SHARES in Zijin Mining Group Co, China's biggest gold producer, fell sharply yesterday after the company said it is being sued by a Guangdong city government for 19.5 million yuan (US$2.9 million) over a fatal dam collapse at one of its mines.

The shares slumped 7.79 percent to 9.47 yuan in Shanghai trading, after gaining 64 percent in 10 days amid record high gold prices globally.

The Xinyi City government demanded two subsidiaries of Zijin pay at least 19.5 million yuan to compensate for losses after a tailings dam at a tin mine there collapsed during heavy rains in September. The accident left 28 people dead or missing.

The accident will cause a direct loss of 19 million yuan to Zijin, the company said earlier. The tin mine was in trial production. The Guangdong provincial government said earlier its investigation found quality problems with the dam, used to hold mine residues.

Zijin was also held accountable for a July acidic waste spill in Fujian Province that poisoned almost 2,000 tons of fish and polluted drinking water for tens of thousands of people. The company said on October 7 it will have to pay 9.56 million yuan in fines for the toxic leaks.

However, shares of Zijin jumped the maximum allowable 10 percent when trading resumed on October 8, in part because the fine was below market expectations.

"Investors viewed the fine as a positive for Zijin," said an analyst at the Shanghai Metals Market. "The fine was clearly not in line with the bad impact the accident has caused."