South African gold loses its shine
South Africa’s gold production is in decline, with platinum group metals looking increasingly lustrous by comparison, and other countries such as Ghana becoming more attractive destinations for gold producers. Filip Warwick reports
South Africa has some of world’s biggest reserves in gold, platinum and coal, and mining continues to be a core industry, contributing more than 29% of the country’s exports in May 2019. But South Africa’s traditional gold industry has lost some of its shine over the last few decades, with gold production in steady decline.
During the past two decades, gold mining companies have experienced only two years of positive annual growth in gold production, with South Africa producing 83% less gold in 2018 than it did in 1980, according to Statistics South Africa. The sharp decline in gold output is remarkable, given that South Africa has the world’s second-largest reserves of the metal, according to estimates from the US Geological Survey.
The state of the industry has raised political hackles. In July, Kevin Mileham, opposition spokesman for energy and natural resources, told parliament that mining was dying “not because the mineral resources are running out, but because of government ineptitude, poor policy choices and militant trade unions.”
“[Mining] is dying because investors no longer wish to put capital into a country where the word of the government is no good,” Mileham argued.
He was responding to a statement by Gwede Mantashe, the minister for natural resources and energy, who said South Africa remained a highly attractive destination for mining. Mantashe noted there were 61 prospective mining projects in the pipeline with an investment value of more than $7.7 billion. Those projects could create as many as 32,000 jobs, he said.
The share of South African GDP from mining was 7.2% in 2017, a fall from 21% in 1970. However, it continues to make up around 29% of exports and employ over 464,000 people who support some 4.5 million dependents, according to the Minerals Council South Africa, an industry group.
But in order to keep extracting gold from maturing mines, operators are having to dig deeper amid high labor costs, regular strikes and escalating prices for electricity from South Africa’s state-owned monopoly Eskom. The difficult operating environment appears to be benefiting Ghana, which is attracting significant new investments from major miners.
Another consequence of the difficult gold mining conditions, in combination with soaring palladium prices, is a shift in focus for miners active in South Africa towards platinum group metals.
South Africa’s gold mining sector has for some time struggled with ever-growing production costs at its deep mine operations and union strikes.
In the second quarter, AngloGold Ashanti, the world’s third-largest gold mining company, started a process to review divestment options for its South African assets, including the sale of its Mponeng gold mine, one of the world’s deepest.
The gold miner has encountered challenging operating conditions as a result of the depth of the mine, high labor costs, which have contributed to reducing margins, and insecure power supplies that resulted in blackouts. Eskom, which provides more than 90% of South Africa’s electricity, cut power across the country in the first quarter of the year due to low coal supplies and an ageing power network.
“Mantashe’s 61 prospective mining projects should be interpreted as a reinforcement of President Cyril Ramaphosa’s message during his state of the nation address – that Eskom is a fundamental expenditure,” said Indigo Ellis, an analyst at research and consultancy firm Verisk Maplecroft.
According to its financials, the company’s debt stands at $29.5 billion. Then there’s the issue of industrial strife. In April, striking workers at Sibanye-Stillwater’s Driefontein, Kloof and Beatrix gold mines agreed to end their industrial action after five months. Sibanye-Stillwater estimates monetary losses from the gold strike at about $114 million, said Henrika Ninham, investor relations manager.
South Africa’s largest gold producer, the company’s output in the first quarter of 2019 was about 104,000 oz of gold, or 36% of its production in the same period of 2018, due to the impact of the five-month strike.