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South Africa’s golden age is dead. Good riddance

Even the richest mine eventually runs out.

Even the richest mine eventually runs out.

That’s what’s happening in South Africa, where AngloGold Ashanti announced plans Thursday to dispose of its last remaining pit in the country, just as voters were heading to the polls for the sixth general election since the end of apartheid.

A transaction for the Mponeng mine southwest of the capital Johannesburg is unlikely to rock financial markets or cause a great political upset. While it’s still one of the world’s 10 biggest gold reserves, AngloGold will do well to get more for the pit than its $533 million carrying value at the end of 2018.

Read: AngloGold plans to sell mines in final exit from South Africa

Even so, a sale (and the shift of AngloGold’s main listing to London or Toronto that would probably follow) would mark a turning point for the country. As Felix Njini of Bloomberg News has detailed in multiple articles, the gold mining industry that built South Africa and produced about half of the yellow metal that’s ever been dug up seems now to be in terminal decline.

Despite ore containing almost 10 grams of gold per metric ton – an extraordinarily rich grade in an industry where levels one-tenth of that are considered decent – the challenges of making money at Mponeng are immense. It’s the world’s deepest mine and the commute two miles down from the surface takes an hour, with ice and concrete pumped down to cool and stabilise the hot, under-pressure rocks. In common with other South African gold pits like Sibanye Gold’s Driefontein and Gold Fields’s South Deep – both potential buyers of Mponeng, along with Harmony Gold Mining – it’s on its last legs despite an illustrious history and theoretically rich reserves.

AngloGold and the Witwatersrand deposits these mines exploit are deeply bound up with the history of South Africa. It was a late 19th century gold rush that led to the founding of Johannesburg. Gold formed the original core of AngloGold’s one-time parent Anglo American, a conglomerate that at one time reached into so many corners of South Africa’s life that it was likened to an octopus. While Anglo American’s founding Oppenheimer family and their successors were vocal opponents of apartheid, their empire was still built on the cheap black labour generated by that system.

Labour is still a decisive issue in South Africa’s gold mines. Workers last went on strike at Mponeng in 2012, but industrial action is a constant threat; courts blocked another attempted action in 2014. South Deep and Driefontein have both been crippled by strikes over the past year, and the latter is now being gradually closed down.

Read: Sibanye seals wage deal with unions

These fractious workplace relationships aren’t so much the fault of refractory unions or exploitative bosses, as the inevitable outcome of poor geology. In most parts of the world, the biggest gold reserves are contained in open pits that can be dug from the surface with explosives, dragline excavators and 400-ton dump trucks – or at the very least, in underground mines that are developed only as a last resort when the surface pit is exhausted.

In South Africa the biggest mines are entirely underground, where workers must drill the walls of sweltering tunnels to extract the ore lump by lump. That contributes to accident and fatality rates well above the industry average, as well as strikingly poor productivity. Harmony Gold uses almost three times as many employees as Newmont Goldcorp to produce just one-fifth of its revenue. South Deep is arguably the richest gold deposit in the world, with 34 million troy ounces of contained metal, but Gold Fields loses several hundred dollars on every ounce it digs up.

No pay agreement or restructuring is likely to change the fact that comparative advantage in the global gold market lies with giant, lower-grade pits in Siberia, Nevada and the Pacific rim. As a result, labour and capital in South Africa are tussling over a profit pie that’s simply too small to feed them both adequately.

It’s tempting to see echoes of South Africa’s recent economic stagnation in the slow death of its century-long gold rush – but the country shouldn’t shed many tears over the decline of this dangerous, unprofitable business.

President Cyril Ramaphosa looks to have a strengthened mandate to pursue economic reforms after the May 8 election. The onetime mine union leader and director of platinum producer Lonmin will need to push South Africa down a less resource-intensive road if he’s to pull the country out of its economic funk. Pretax income from the mining industry only fitfully rises above its level of capital expenditure, a sign that funds could be better deployed elsewhere.

If the confidence of consumers, domestic businesses and foreign investors is to revive, it will need to focus more on the 93% of the economy that doesn’t involve digging rocks out of the ground. South Africa’s golden age is dead. Its people shouldn’t mourn that fact.

© 2019 Bloomberg L.P

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Leave Gold at your peril, not from a labour perspective but from a money lending process. If the stuff was that useless then the Central Bank of England should send the 400tons of gold back that Jan Smuts sent there.

I agree. Good riddance. We have to reinvent our economy to be more than what’s underneath some rocks. We need to start to manufacture.

Letlho: Problem with manufactured goods is that currently there are surpluses of almost everything in the world (I heard in a radio discussion).

Maybe a bit of realism is required. Manufacture what and sell to who – maybe something that does not require electricity (charcoal and candles?). The manufacturing sector has been hollowed out over the last 25 years and like mining is gone. South Africa cannot compete with the likes of China, South Korea, or Germany. It’s competitive advantage is the wonderful geological resource that was gifted to it by nature. That advantage has been nullified by gross mismanagement by the custodians of that resource.

Manufacturing in SA? With the labour unions and people demanding such high salaries? So tell me sir how would your manufacturing compete with China that cam produce the same product at half the price you can? No labour unions hat demand, no minimum wage.. get real man.

You’ll have to reinvent the entire culture: reinvent productivity, work ethic, 10 hour a day jobs at rock bottom salaries if you want to get into manufacturing.

Since that’s never going to happen, mining and African tourism is something 3 billion Asian’s can’t necessarily do (yet). In the global economy, you either add value and thrive or your cities become slums. Our poverty, like most of Africa is simply because we have nothing to offer for the world to buy.

Reinvent as what and manufacture what? Just remember we cannot even attract capital, due largely to massive government and union-inspired input cost increases over the years, on the abundance of natural resources that we have.

Not really on topic, but where does the heat at 2 miles down comes from?

As noted in CountTo10’s answer, the main answer is simple – miners don’t “boil” because the mines use suitable cooling and ventilation equipment, plain and simple.

That said, there is a contradiction, at least if you go only by Wikipedia and explicitly ignore its caveats. The Wikipedia page for the Mponeng gold mine makes the maximum rock temperature at 66 °C, and if all you read from the Wikipedia page on the geothermal gradient is the stuff in bold, then yes, a 25 °C/km gradient over a 4 km depth would give you 100 °C on top of the surface temperature.

However, the actual text in that page reads

Away from tectonic plate boundaries, it is about 25 °C per km of depth (1 °F per 70 feet of depth) near the surface in most of the world.
and makes it clear that there can be local variations. With that in mind even some very mild digging turns up this map of the geothermal heat flow in South Africa:

(Taken from S. Afr. J. Sci. 110 no. 3-4, p. 1 (2014).) This makes it clear that the Mponeng mine is right on top of a cold spot in the Wits basin.

The stated heat flows are not enough to reconstruct the thermal gradient (you need the thermal conductivity for that), and I’m not going to go on an expedition for fully trustworthy sources for that gradient. However, some more cursory digging unearthed this source, which looks reasonable (if not particularly scientific), and which claims that

mining at these depths is only feasible in South Africa’s Wits Basin due to a relatively low geothermal gradient (nine degrees Celcius/km) and the presence of gold reefs in hard competent country rocks.
This is enough of an agreement to call it a day. Backtracking a 9 °C/km gradient over 4 km gives a ~36 °C difference, and taking that away from the 66 °C (maximal!) rock temperature in the mine gives a ~30 °C average surface temperature. This is relatively high, but it is within a reasonable envelope, and there’s plenty of leeway on the numbers (e.g. making the gradient 10 or 11 °C/km) to take away any glaring contradictions.

“We must focus more on the 93% of the economy that doesn’t involve digging rocks out of the ground.” Bloomberg

Wrong – actually about 25-50% of the economy is indirectly reliant on mining and the money it brings in to SA. A quick look at the government balance of payments and foreign exchange will reveal that.

In the last 25 years, we have reinvented a thing. We can’t manufacture, we can hardly farm, our ports hardly function, government policy for growing jobs is in the toilet. When you stop adding value to the global economy, money doesn’t flow in, it leaves and doesn’t come back. Mining is practically our only hope to be competitive internationally.

Take out mining and South Africa literally turns into a country as poor as Kenya overnight with tourism and farming barely keeping them afloat.

This is why SA will remain firmly planted in the 3rd world as it cannot even use what can simply be dug out of the ground effectively. The loot from mining is stolen in advance via ANC cadre enrichment BEE and then tax is added and Eskom and the unions cripples it. Now the country wants to try “manufacturing” when probably half the population can’t even spell the word; with a spellcheck! Thanks ANC. And compete with the Chinese, Vietnamese etc? Never.

One possibility is simple; the “government” should encourage and support mining expertise extending outside SA, already quite effective. But it rather does the opposite, chasing the Anglo’s etc offshore, often on racist grounds. Crazy stuff.

Our exploding uneducated black population is a crippling drain on our ability to turn around our steady decline into just another failed African nation.

Good riddance to Gold? How stupid can one be? Geezzz.

The trade Unions played a huge role in the decline . Mines in Africa ( Ghana).operate at much lower costs. A spectacular Kamikaze movement by the trade unions…yet the members remain blind

Input costs have increased at such alarming rates that Eskom and the ANC have made mining a loser’s game. Only in a mad world will a Government, dealing with 30% plus unemployment, turn a once world-leading mining industry into a wreck.

Typical uninformed poorly researched MW article. The use of the word ‘pit’ is nonsensical in deep level mining. There are no pits except perhaps in the author’s vacuous cranial cavity.

They say each miner supports 10 dependants. If each of the 8000 AGA employees supports 10, then we the livelihood of 80000 at stake. Of course, someone based overseas working as a financial journalist would shed no tears nor give a rats behind for these folks.

The picture is the piece de resistance: bs par exellance. The rock they mine in deep level South African mines is a quartz pebble conglomerate which will never leave your hands anything but lily white unless sharp edges draw blood.

The average gold miner in SA produces 44Oz of gold per annum whereas in Australia the average production per employee is 520 Oz. That is the problem. Gold mining in SA is only sustainable with cheap labour or a quantum increase in productivity.

We need every damn job we can get as a large percentage of our population are not skilled to compete in the more sophisticated lines of work. Furthermore, it is such a hassle to run a company in south africa with all the ridiculous hurdles, taxes and reporting and the manufacturing world is so competitive it is not going to be easy to get rid of our high rate of unemployment.

This article is utter rubbish. When (not if) our mines are mined robotic-ally, production rates will soar. First the monster created by apartheid must be slayed i.e.cheap labour. It was to the miner’s benefit to have it in the past but now that labour is their worst nightmare, as said labour is now, on a cost-per-unit basis, 100% redundant versus automation. What to do? Sadly it will take years for the unions to realise they are no longer valuable or relevant. Will the current listed miners survive that transition? Probably not but the next generation will and they will make a fortune

the zama zama’s sure find gold mining profitable. No unions, no safety, no strikes, no pesky mining licences. Just slave labor and pure profits.

the zama zama’s sure find gold mining profitable. No unions, no safety, no strikes, no pesky mining licences. Just slave labor and pure profits.

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