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Market:	ASX
Sector:	Gold Mining
Epic:	TGF
News:	Latest news
Web Site:	Tianshan Goldfields
Other Articles:	17-11-200811-08-200801-08-2008

Tianshan Goldfields share performance and reality decouple

by Ian Mclelland

Viewing the share price chart of Tianshan Goldfields (‘Tianshan’) for the past three months doesn’t exactly inspire confidence, but while the share price has been going down, progress with operations at Tianshan’s flagship asset in China have been steadily advancing.

Tianshan has a 90% interest in the holding company, Xinjiang Gold Mountain Mining, which in turn holds 100% of the low grade, large tonnage, 2.7 million ounce Gold Mountain Project, which comprises of a suite of properties encircling the 3.8 million ounce Arxi Gold Mine. Gold Mountain is a near-surface, breccia-hosted hydrothermal deposit, which should lend itself to open pit mining and a relatively inexpensive heap-leach operation. Thanks to the close proximity to Arxi, the local infrastructure, including power and roads, is excellent.

In a quarterly update this week, investors were reminded that Tianshan has plenty of cash in the bank (circa A$19 million), is conducting an extensive resource expansion and delineation drilling programme this year (some 35,000 metres) and anticipates the completion of a pre-feasibility study into the development of Gold Mountain, in the third quarter. 15,000 of those 35,000 metres of drilling are earmarked for regional exploration in areas where Tianshan has identified 31 anomalous targets. Initial drilling will focus on the Tikexi, Jin Gu and Awuliya prospects.

Yet with the backdrop of gold firmly entrenched above key support at US$850/ounce, shares in Tianshan have been in a bit of a downward spiral of late. This appears to be partly due to a wider pull back in nearly all resource related companies, and to date, the sell-off has been broad and unremitting. With 2 million ounces in the indicated and measured category, and initial projections suggesting a modest capex of $80 million to develop a gold mine producing 80-100,000 ounces of gold per annum, for an initial period of 8 years, shares in Tianshan are starting to look downright cheap. Tianshan, with a market cap of £36 million, is valued at or around US$35 per attributable ounce of measured and indicated resource, equivalent to 4% of the gold price.

It would appear that Tianshan’s decision to drop its listing on London’s Alternative Investment Market has partly contributed to the recent weakness, as some UK-based shareholders have decided to cash out. Tianshan only listed on AIM two years ago, but priorities for Chinese-based companies have changed rapidly.

The Hong Kong Stock Exchange (HSE) is now positioning itself as the preferred destination of companies with interests in the People’s Republic of China, as the government has made it easier for mainland investors to purchase shares of companies listed there. The HSE has also been taking steps to make listing less onerous. Leyshon Resources (AIM & ASX: LRL) recently announced that it was considering a listing on the HSE, most likely in the first half of 2009. Considering the current dearth of financing available from many western banks, combined with lack of liquidity on AIM, and the collapse of valuations for small cap companies, it is no wonder many are upping sticks for other exchanges. Tianshan’s two largest shareholders, Macquarie Bank and Mineral Securities, are also Australian-based groups, so clearly the need to look to London for finance has dropped off the priority scale.

This is bad news for AIM investors, as Tianshan is a promising company with a solid chance of developing into a serious gold producer. Cash costs are currently estimated to be in the region of A$425/ounce for Gold Mountain, which would put the company in the bottom half of the cost curve, and well below most Australian-based gold producers who are really feeling the pressures of cost inflation in the industry.

Arguably, Tianshan is also being discounted for being a one-asset company in China, which is still regarded as a moderately risky place to do business. Admittedly, the bureaucracy is an issue, but considering the relative success of other western mining groups who have moved from discovery to production - including Griffin Mining (AIM: GFM) and SilverCorp (TSX: SVM) - regulatory issues appear to be very manageable. China itself, is building an impressive track record of stable, successful partnerships with foreign companies. The standard free carry of 10% is one of the least demanding in the world, and to date, there have been no expropriations of assets, or revocations of licenses by the Chinese - who have become the world's premier gold producer, sooner than most would have anticipated. Tianshan's exploration licence is renewable on a two-year basis, currently valid until September 2008; no problems are anticipated. Tianshan, for the record, has contracted the Chinese Design Institute, BGRIMM, to co-ordinate and manage all aspects of the work required for the submission of a Mining Licence Application.

Just before hitting the ‘publish’ button, Tianshan announced further results from ongoing drilling at Gold Mountain.  The results announced today extended the south-east and eastern limits of the Jinxi Deposit, one of three that will make up current JORC resource.  Highlights included 27.8 metres at 0.95 grams per tonne gold from 117 metres down hole, 10 metres at 2.62 grams per tonne gold from 209 metres down hole and 10 metres at 0.62 grams per tonne gold from 196 metres down hole.

Yet more evidence that Tianshan is getting on with the task at hand, and breaking through the 3 million ounce mark is a very real possibility.

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