South Africa’s devastating gold industry outlook

Postage stamp from the golden years

Ed Stoddard and Sherilee Lakmidas reporting for Reuters paints a dismal picture of the prospects for South Africa’s gold mines.

South Africa’s mining industry’s reached its apex in the 1970s when in good years the African nation’s miners produced more than a thousand tonnes of gold per year accounting for more than two-thirds of global production.

Centred in Johannesburg in the province of Gauteng (which translates to Place of Gold in the vernacular), South Africa’s gold mining industry ranked number one in the world for a century before losing the top spot to China in 2007.

Today, South Africa is ranked sixth in the world, dropping below Peru’s output and at 178 tonnes only some 6% of global production.

Reuters quotes Roger Baxter, chief economist at South Africa’s Chamber of Mines, as saying in the fourth quarter of 2012 the price of gold averaged R509,000 per kilogram, but fell to under R400,000 per kg during the first half of the year:

“This precipitous fall in the price … has been the biggest decline that has taken place since the 1920s,” he said.

“At a 400,000 rand a kilo gold price, our estimate is that about 60 percent of the industry is in loss-making territory.”

The pressure on local miners may be eased somewhat as the rand depreciates – the currency has declined from R8.20 against the US dollar to over R10 over the past year – but other factors are negatively impacting the country’s gold and platinum miners:

  • Cost pressures due to rapidly rising wage bills – latest sector-wide pay demands are for hikes ranging from 60% to 150%.
  • A power-struggle among the country’s mining unions which is often accompanied by violence.
  • Electricity costs are soaring, but supply is becoming less reliable.
  • Falling grades and difficult mining as underground operations reach depths of 4km.
  • Political interference in the industry and remaining uncertainty about ownership, royalty and tax regimes.

World Mine Production 1984-2012 GFMS

Continue reading at Reuters.

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