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South African gold industry enters final phase of slow death

Gold industry now employs less than a fifth of the number that used to power the apartheid economy.

Back in 1987, President Cyril Ramaphosa — then a 34-year-old labour union leader — led 300 000 black miners in a strike that symbolised resistance to the apartheid regime. Now, striking gold workers face a less politically charged battle, but one they can’t win.

The nation’s 130-year-old gold industry — which has produced half the bullion ever mined on Earth — is locked in the final stages of a decades-long death spiral. Most of South Africa’s gold mines are unprofitable at current prices.

Dwindling output has cut gold’s contribution to little more than 1% of the South African economy, down from 3.8% in 1993 — the year before Nelson Mandela’s African National Congress won the country’s first democratic elections. While the industry’s demise won’t reverberate in the way it once would have, the mines minister has criticised Gold Fields’s plan to cut jobs as the ruling ANC seeks to shore up its base before elections next year.

Mines run by Gold Fields and Sibanye Gold have been halted by strikes over job cuts and wages respectively. Both producers cut their output projections for this year.

South Africa’s gold industry now employs just over 100 000 people, less than a fifth of the number that used to power the apartheid economy. The economic and social impact of a further contraction in the industry will be magnified as every gold miner supports between five and 10 dependents, while creating two jobs elsewhere, according to the country’s Minerals Council.

Higher wages and power prices, combined with the geological challenges of the world’s deepest mines, will mean more job losses and less production in the country over the next five years, said Gold Fields chief executive officer Nick Holland.

“When you work out the math, when you keep doing that year after year, you are going to go out of business very quickly,” Holland said in an interview. “The industry will just continue to see a slow death.”

Sibanye, the country’s biggest producer, faces wage strikes at three of its mines. CEO Neal Froneman acknowledges that pressure is building on the miner to resolve its safety problems after more than 20 fatalities this year. If that can be done, he’s optimistic that South Africa’s gold mines can survive a little longer.

“It’s an industry in decline, yes, and if sunset means the sun setting in 10 years or 15 years, that’s still 10 or 15 years away,” he said in an interview last month. “There is still money to be made.’’

© 2018 Bloomberg L.P

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A completely transformed industry – SA style !!!

Is the article still relevant with the Gold price rising in preparation for the stock market correction/crash?

The Brexit vote is happening tomorrow (11-Dec-18), get your umbrellas.

Number to remember = 111218

South Africa still has massive gold resources in the Wits basin. The main issue is cost and political risk. One should note that the last two Wits mines to come on stream were South Deep and Target. These were planned before the ANC took over. Since the ANC took over no new mines were started. In the hundred or so years before the ANC, over one hundred mines were started. Before the ANC took over there was a lot of talk of the next generation of Wits mines. There is a lot of Wits basin that has not been mined. For example the Poplar and Rolspruit areas in Evander. South of Johannesburg there is about 111 million ounces in the Main Reef and Main Reef leader (Argonaut). Deep but not that deep. The down dip extensions of many mines on the West Wits line has further potential but this is deep. The Potch gap has potential. There is a lot of shallow ground in the Free State such as the area between Harmony and Joel. All these plans fell by the wayside with the ANC due to the risk associated with investments in SA. Royalties just compounded the issue and sterilised millions of ounces. Militant labour put the final nail in the coffin.

Have a look where 1987 is on the jobs graph. After that the unions are in charge and the job numbers reflect that.

And, there are more illegal miners than there are legal miners. All with the ANC’s blessing and support.

We have got this weird situation in South Africa. The owners of the mining companies are under the impression that they are mining for gold. In reality the true “gold diggers” are Eskom and the mine workers. The mining company merely serves to facilitate the extraction of gold by the ultimate beneficiaries of the whole process – Eskom and mine workers. For its share of the gold, Eskom actually competes with the mine workers. The government-sponsored monopoly gives Eskom the power of extortion. The labour laws give unions the power of extortion. Each of them is busy extorting at the maximum rate. They are fighting over the same carcass like a pack of hyenas. It is a feeding frenzy of cadre against cadre, with the emaciated owners of the mine in the middle.

Eventually it will dawn on the legal owners of the mine(investors) that they are not the beneficiaries of this mining process. They are merely sponsoring the extraction for the benefit of true recipients. The vultures(zamma zammas) are circling overhead, ready to take over whatever scraps Eskom and the labour unions leave behind.

This situation describes every industry in South Africa. The foreign investors are horrified by this spectacle.

I don’t agree. Compare SA mines to ones in Australia and elsewhere where mine workers earn decent wages. What’s the problem with that?
There’s no need for China-style sweat shops here – there’s no problem with decent wages for mine workers as Marikana showed us. Illegal mining is a problem and government’s mine policies since the days of Susan Shabangu – not decent wages!

In 1905 when electricity arrived in Egoli, gold deposits became mineable where as before many weren’t.

Deep mining requires cheap electricity, abundance of labor, free market capitalism to allow investment.

Paul Kruger, the British and Apartheid government understood that and ensured amble supply as this was the backbone of the economy and every industry was built around this.

Sadly these are now gone and seem almost light years away from coming back. And with it, so will at least 1/4 or more of the SA economy.

Even Australia with their labor shortage and scratchy gold grades attracts billions of investment while here in SA we rot away.

Ever been to the dead mining towns of Springs, Germiston, Nigel, Boksburg – that’s where Gauteng and the platinum belt is headed.

Maybe the real issue is that Gold is not a viable resource? It costs more to extract at scale than it is worth.

Small scale (gold byproduct from alluvial diamond) is very viable, but tiny volume.

Now you started a whole now topic!

During times of the Gold Standard, when gold is money, no mining process is too expensive. We talk about the gold standard and say that money is backed by gold – but what serves as the backing for gold? What determines the scarcity value of gold? What valuable resource is exchanged to make gold available? Humans risk their lives to mine gold. Gold is backed by human lives. This is why gold is scarce. This is the reason why it served as money for millennia. Under the gold standard, someone had to risk his life to “print the currency.”

Under a fiat currency system, money can be created with the stroke of a pen. No lives are risked. There is no backing for the currency. There is no limit to the amount of money that can be created out of thin air. If you own a gold mine during a period of fiat money, you are in the wrong business. Your cost of production will outstrip the value of your gold. They will print you out of existence. The cost of paying the people who ensure the availability of your merchandise will rise above the value of the merchandise. This is called inflation.

Many things are scarce – it does not necessarily make them valuable not is there a reason to tie currency to them.

Imagine a new meteor cluster cruises past and drops hundreds of tonnes of gold from the sky all over the planet. are currencies backed by a then worthless gold metal also worthless?

There is something like five decades of industrial demand for gold already above ground. So basically gold is a marketing gimmick for jewelers and crazy conspiracy theorists?

It has zero intrinsic yield

Let the anc and eff show us how to dig a hole 4 km deep and recover ” their own wealth” that they did SFA with – didn’t even know it was there – before the arrival of the despised, frog-like “people” arrived!

And with the demise of the gold mines has been the accompanying death of all the factories which supplied those mines.

And the industries which supplied those factories.

Gold mines are not simply mines, they were a major portion of the South African economy for the past hundred years.

If a portion of the money had been held back and invested in a sovereign wealth fund, South Africa might have looked different. Instead, we’re left with the rotting husk of the industry, and the wealth used to prop up Apartheid social engineering, and now ANC looting. What a waste.

Deep mines and the know-how to dig/maintain these is a wonderful opportunity for South Africa to get into thermoelectric generators, these are solid state devices which use temperature differences to generate electrical energy. The DC produced can be converted into AC by inverters and fed into the grid. A suitable thermoelectric generator should be developed that can utilize the temperature difference between that of the mine at depth and the surface (water cooled). Then SA can mine electricity, the deeper you go, the more efficient the generating system. Instead of gold, you sell electricity. No coal, no pollution, and you need miners. Deep miners, and that is our people’s expertise. Spread these over SA and the electricity problem is gone.

Gold One was the one mine that was built in the last 30 years at Modder East (outside Springs). The ore was shallow – only 500m deep. It mined gold at $500 an ounce. It was very successful and profitable indeed, so much so that the Chinese first purchased a strategic stake and then when fully satisfied, bought out all the shareholders and delisted it in 2014.

It can be done again! We need brave investors, that time is coming again.

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