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AsianFin -- A bold acquisition by Western Gold has ignited market controversy after the Chinese gold miner unveiled plans to purchase a heavily loss-making affiliate at a 1,421.66% premium, raising fresh concerns about self-dealing and speculative bets on surging gold prices.
In a late-night disclosure on June 12, Western Gold said it would acquire Xinjiang Meisheng Mining Co., a unit of its controlling shareholder Xinjiang Nonferrous Metals Group, for 1.655 billion yuan ($228 million), despite Meisheng's near-zero revenue and persistent losses.
The valuation raised eyebrows across financial circles, as it implies a more than 15-fold appreciation over Meisheng's book value of just 109 million yuan. Western Gold defended the price tag, citing nearly 100 tons of high-grade gold reserves at the Katebaasu Gold-Copper Polymetallic Mine and the potential for 3.3 tons of annual gold output, positioning the project as a core strategic asset.
The Katebaasu mine in Xinyuan County, Xinjiang, holds 25.67 million tons of proven ore reserves, including 78.7 tons of gold, 48,800 tons of copper, and additional resources of silver and sulfur. If completed, the acquisition would nearly triple Western Gold's resource base and lift its annual production capacity from about 1 ton to over 3.3 tons.
But critics say the timing—and the price—reeks of opportunism. Spot gold surged again this week amid escalating geopolitical tensions and trade uncertainty, with prices climbing 1.11% to $3,424.53 per ounce as of 10:00 GMT on June 13, marking a 3.43% weekly gain.
"The company appears to be doubling down on a gold bull market at historic highs, which could expose shareholders to extreme downside risk if prices retreat," said a Shanghai-based fund manager, who declined to be named due to client restrictions. "And this is a related-party deal—those always deserve extra scrutiny."
Indeed, the acquisition follows a pattern seen in other controversial Chinese transactions, such as ST Huaze and Yue Media, where insiders offloaded distressed or speculative assets at peak market valuations—often with long-term consequences for minority shareholders.
Western Gold's optimism sharply contrasts with Meisheng's dismal financials. The company posted just 276,700 yuan in revenue in 2024, alongside a net loss of 35.94 million yuan. The first quarter of 2025 showed no revenue and an additional loss of 14.16 million yuan. Western Gold attributed this to the mine still being in its construction phase and emphasized the "certainty" of production starting in the second half of 2025.
Still, the justification for using an asset-based valuation method—instead of an income approach—was seen as another red flag. The valuation relies heavily on intangible assets, primarily two mining licenses, which drove a 110.89% jump in appraised value to nearly 3 billion yuan.
Western Gold will finance the deal with a mix of internal funds and loans, despite a weak balance sheet and uncertain cash flows from the new project.
The market reaction was swift and skeptical. Analysts questioned whether Xinjiang Nonferrous is offloading high-risk, capital-intensive assets to its listed unit at peak gold valuations, effectively locking in profits while passing volatility and execution risks onto public investors.
"It's a classic value transfer from minority shareholders to controlling shareholders," said a Beijing-based investment banker familiar with similar cases. "If gold prices don't continue climbing—or if production is delayed—this could become a financial sinkhole."
The broader market context adds urgency. While gold has rallied sharply amid inflation fears, geopolitical instability, and dollar weakness, its long-term price trajectory remains volatile. Should the mine ramp up output into a downturn, profitability could be severely compromised.
Western Gold's acquisition may yet prove prescient if the Katebaasu mine delivers on its promise and gold prices remain elevated. But with a 1,421% premium, dismal financials, and insider involvement, investors are right to demand greater transparency.
For now, the deal underscores a growing trend in China's resource sector: high-leverage bets on commodities during peak cycles—often at the expense of minority investors.
