2010-07-29 09:56

Employees of Shanghang Waterworks test water quality. [Jiang Kehong / For China Daily]

BEIJING - Zijin Mining Group, China's biggest gold producer, will reduce production after being instructed to do so by the local government in Fujian, where the company is based.

The decision is expected to cut the company's gold output by 1 ton this year, according to a company statement filed the Shanghai Stock Exchange. Statistics show Zijin produced 75.37 tons of gold in 2009, up 31.05 percent from the previous year.

Shanghang County government made the decision to limit the company's output to a level that can ensure environmental safety.

On July 4, around 9,000 cubic meters of toxic waste water spilled from a blown-out sewage tank at a Zijin copper plant into the Tingjiang River in Fujian province, killing thousands of fish.

The decision to restrict gold output will not severely hurt the gold producer's earnings this year, analysts said. However, the price tag for the clean-up may cast a shadow on the firm's future performance.

Zijin Mining's A shares rose 2.45 percent to end at 5.86 yuan on Wednesday after a two-day suspension. The gold miner's share price dropped 2 percent since the spill was revealed to the public in mid-July.

"Its profit may be cut by 200 million yuan resulting from the gold output reduction, which is very slight if compared with its total asset size," said Zhu Lida, an analyst at Northeast Securities.

Zijin Mining realized a 3.5 billion yuan net profit in 2009 with total assets of 29.6 billion yuan. Its gold business contributed 73.6 percent to the company's overall net profit last year.

The output restriction is better than "an overall production shutdown" previously handed down by the Fujian Provincial Department of Environment Protection.

"The impact of the output limit on the nation's gold prices is also negligible, even though the company's total gold output is large," said Zhu.

Zijin accounted for 24 percent of the nation's total gold production in 2009.

However, market jitters remain due to uncertainties over a possible government penalty on Zijin over the spill.

"We're not sure how much Zijin will spend on environment protection efforts after the accident, and the penalty is pending.

Therefore, it's still too early to predict how the spill will affect the company's earnings," said Fan Haibo, an analyst from Cinda Securities.

Implicated officials from the affected county and Zijin Mining were dismissed after the spill.

The company may also face compensation claims for fishing losses in the area, but the specific penalty has yet to determined by the Fujian provincial government.

Xinhua contributed to this story.

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