for gold in China’s southern province of Yunnan. It is the only province in China, he explains, where mining companies do not require approval from the central government to get an exploration licence.

“The local government has the authority to issue exploration rights to you,” Yang says. “So to reduce the bureaucracy, we chose Yunnan. The province also has a long mining history and the policy is good.”

Initially, Yang looked at 11 projects and then selected the four most promising. From those, he selected two: Habo, a 162-sq.-km property about 350 km south of Kunming, the capital of Yunnan province, and 25 km from the border with Vietnam, and Beiya, a 586-sq.-km property in the west of the province.

A section of the Beiya property, called Beiya North, is adjacent to an operating open-pit gold mine that is currently being expanded to produce 70,000 to 100,000 oz. gold per year.

At Beiya, Asia Now is targeting intrusion-related gold deposits similar to the adjacent mine. Drill targets have been identified from a large soil anomaly with gold values of up to 1.7 grams per tonne measuring 13 by 2 km. Roughly half of the anomaly covers the operating mine’s two pits, and half lies within Asia Now’s exploration rights.

At Beiya Far North, Asia Now is targeting Carlin-style gold deposits. The property has a large anomaly extending over 9 sq. km. with values up to 1.9 grams gold per tonne in soil samples. Early trenches have exposed zones of anomalous bedrock up to 100 metres wide.

Asia Now holds a 100% interest over an area of about 236 sq. km at the Beiya project, with the balance held in two separate joint-venture companies with Chinese partners. It can earn up to 72% in one of the joint ventures and up to 70% in the other. In both cases, if the joint-venture partners choose not to finance mine development after Asia Now earns its initial stake, the company can earn an interest of up to 88-90% in the two joint-venture projects.

Habo project

Habo, meanwhile, is a large copper-gold-molybdenum porphyry system where the company has identified seven anomalies. Last year, the company drove eight adits into copper-gold mineralization and completed surface trenching before starting an 800-metre drill program. Assay results from adit samples showed enhanced grades of up to 1.8% copper, 1.1 grams per tonne gold, and 0.12% molybdenite at depth.

Asia Now started drilling Habo this year with encouraging results, Yang says. The first hole returned a near-surface intersection of 17 metres grading 0.96% copper and lower-grade mineralized zones down to a depth of 500 metres, where drilling stopped.

The company can earn up to an 80% interest in Habo by financing exploration. If its joint venture does not choose to contribute to financing mine development after Asia Now has earned its 70%, it can earn up to 88%.

In addition to the two projects in Yunnan, Asia Now also has an 80% stake in a joint venture with the state-owned Second Geological Team of the Hebei Prospecting and Developing Bureau of Geology and Mineral Resources. Known as the Great Wall project, it is a 24-sq.-km gold property in China’s northeastern Hebei province.

The project is temporarily on hold, however, as the company waits for the final transfer of exploration rights from its joint-venture partner to the joint- venture company, a process that must be approved by the central government in Beijing. Yang says he expects work to resume on that project later this year or in 2008.

Yang notes that China is a good place for foreign mining companies because the central government realizes it must be quite aggressive about mineral exploration and has good mining policies in place.

“They know they are spending way too much money importing iron ore and copper,” he says, noting that in 2005, the country consumed 3.6 million tonnes of copper metals and produced just 600,000 tonnes.

Yang describes China’s mining sector as being “at least fifty years behind” the West and in terms of gold production, the lion’s share continues to come from thousands of small mines.

“The country is underexplored and the mining industry is very backward if you compare it with Western countries,” he says.

By way of comparison, Yang points to China’s biggest open-pit operation, the Dexing copper mine in Jiangxi province. He notes that Dexing, which he visited in August, produces 150,000 tonnes of copper metal annually, compared with the Escondida mine in Chile, which produces more than 1.2 million tonnes of the metal.

Most of China’s underground mines operate at 200 to 300 metres below the surface, although some penetrate down to the 500- to 1,000-metre range. But mines in developed countries operate 1,000 to 1,500 metres below the surface or deeper, Yang says.

Local pressure

Like all joint ventures exploring mining properties in China, Yang says, Asia Now’s exploration licences must be renewed annually and that carries some degree of risk. Local officials will check to see if the company is making headway on exploration. If it’s not, there’s a chance the licence will not be renewed.

“They like to put pressure on you to do exploration every year and then do more,” Yang says.

In the province of Yunnan, for example, local governments can be quite aggressive.

“The local government is quite poor and (it is) looking for revenue to support (itself) because the central government doesn’t support it completely,” he explains. “So they want to see you put into production right away and pay tax to them. If you are just doing exploration, you don’t pay tax.”

Yang says the company spends quite a lot of time and effort trying to convince the local government that exploration takes time and patience is required to develop a significant mine that will contribute to the local economy.

Yang’s advice to other foreign mining companies is to understand China and the way its legal system works and the importance of nurturing relationships with officialdom. He also urges foreign players not to rely on their joint-venture partners on financial issues.

Ultimately, joint-venture partners can be key. While Asia Now largely has had good luck with its partners so far, it did experience delays last year in renewing an exploration licence for one of its joint ventures in Beiya because one of the partners did not have a good relationship with the local government. Fortunately, the chairman of that partner retired and was replaced by a man who had excellent relationships with the local government and the licence was renewed.

“That’s something that shouldn’t happen,” he says, “but in China, the Chinese government still views itself as the manager of the economy and that’s the biggest problem.”