China cites 'early harvest' benefits in Guadalcanal deal

Wanguo Gold

30/10/2019 03:26

* Chinese-controlled company to own large assets on
Guadalcanal
    * Mining analysts have raised questions over the mine
contract
    * China becoming increasingly active in South Pacific

    By Jonathan Barrett
    SYDNEY, Oct 30 (Reuters) - Chinese companies will build and
control power and port facilities, roads, rail and bridges on
Guadalcanal, in the Solomon Islands, as part of an $825 million
deal to revive an abandoned gold mine, according to new contract
details.
    The gold project agreement, described by Chinese ambassador
Xue Bing as an "early harvest" of the new diplomatic tie-up
between Beijing and Honiara, gives Chinese interests an
increased foothold in the Pacific, long under the influence of
the United States and its allies.
    While locals initially expressed fears the Gold Ridge mine
deal would saddle the island nation with debt, those attending a
weekend ceremony at the mine site were told the Solomons will
not pay for the project infrastructure, according to a recording
of proceedings reviewed by Reuters.
    The Solomons will, however, not own the infrastructure.
    A company majority-owned by Hong Kong-listed Wanguo
International Mining  3939.HK , which has the project rights,
will retain ownership of any project related-infrastructure,
according to the project terms presented to attendees.
    Wanguo has contracted state-owned China State Railway Group
$825 million to complete the works over several phases.
    Those attending the ceremony at the mine site, located about
30km (20 miles) south of the Solomons capital of Honiara, were
told the large contract would involve a significant
infrastructure component beyond the immediate mine site. 
    "Only China, proceeding from the friendship and wellbeing of
the local people, is ready to overcome all obstacles to
undertake this project by planning to build roads, bridges
mining facilities and a hydropower station," said Xue, according
to the recording.
    A separate announcement from China Rail in September also
said the contract included port work. 
    The infrastructure will be built in and around Honiara on
the island of Guadalcanal, a strategic Pacific location that saw
fierce fighting in World War Two.
    While the Solomons government, China Rail and the project
operators have denied any political involvement in the mining
deal, it was presented at the project ceremony as an example of
what the new relationship between China and Solomons can
deliver.  
    The agreement was announced in mid-September, coinciding
with a decision by the Solomons government to switch diplomatic
ties from Taiwan to Beijing, angering the United States in the
process.  urn:newsml:reuters.com:*:nL3N26C04U
    "This is not only a new beginning of the Gold Ridge mine;
but also a very important early harvest of the friendly
cooperation between China and Solomon Islands which established
diplomatic relations just 35 days ago," said Xue, who is the
Chinese ambassador to the nearby Papua New Guinea.
    Solomons landowners and politicians, Chinese officials, and
representatives of China Rail and Wanguo were at the ceremony,
said a source who attended.
    Solomon representatives were repeatedly reassured the
Pacific nation would not be subjected to a "debt-trap", an
allegation used against China by the United States.  urn:newsml:reuters.com:*:nL2N26901D
    Wanguo did not immediately respond to questions. The
Solomons government, which did not immediately respond to
questions on Wednesday, has previously said it was a private
sector deal and was not privy to the commercial arrangements.
    Solomons opposition lawmaker Peter Kenilorea told Reuters
the Gold Ridge agreement was opaque and its terms needed to be
better explained.
        
   SOLOMON'S GOLD
   The size of the contract has perplexed mining analysts, given
past private operators have struggled to make the mine
profitable. 
    Independent Australian-based mining analyst Peter Strachan
said the agreement was "way over the top" for a relatively
low-grade gold project with modest reserves. 
    "There has to be some back-story on this," said Strachan,
who has visited the Guadalcanal mine site.
    The troubled Gold Ridge mine last operated in 2014, before
severe floods halted production. 
    At its peak it was the source of 30% of GDP in the Solomons,
which is largely reliant on timber exports. Solomons GDP was at
$1.4 billion last year, according to World Bank data, making it
one of the world's smallest economies.
    The project owners have not released an anticipated date the
project will restart.
    The previous owner, Australian-listed St. Barbara, sold the
mine for a nominal A$100 ($68.60) to a landowner group in 2015,
which went on to secure interest from Australian-based Chinese
company AXF Resources, and then Wanguo.
    Walton Naezon, chairman of the Gold Ridge landowner group,
told Reuters the Gold Ridge deal was a commercial arrangement
with no political input. 
    He said the project's two other equity owners, Wanguo and
AXF Resources, were raising $275 million to pay China Rail to
bring the mine back into production.
    "The balance is the second phase to be approved, which
includes things like underground work," said Naezon, referring
to the remainder of the $825 million contract.
    "China Rail will bring their own machines. They will employ
70% local labour and the rest will be their own staff."   
   
    
    

($1 = 1.4582 Australian dollars)

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Tug of war in the Pacific JPG    https://tmsnrt.rs/2MEUkvi
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 (Reporting by Jonathan Barrett in Sydney; Additional reporting
by Melanie Burton in Melbourne; Editing by Lincoln Feast.)
 ((Jonathan.Barrett@thomsonreuters.com;))