COM chief hits out at IMF gold sales
By ANDREW DAVIDSON
Johannesburg (Sapa) - The condemnation of proposed gold sales by the International Monetary Fund to bail out debt-ridden countries continued on Tuesday when Chamber of Mines chief executive Mzolizi Diliza added his voice to the mounting call for the IMF to back down.
Diliza said: "The South African gold mining industry supports the concept of providing relief to poor countries under the Highly Indebted Poorest Country (HIPC) initiative but is strongly opposed to this being achieved through the proposed sale of IMF gold reserves.
"The benefits of any such sale will be far outweighed by their costs as the IMF is only entitled to use the interest and not the capital derived from the proposed sale of gold reserves. Consequently, efforts - including South African interventions - are underway to prevent the proposed gold sales from taking place."
The COM boss added: "IMF gold sales will almost certainly undermine the current fragile gold market and place further downward pressure on the gold price. In addition to damaging the South African economy, sales are not likely to reduce the debt levels of the targeted indebted countries but will in fact reduce their debt-servicing abilities.
"Many of the HIPC countries as well as other developing countries have gold mining industries that serve as the foundation for economic growth, development, employment and exports.
"In many cases it is their gold mining industries that have provided these countries with the foundation for improved economic performance which has allowed them to qualify for the HIPC initiative debt relief in the first place."
Diliza said that of the world's 41 HIPCs over 30 were gold producers and the majority of these were significantly dependent on their gold mining industries as an important source of foreign exchange earnings.
"Most of the HIPC countries are in Africa and a further fall in the gold price on the back of an IMF gold sale would have significant detrimental socio-economic and cost ramifications for the overall HIPC initiative.
"Furthermore, it could cause loss of jobs with associated negative consequences including deprivations to the lage number of dependents who rely, either directly or indirectly, for their livelihood or basic subsistence on the gold mining industry," he added.
Diliza concluded: "In supporting the proposed aims of the HIPC initiative, the gold mining industry believes that funding arrangements should be derived from other sources. The alternative sources may include the possibility of the IMF using its strong balance sheet to raise a HIPC bond issue.
"In addition, increased donations from the wealthy developed countries and further debt forgiveness should be considered."
On Monday night, James Motlatsi, president of the National Union of Mineworkers, and Bobby Godsell, AngloGold CEO and president of the COM, both slammed the IMF's proposed sale of 10 million ounces of gold (311 tons) as "perverse" and potentially "disastrous".
They claimed that if the gold price remained at around $258 an ounce 40 percent of SA's gold production would become unprofitable and 80 000 miners' jobs could be a risk. As many as 10 people or more were dependent on the earnings of each miner.
"The survival of at least 800 000 people turns on whether the gold price remains where it is or returns to its pre-IMF and UK gold sale announcement level," said Motlatsi and Godsell.
Earlier Gary Mead, head of research at the World Gold Council, told a media briefing in Johannesburg that since May 7 when the UK Treasury announced that it would auction off 415 tons of its 715 tons of gold reserves, the price of the precious metal had dropped $30 an ounce.
This had cost the South African economy $600 million - R3,6 billion - in lost annualised exports. Mead also attacked the expected IMF and British gold sales for "exacerbating" the plight of the poorer nations.
Ironically, since UK chancellor Gordon Brown's annoucement of the UK gold sales his country's total stock of the yellow metal has been devalued by 400 million pounds sterling or almost R4 billion because of the price slide.
Considerable focus will now be on next month's SA gold companies quarterly presentations. Analysts told Sapa they were expecting major cutbacks in capital spending with planned large-scale projects being moth balled or even axed.
"The SA gold mining industry is now hurting - and the bleeding will continue if there is no dramatic improvement in the price," said one top gold analyst.
Gold has been losing its lustre in the South African economy since the early 1980s. Then it accounted for over 90 percent of the Reserve Bank's total reserves. Today that figure is less than 20 percent.
The gold sector of the Johannesburg Stock Exchange now accounts for about four percent against 33 percent in 1980. The mining sector remains a large employer in SA - some 8,6 percent of total non-agricultural employment.
But the number of gold miners is less than half of what it was in 1986 with a large number of retrenchments occurring in the past year.
from E-data
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