A month ago, Zijin Mining Group (紫金礦業集團) was a Chinese corporate star, a profitable gold and copper mining company with ambitions to expand abroad.
Today, the company is an environmental villain, after a July 3 leak of copper mine waste into a river killed fish, fouled drinking water for 60,000 people and flowed into a populous neighboring province. Zijin admits breaking rules and the state media is questioning whether local officials ignored its misconduct.
The scandal highlights chronic complaints in China that politically favored companies are allowed to ignore safety rules, leading to deadly and damaging oil and chemical leaks, mine fires and other disasters.
This incident has focused scrutiny on a major publicly traded Chinese company with assets in seven countries from Peru to South Africa that is currently bidding to expand operations in Australia and Congo.
Zijin boosted profits by slashing costs but skimped on investment, making such a disaster almost inevitable, said Liu Minda (劉敏達), an analyst for Huatai Securities (華泰證券).
“They didn’t spend money on things they should have,” Liu said. “We are not surprised that they have environmental accidents.”
The disaster in Shanghang County (上杭縣), Fujian Province, has received extensive coverage in state newspapers, possibly as a warning to other companies and local officials.
“Like other polluters, Zijin has countless ties with the local government,” complained an editorial in the Guangzhou Daily, a major newspaper in Guangdong Province, downstream from the mine.
“Zijin Mining is like a selfish, gold-hungry crocodile. It takes no responsibility for the local people’s life and health,” the editorial said.
Also last week, an oil spill coated beaches near the port of Dalian after a pipeline owned by state-owned China National Petroleum Corp (中石油) blew up on July 16. No cause has been revealed.
Frequent industrial disasters have prompted a public outcry over the cost of China’s rapid development. Chinese Communist Party leaders promise improvements after each incident but accidents remain commonplace. Local officials are sometimes reluctant to enforce regulations for fear of losing jobs and tax revenue.
Since Zijin’s waste spill, police have detained the facility’s manager, deputy manager and environmental protection officer. The chief county environmental official resigned. Zijin publicly apologized and admitted a waste pond at its Zijinshan Copper Mine in Shanghang was improperly built and operated.
“The executives of our company and I have been in great remorse,” chairman Chen Jinghe (陳景河) said on Shanghang Television last Monday, according to the China Daily newspaper. “We’re willing to shoulder all responsibilities and will not have any complaints.”
The company promised to pay more attention to the environment but said the accident would have no impact on the speed and scale of its foreign expansion plans.
The episode is an abrupt reversal for a corporate high-flier lauded by Forbes magazine last year as a candidate to enter its “Fab 50” list of Asia’s top private companies with the best long-term prospects.
Zijin was originally owned by Shanghang County government. It was turned into a corporation in 2000 and had an initial public offering in Hong Kong in 2003.
Chen is credited with discovering its main asset, the Zijinshan gold and copper mine as a young engineer in the 1980s. According to Zijin, the mine has China’s largest usable gold reserves.
Today, Zijin says it is China’s top gold producer, No. 3 in copper and among the top six in zinc. Abroad, it also owns stakes in mining outfits in South Africa and Myanmar.
Credit Suisse says Zijin’s profits should jump 45 percent this year to 5.1 billion yuan (US$750 million) as Chinese demand rebounds from the global slump. Huatai’s Liu said it is among China’s five most profitable mining companies.
Zijin has been so profitable that one of its early investors, Chen Fashu (陳發樹), last year announced China’s biggest ever charitable gift — a 8.3 billion yuan (US$1.2 billion) donation to his own foundation. News reports and Internet chatter questioned whether he made the donation to avoid taxes.
Zijin’s overseas expansion has also stumbled. The company last month abandoned a planned US$470 million acquisition of Australia’s Indophil Resources Ltd after local Chinese officials delayed approval.
Officials in the Democratic Republic of Congo objected to a plan by Zijin and a Chinese government investment fund to buy Platmin Congo, a copper and cobalt miner.
Chinese media have questioned Zijin’s account of when the toxic leak began.
Zijin said heavy rain caused the improperly installed waterproof lining of a waste pond at the mine to rupture on July 3. It said 9,100m³ of tainted water — enough to fill four Olympic-size swimming pools — seeped into the ground and then into the nearby Ting River.
A smaller leak occurred July 16 but was quickly plugged, the company said.
Farmers cited by the China Daily said fish raised in pens on the Ting started dying on June 5, almost a month before the rainstorm.
Despite the bad publicity, Zijin’s financial losses should be limited, Credit Suisse said in a report. A copper smelter was temporarily shut down but Credit Suisse said fines should be no more than 50 million yuan — about 1 percent of this year’s profits.
Local leaders might have a conflict in overseeing Zijin because many own shares in the company and it hires retired officials, according to the Economic Information Daily, published by Xinhua news agency.
“The close relationship between the local government and Zijin Mining helps cover the environmental crises,” said an official quoted by the China Daily. “Some law enforcement actions may not be prosecuted fully either.”
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