Focus Minerals Ltd, a new medium-sized gold miner in Western Australia, announced that it would suspend its mining operations seven months after Shandong Gold Group spent 225 million Australian dollars ($208.75 million) to purchase its shares, Economic Herald reported.

In September 2012, Shandong Gold International Mining Co, a branch company of State-owned Shandong Gold, announced that it will acquire a 51 percent stake in Focus Minerals at a price of AUD0.05 per share. The deal was completed in December.

According to Focus Minerals’s quarterly report released on July 18th, though the company received a substantial capital injection from Shandong Gold, its current cash holdings remain only AU$114.2 million.

Last year, Focus Minerals promised to produce 200,000 ounces of gold per year after it got support from Shandong Gold. But after that, it stopped gold production in Laverton this April and closed a gold mine near Widgiemooltha last month. Now the only remaining gold mine near Coolgardie has also announced its suspension.

Focus Minerals Chairman and Acting CEO Don Taig said the company has been working on improving gold mining work in Coolgardie and has reduced out-of-pocket costs by 21 percent to AUD1,899 per ounce of gold, Australian media reports said. But this is not enough to save the current situation. Recently mined gold is of a lower grade and cannot maintain operating costs, especially considering the continued fall of gold prices.

The acquisition was made when the price of gold hit a record high. But the continued downfall of the price of gold has forced Shandong Gold to swallow a bitter pill.

“Enterprises need to perform comprehensive analyses before making a transnational merger and acquisition decision,” said Bao Minghua, professor from the School of Economics of Renmin University of China.

A report from Huatai Securities, a Chinese stock brokerage, once pointed out that Focus Minerals has high costs and is weak in gold production. Although Shandong Gold said it would sign a new energy contract and reduce mining depth to achieve cost controls, apparently, cost controls are still a major problem for the project.

People within the top management level of Shandong Gold also had different opinions at the time of acquisition. A vice-president of Shandong Gold told media that he did not think it was a good time to make overseas acquisitions when the gold price is high.

According to The West Australian newspaper, Don still remains optimistic about the future of Focus Minerals. The company still has an AUD100 million “war chest”. Although we experienced huge losses last year, we still have the support of Shandong Gold. Shandong Gold fully understood that at least AUD60 million would be paid directly to creditors, and that the production cost of Focus Minerals was high, Don said.

Don said that Focus Minerals is considering its next step. It will either explore its current assets by identifying larger scale, higher grade ore bodies or by pursuing any synergistic acquisition opportunities that could add value to existing land holdings.

Whether the project suspension in Australia would slow the pace of Shandong Gold’s overseas gold rush is unknown. According to a report by Reuters in April, the world's largest gold producer, Barrick Gold Corporation, is selling three of its gold mines in Western Australia. Shandong Gold was one of the potential buyers.

“It’s a bit hasty to say that the transnational acquisition is a failure for Chinese gold producers though gold prices have dropped. Some of the large scale transnational acquisitions made by State-owned enterprises are for strategic purposes so it cannot be measured only in profits or losses,” Bao said.