STOCK valuations of gold miners in China, the world’s largest producer of the metal, have climbed to multi-year highs, a surprise on the face of it given that the country’s demand fell in 2014 for the first time in over a decade.

    The median price-to-earnings ratio of Zijin Mining, Shandong Gold Mining, Zhongjin Gold, Chenzhou Mining, JinGuyuan and Shandong Humon Smelting — the six listed gold mining companies that are earning a profit — has risen to 57.4, the highest in five years. That compares with 22.1 a year ago.

    The lofty valuations are tracking gains in the wider market. The CSI300 index of the largest listed companies in Shanghai and Shenzhen has jumped 50 percent over the past year, buoyed by hopes for economic stimulus measures.

    Earlier this month, the central bank reduced the amount of cash that banks must hold as reserves, boosting liquidity in the financial system. In November, it made a surprise cut in benchmark interest rates.

    Gold fundamentals paint a different picture. Gold prices have fallen about 5 percent over the past 12 months and at about US$1,230 an ounce are well below a 2011 peak near US$2,000.

    Chinese demand last year fell nearly one-third, data from GFMS at Thomson Reuters show. It was the first drop in 12 years, as an anti-graft drive by the government eroded sales of jewelry and precious metals, adding to the impact of slowing economic growth.

    With gold consumption down, and prices and profits relatively low, miners are working hard to improve efficiency and cut waste, China’s industry ministry said Wednesday. Average production costs have risen 12 percent over the past year, driving out some smaller producers.

    “Low-grade, high-cost gold mining enterprises will face bigger operating pressures,” the ministry said. (SD-Agencies)