Mundoro Learns the True Meaning of Chinese Take-Away

Mundoro Mining (MUN-T, MMNGF-O) is sitting on what it claims to be China’s largest undeveloped gold deposit. But a mountain of red tape is snarling the Canadian company’s efforts to explore it.

Mundoro’s experience is a cautionary tale to all investors in China. Exploration licences aren’t always renewed and success in the Middle Kingdom can often boil down to the strength of personal relationships. Triumph can also depend on how quickly a company adapts and how innovatively it does so.

The saga begins in the late 1990s, when Mundoro first dipped its toe in the China market. In October 1999, the Ministry of Land and Resources presented the Maoling gold deposit as one of 16 exploration districts to be opened to foreign investment. In 2001, the government invited Mundoro to help it develop the Maoling gold project in the heart of China’s rustbelt in Liaoning province.

The Vancouver-based company undertook a project assessment and began partnership discussions with the corporate division of the Liaoning government. It then set up a joint venture with Liaoning Aidi Resources Co., or Aidi, the corporate arm of the Liaoning government’s Geology and Exploration Bureau.

Under the terms of the agreement, Mundoro took a 79% stake in the joint venture, called Tianli, and the state government’s geology and exploration bureau, 21%.

As part of the deal, the state government gave Tianli all prior technical information on Maoling, along with the necessary operating licences. For its part, Mundoro agreed to provide all technical management and the cash required to move the project into production.

When Mundoro’s business licence expired in August 2005, Tianli’s application to renew its exploration licence, which expired on Nov. 5, 2005, was deferred by the Ministry of Land and Resources in Beijing. The government explained that any renewal of the exploration licence would have to wait until the joint venture’s business licence was renewed by provincial authorities in the capital of Shenyang, the largest city in northeastern China.

Nearly two years on, the Liaoning government has failed to renew the business licence and has yet to give any reason for the delay.

Mundoro Mining executives declined to be interviewed for this article, but the company’s frustration is almost palpable.

“They’re getting tired,” says an executive with another gold mining company in China.

Mundoro has completed extensive exploration work with a total of 231 holes drilled and over 26,000 samples of drill core cut, prepped and assayed.

A prefeasibility study demonstrated the viability of producing an average of roughly 328,000 oz. gold annually at Maoling over a mine life of eight years. The site has two deposits that outcrop at surface.

In February 2006, the company completed an updated resource estimate showing combined measured and indicated resources of 4.8 million oz. gold and an additional 4.4 million oz. gold in the inferred category. A large-scale open-pit mine was designed on that basis.

Early projections suggest total operating cash costs of the mine to be US$187 per oz. gold, placing the project in the lower quartile of global gold production costs.

At presstime, Mundoro’s chief executive, Robert van Doorn, was in China trying to solve his company’s licensing woes.