“A tiny $3 gold miner sits on $3.7 billion in measured gold reserves… and China’s thirst for gold could propel its stock price up to $20 by December 19, 2008. Buy this Toronto-listed mining start-up now, before its full production capacity has come online.”

Speculators are bidding up gold prices to ever new records. Moved by two principal drivers, a weak U.S. dollar, and record crude oil prices, prices now are within striking distance of the $1,000 an ounce level. But almost unnoticed by the general public, there has been a dramatic shift in the international dynamics of gold production.

You see, South Africa used to be the world’s premier gold producer. In fact, its title had been uncontested since 1905. That is, until China began its come-from-behind expansion — not just into global manufacturing but into metal and mineral production…

Last year, China produced 276 metric tons of gold. Output was up a whopping 12% over 2006 and represented just over one-tenth of the world’s supply. But that’s only the beginning!

Rapid increase in the number of Chinese gold mining ventures

The key to China’s rapid rise to the top is the increased high-grade output that is generated by hundreds of small-scale mines scattered in the Chinese hinterland. And it’s not just domestic Chinese mining outfits that have been pushing into the game: Foreign gold producers, partnering with major Chinese businesses, have recently begun setting up operations in some of China’s sparsely populated regions, bringing with them their advanced technological expertise.

You know what that means — due to the inevitable delay between setting up shop and actually producing sizeable amounts of gold, China’s total output is likely to expand throughout 2008 as these operations ramp up to full capacity.

Canadian-Chinese gold mining project

One of these small, nimble mining operations trades on the Toronto Stock Exchange. The company started production in July 2007 in China’s northern province of Inner Mongolia. By December 18, 2007, it had reached 19,000 ounces of gold. But here’s the kicker: The mine is set up to produce about 120,000 ounces of gold per year, which would make it one of the country’s largest producers.

The company’s mining license covers about 15 square kilometers. Its “measured and indicated resources” now total 171.3 million tonnes at 0.71 g/t gold, the equivalent of 3.92 million ounces of contained gold. At today’s prices, that’s $3.7 billion in cold hard cash!

In addition, science backs up “inferred resources” estimated at 1.33 million ounces of gold contained within 64.2 million tonnes grading 0.65 g/t gold at a 0.35 g/t cut-off. That could be worth an additional $2 billion — and that’s just based on a gold price of $950 per ounce.

And the best part? You still can buy the stock for less than C$3!

When I first looked into this company, I thought of how my colleagues would report this find to you.

They’d take the company’s total current market valuation, currently at $426 million, and base it on December’s 19,000 ounces of gold production. Then they’d take the projected 2008 output of 120,000 ounces and tell you that, logically, the stock should be worth at least $33 a share by December 19, 2008… promising you a potential “conservative” gain of 1,000%.

By now, you know how these things tend to work out.

My own expectations are more realistic. If the company achieves only half of what they’re projecting for this year, I think it is reasonable to see the share price double from today’s level of C$2.70. In fact, I’d be quite content to see an increase by 50% — to C$4.05 or thereabouts. Vancouver-based Jinshan Gold Mines Inc. (JIN:TSX) started production in July 2007 at its Chang Shan Hao gold mine in China’s northern province of Inner Mongolia.

The mine is set up to produce about 120,000 ounces of gold per year, which would make it one of the country’s largest gold producers. Its operations within the Dadiangou gold system are located in the central part of China in southern Gansu Province, within the prolific Qinling Fold Belt.

The company’s mining license covers about 15 square kilometers and is owned by a partnership of the Northwest Industrial Nuclear Economic Technical Corp. (part of the Shaanxi Nuclear Geology Bureau of China) as the Chinese partner. And Jinshan, which can to earn a minimum of 80% on the property, with the Chinese partner having the option to participate at 20%, or to become diluted.

Our recommendation: Buy Jinshan Gold Mines Inc (JIN:TSX) at or below C$3 as a speculation on rising gold prices and the company’s ability to bring further production facilities online in 2008 and 2009.

The stock price is denominated in Canadian dollars. We believe the inherent currency risk is minimal for U.S. investors, in fact, given current trends, appreciation of the Canadian dollar against the greenback would add a secondary level of potential gains.

J. Christoph Amberger
TFN