Long before investors developed their latest love affair with gold, executives at the Shanghai-based Fosun group saw its potential. In late 2003, when the precious metal was selling at $300 an ounce, the conglomerate learned through government contacts that a loss-making, state-owned gold mining company in northeastern China was desperate for capital to finance a restructuring and upgrade its technology. The execs, who were gearing Fosun to China’s rapidly growing middle class and anticipating an increasing appetite for gold jewelry among Chinese women, smelled an opportunity. They invested 161 million yuan ($25 million) for a 20 percent stake in Zhaojin Mining Industry Co. and persuaded an 18 percent-owned Fosun affiliate, Shanghai Yuyuan Tourist Mart Co., to do the same. In the process the two companies became the first private investors in a Chinese gold mining company.
Fosun’s biggest challenge was cultural: getting Zhaojin management to respond to a profit-driven board that included two Fosun representatives, rather than to government regulators. To that end, the new shareholders instituted a benchmarking system that set targets for containing costs even as the company ramped up production. They also boosted research and development spending, a move that helped Zhaojin develop a patented oxidation technique that improved the company’s gold extraction rates while reducing costs by 22 percent. Over the next three years, Zhaojin quadrupled its production while keeping costs below those of its rivals, boosting the company’s gross profit margin to 55 percent, the highest in China’s gold mining industry.
The turnaround allowed the company to go public in 2006 with an initial public offering on the Hong Kong Stock Exchange that raised HK$2.5 billion ($320 million) and diluted Fosun’s stake to 14.55 percent……
Read more at http://www.institutionalinvestor.com/Article/2923338/Hedge-Funds-and-Alternatives/Fosun-International-is-Building-Chinas-Berkshire.html
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