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SA has 39 years of gold left

Sustaining South Africa’s gold reserves is an ongoing challenge due to cost structures.

In 39 years, finding gold in South Africa’s mine reserves might be an actual hunt for treasure. Stats SA recently announced that with the current production levels, there are only 39 years of accessible gold reserves remaining in our mines.

This figure is much lower in comparison to South Africa’s platinum group metals (PGM) and coal reserves, according to Stats SA’s latest Environmental Economic Accounts Compendium.

The country still has 335 years of PGM reserves and 256 years of coal reserves.

The mining sector is a major contributor to South Africa’s economy, however the Chamber of Mines has said in a recent report that 2016 was a particularly “difficult year”. In 2016 it contributed 7.3% to GDP, a 4.7% decline from 2015.

SA is a top ten producer globally of PGMs, gold, chromium and coal, but as time has passed the production of gold, specifically out of South Africa’s share from the global basis, has declined, almost consistently, said mining analyst at Stanlib, Kobus Nell.

“South Africa has fallen quite a lot; where it used to be [one of] the dominant commodity for export and resources, it has declined massively.”

Nell said the decline is a result of easy reserves being dug up in what are mineral-rich areas within South Africa. The deeper the mines go, the further the miner has to travel, which comes with additional costs and safety concerns.

Structural cost change

Gold production levels have resulted in South African company cost structures skyrocketing. Nell said that while mining companies are working towards reducing costs, many have battled more with structural change.

The life of a mine is very price dependent. A mineral study is conducted on a piece of land to determine how much gold there is, a feasibility study is then carried out to determine how much the gold should be sold for, to make it economically viable.

“As you dig deeper into the ground, you need a higher gold price to make those resources economical, if there isn’t a [favourable] gold price, those resources can’t be mined economically.” In that scenario, if you mine them, you are going to lose money, Nell said.

Reserves are converted into the real price of gold today to determine the life of a mine.

Sibanye-Stillwater, a precious metal mining company in South Africa, said it recently restructured some of its gold operations, resulting in the closure of the Cooke 1-3 mines.

Sibanye Gold’s production in 2016 was 1.51 million ounces and the forecast for 2017 is between 1.35 million ounces and 1.38 million ounces.

Senior vice president at Sibanye-Stillwater James Wellsted, said that the decline in production is linked to the specific operational decisions the company made in 2017. 

“We continue to try and manage costs in order to ensure the sustainability of the operations. Given the above inflation increases in wages (approximately 50% of operating costs) and electricity prices (approximately 20% of operating costs), this has been a challenge,” he said.

Wellsted added that when Sibanye-Stillwater spun out of Gold Fields in 2013, and restructured the business, through cost-cutting and productivity measures for sustainability,  it was able to increase its available reserves from about 13.5 million ounces to 17.9 million ounces.

He added that the company continues to invest capital to extend the lives of the operations in SA. It invested in Kloof and Driefontein, which are low infrastructure projects, going below the current level of the shaft, and invested in the Burnstone mine, which is currently being redeveloped.

South Africa’s largest gold mining company, AngloGold Ashanti, on the other hand, reported an increase in overall gold production in South Africa over the past year.

The company’s report shows that gold production levels rose to 261 000 ounces in the third quarter of 2017 from 235 000 ounces for the same quarter in 2016.

AngloGold Ashanti said in its statement that during the quarterly performance, total cash costs increased year-on-year due to inflationary pressures, mainly from increases in consumables and power costs, lower grades, stronger currencies and unfavourable gold in-process movements.

Sustainability

Gold production is on a gradual rather than a rapid decline, and it’s a trend that has been observed across many of the PGM sectors. Nell said costs have gone up at a rate that is much higher than the competitors globally, which makes mines less competitive – resulting in restructuring.

Exports of mining commodities increased by 10% in nominal rand terms due to the weaker exchange rate in 2016 and slightly better commodity prices, but declined by 5% in dollar terms.

Coupled with the weak performance of other merchandise exports from South Africa, commodity exports grew by nearly 2%, and by nearly 5% of SA’s total exports.

“When analysing the mining sector’s performance over the last three to four years, it is clear that there has been considerable volatility across the board. Value add increased by 4% in 2013, decreased by 1.4% in 2014, rose by nearly 4% in 2015 and then decreased again by 4.7% in 2016,” according to the Chamber of Mines Facts and Figures Pocketbook, 2016.

Wellsted said despite restructuring and investing capital in certain projects, sustaining the company’s gold reserves is an ongoing pressure, given the cost structures they face.

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Let’s ask England and Switzerland to give our minded and refined Gold back.

Give it back! No ways, I ‘demand’ it back. They don’t know how we can protest.

Why is Sibanye trying to crush and kill their intrinsic share value with all these deals. Is it a political move or just pure gambling on a grand scale. They promised the best dividends of the industry, but now have bought themselves totally out of it. If the Lonmin deal goes on, why is there only negative share value happening. We are still waiting to see the Stillwater share value kicking in – which has come and gone. Maybe the company should stop all this weird acquisitions and grow their huge potential in the markets that matter……come on Sibanye-Stillwater

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