Rand gold rise unlikely to slow SAfrica shake-up
07:24 a.m. Jul 06, 1998 Eastern
By Darren Schuettler
JOHANNESBURG, July 6 (Reuters) - A soaring rand gold price may be a
relief for South Africa's embattled gold producers, but it is unlikely
to slow the pace of restructuring that has cost thousands of mining
jobs.
Despite calls from the country's biggest mining union to halt painful
retrenchments, industry officials and analysts said on Monday they
expect the shake-up to continue as South Africa's industry battles to
compete against leaner international rivals.
''We are certainly not going to be basing the future viability of the
industry on short term (market) gyrations,'' Roger Baxter, an economist
with the South African Chamber of Mines, told Reuters.
However, the National Union of Mineworkers (NUM) said on Monday it will
press the industry to recall workers who have been retrenched or put on
extended leave since gold's collapse last year.
''With the gold price doing much better, we want to see retrenchments
halted,'' said NUM spokesman Ben Molapo.
After a century of mining, South Africa's famed Witwatersrand basin has
some of the deepest and costliest mines in the world.
A wave of restructuring has chopped thousands of mining jobs and closed
unprofitable shafts in a bid to trim cash production costs. But South
African gold mining is still more expensive than almost anywhere else in
the world.
Now while the rest of South Africa despairs over a depreciating rand,
the country's struggling gold companies are grinning as the rand gold
price hit 1,974 per ounce on Monday, its highest point in at least
2-1/2 years and well above 1,404 recorded on January 1.
With gold traded and priced internationally in dollars, as the rand
slides against the U.S. currency, the value of rand earnings increases.
The rand tumbled to record lows on Monday as investors reacted
negatively to weekend news that Labour Minister Tito Mboweni would be
South Africa's next central bank governor.
The rand has fallen around 40 percent since January as speculators keep
up a concerted attack on the ailing currency. The unit hit a fresh low
of 6.75 to the dollar on Monday.
On the Johannesburg Stock Exchange, the heavyweight gold index rocketed
to its highest point in over a year, climbing 105 points, or 9.8
percent, to 1,174.7 at midday.
The key gold index, which has loped along for much of the year due to
slumping world gold prices, last reached these heights in mid-June last
year.
Since domestic mines bear their costs in rand, a depreciating currency
adds up to higher margins of return for all producers, particularly
those companies more exposed to the gold price.
''Everybody wins with this gold price, but the guys who are more naked
to the price are looking very good,'' said a South African mining
analyst.
Among the more exposed producers, Gold Fields Ltd added 400 cents to
35.50 rand.
Harmony was up 300 cents to 3100 rand, a 52-week high of 31 rand. Durban
Roodepoort Deep rose 185 cents to 15.55 rand.
Analysts have forecast the increase in average spot gold price would
have added about one billion rand to revenue stream of gold companies.
This buoyant outlook has union leaders demanding that the industry scale
back retrenchment plans formed months ago when the rand gold price was
wallowing in the basement.
NUM estimates that 12,000 miners have lost their jobs since January,
with thousands more in danger on at least nine marginal mines.
Since the industry has linked the need for cutbacks to the slumping gold
price, it should take its foot off the restructuring accelerator as the
gold price improves, say union leaders.
But analysts say companies must still focus on cutting costs to complete
globally with leaver rivals in Canada, the United States and Australia.
''Although there has been a spike in the gold price and everything is
looking pretty good, the jury is still out over whether this is a just a
one-off situation,'' the analyst said.
South African companies averaged cash costs of just over $300 per ounce
in 1997, compared to $216 per ounce for U.S. companies and $221 per
ounce for Canadian firms and $261 per ounce for Australian miners.
''The higher rand gold price gives the marginal mines a little more
time, but the dollar gold price is still the be-all or end-all for this
industry,'' the analyst said.
Copyright 1998 Reuters Limited. |
