SA gold output to remain under pressure, while rand strength weighs
miningweekly.com
By: Terence Creamer
9th June 2009
JOHANNESBURG (miningweekly.com) – South Africa’s gold output, which has been in chronic decline for decades and last year slumped to its lowest level since 1922, would continue to fall until at least 2014, new research analysis by Frost & Sullivan suggests.
South Africa, which in the 1970s produced at levels of around 1 000 t/y and was by far and away the world’s leading producer, recorded output of only 220 t in 2008. During the year, mining was suspended for the first time since the Anglo Boer War, which took place between 1900 and 1902, owing to power disruptions.
The fall in production saw the country slump to third position, behind China and the US, having already forfeited its production leadership to China in 2007.
Further, the country’s position might also be threatened by Australia in 2009. Australian output rose 3% in the first quarter of 2009 to 54,5 t, and industry consultancy Surbiton Associates has forecast that full-year production should exceed the 219 t produced in 2008.
By contrast, South African output declined again in the first quarter of 2009.
The Chamber of Mines reported a further 10% fall to 49,7 t, from 55,2 t in the fourth quarter. Distressingly, the first quarter figure was also 4,8% lower year-on-year, despite being calculated against the extremely low base of the power-afflicted first quarter of 2008.
Frost & Sullivan indicated that production would continue to decline “sharply in two to three years and then start recovering to levels around 241 t of gold in 2014”.
Metals and mining analyst Wonder Nyanjowa added that the depth of South Africa’s orebodies, together with rising operating costs and its influential unions, would present key challenges, despite the stronger gold price environment.
STRONG UNIONS
The South African industry continued to employ some 140 000 people, making it the second-largest mining industry employer after the platinum.
But earlier in the week, both the National Union of Mineworkers and its far smaller counterpart, Solidarity, rejected an improved wage offer of 6% made by the Chamber of Mines in the second round of the 2009 gold wage negotiations – the next round is set for June 11.
“The South African government’s renewed focus on mine safety, declining ore grades, electricity shortages, skills shortages, increased operating-cost pressures and a difficult labour environment will result in further production cuts,” Nyanjowa warned, adding that mining companies were likely to be more concerned with sustaining current operations than opening up new mines.
RAND RUCTIONS
The industry overview was released only the day after the Royal Bank of Canada (RBC) published fresh equity research into South African gold-mining companies.
The bank revised its 2009, 2010, and long-term gold price forecasts upwards, to between $925/oz and $950/oz.
But it also indicated that the stronger rand would be “very negative” for South Africa gold miners and their earnings outlook.
RBC revised its long-term rand: dollar outlook from over R13/$1 to R10/$1, which more than offset the positive effect of its higher revised gold price.
As a result, the bank indicated that it has downgraded most of its target prices for South African gold companies.
The South African currency was trading at around R8,10/$1 on Tuesday, having breached the R8 level earlier in the month. It has shown sustained strength against the greenback in recent months, despite efforts by the Reserve bank governor Tito Mboweni to talk it lower, having recovered from its low of around R10,60/$1 in early March. |
