This came across Dow Jones wire after hours. Everything is accelerating about gold so its no surprise that the expected acceleration of China into the #1 Gold producer spot that was expected to happen in 2009 or 2010 has already happened in 2007!

The story is that three forces have been at work. First is the problems in South Africa that have resulted in a rapid decrease in gold output. The second is that the Chinese have been signing JVs with Aussies and Canadians to develop mines using current technology. Third and most interesting to me is that they attribute the rapid increase in output to the many small scale mines where the miners are essentially high grading their deposits because of the availability and dependence on labour and high gold prices.

Interesting read.

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China Became World's Largest Gold Producer In 2007
January 17, 2008 6:37pm ET

By Laura Mandaro

China became the world's largest gold producer last year, helped by Canadian- and Australian-led projects that aim to add millions in ounces to the world gold supply.

China produced 276 metric tons of gold last year, equal to about 9.7 million ounces, said London precious metals consultancy GFMS Ltd. in a report released Thursday. That's up 12% from the year-ago and represented just over one-tenth of the world's supply.

The ranking pushes South Africa into second place, the first time the gold giant has lost its top ranking since 1905, GFMS said. South Africa, whose late 19th century gold rush led to the founding of mining heavyweight Anglo American PLC (AAUKD) and is home to global producers Gold Fields Ltd. (GFI) and AngloGold Ashanti Ltd. (AU), saw its production decline 8% to 272 metric tons.

One metric ton is equal to about 1.1 short tons, which is the common volume measure in the United States, or 35,274 ounces. The ranking is part of a broader report on gold supply and demand released by GFMS, which said gold is likely to hit $1,000 an ounce this year but may first correct lower.

The title of top gold producer adds to a list of raw materials China can claim to produce more than any other country, including aluminum and steel. It's not likely to lose that lead anytime soon as more foreign producers make inroads in China's untapped mining fields.

"The expectation is that [China] will almost certainly retain that position next year, and I wouldn't be surprised to see further consolidation of its lead," said William Tankard, senior analyst at GFMS.

Driving China's output higher last year was increased high-grade output by the hundreds of smaller small-scale mines responsible for much of the country's output. Their size gives them the flexibility to go after higher grade ores when prices jump, as they did last year, said Tankard.

Last year, gold prices gained about 31%, ending at $838 an ounce on the New York Mercantile Exchange, before plowing through $900 an ounce this month. On Thursday, gold futures closed lower for a third straight day, with the February contract ending down $1.50, or 0.2%, at $880.50 an ounce.

What's more, gold producers based outside the country have been setting up camp in some of China's sparsely populated regions. As these operations ramp up to full capacity, output in the country is likely to expand, said Tankard.

Vancouver-based Jinshan Gold Mines Inc. (JIN.T) started production in July at its Chang Shan Hao gold mine in China's northern province of Inner Mongolia, reaching 19,000 ounces of gold by Dec. 18. The mine is designed to produce about 120,000 ounces of gold per year, making it one of the country's largest producers, Jinshan says.

Gold Fields and Australia's Sino Gold Mining Ltd. (SGX.AU), meanwhile, have set up a joint venture focused on discovering large gold deposits in China with the potential to produce about 500,000 ounces a year. Sino Gold has been buying stakes in Chinese gold deposits and explorers. In May it started production at its Jinfeng mine in southern China, with planned gold production of 180,000 ounces per year.

Most of China's gold output stays in the country where it's transformed into jewelry and manufactured items, though the country's export role is increasing. Last year fabrication rose 18%, helped by demand from China's increasingly wealthy middle- and upper class.

Meanwhile, South Africa, which was producing as much as 1,000 tons of gold in 1970, has seen its mining production decline for five straight years.

Accelerating a drop in output last year, the country's mining authorities started a crackdown on unsafe mines after 3,200 workers were trapped at Harmony Gold Mining Ltd.'s (HMY) Eldestrand mine in October.

Following an order by President Thabo Mbeki, the mining commission in the last three months started to requiring gold mines that suffer a fatal accident to suspend operations while a safety audit takes place.

Laura Mandaro; 415-439-6400; AskNewswires@dowjones.com

(END) Dow Jones Newswires

01-17-08 1837ET

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