SHANGHAI (Commodity Online): After BP’s oil spill fiasco, China’s leading gold producer Zijin Mining Group Co is caught in a similar crisis which is threatening to impact the production of the yellow metal in China.

Zijin’s vice president Chen Jiahong was arrested this week following an accident at a copper-processing plant that released toxic contaminants into a river.

Chen was the former head of Zijinshan Gold and Copper Mine, which has been accused of releasing acidic wastewater from its copper-processing plant into the Ting River in southeastern China’s Fujian province.

Zijin Mining Group Co is now struggling to plug the leak which is damaging the environment in the area. Zijin Mining has been under fire since news of the toxic leak became public. Earlier this month, the company said it would shut the Zijinshan copper facility for at least six months. On Wednesday, the company said it will limit gold production at its Zijinshan gold mine to prevent further environmental risks.

This will affect the output of the company. The decision is expected to cut the company’s gold output by 1 ton this year.
Zijin produced 75.37 tons of gold in 2009, up 31.05 percent from the previous year.

Shanghang County government made the decision to limit the company’s output to a level that can ensure environmental safety.

On July 4, around 9,000 cubic meters of toxic waste water spilled from a blown-out sewage tank at a Zijin copper plant into the Tingjiang River in Fujian province, killing thousands of fish.

The decision to restrict gold output will not severely hurt the gold producer’s earnings this year, analysts said. However, the price tag for the clean-up may cast a shadow on the firm’s future performance.

Zijin Mining realized a 3.5 billion yuan net profit in 2009 with total assets of 29.6 billion yuan. Its gold business contributed 73.6 percent to the company's overall net profit last year.

Gold advanced for a second day in London on speculation prices near a three-month low will spur increased physical and investment demand.

Gold for immediate delivery added as much as $5.85, or 0.5 percent, to $1,169.45 an ounce in London and was at $1,167.15.

Bullion has slumped 7.8 percent since reaching a record $1,265.30 an ounce on June 21 on an easing of European financial turmoil and on signs the global economy is rebounding. Lenders and regulators last week said most European banks passed stress tests designed to show their ability to withstand a financial crisis.

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