Staff Reporter
Some of the country’s gold mining companies may be forced to shut down marginal shafts as the recent slide in the bullion price presents a new set of challenges for the beleaguered gold mining sector.
In the event that the gold price sees no immediate recovery, the outlook for the mining of marginal shafts could turn very bleak, according to analysts. South Africa has fallen to the fifth-biggest producer as the industry grapples with ageing mines, declining ore grades, rising production costs and frayed labour relations.
“South African mines will have to close some high-cost shafts,” Rezco Asset Management director Rob Spanjaard said yesterday. He said the rand’s weakness would also add to the industry’s woes.
The price of gold, which rallied for the past 12 years in the longest run-up in at least nine decades, has lost 28 percent since climbing to a record $1 921.15 an ounce in September 2011. A lot of those gains were driven by fears that the moves by the world’s central banks to flood the financial system with cheap money could spark runaway inflation, thus boosting gold’s status as an inflation hedge or safe haven.
But since Friday, sentiment on gold has suddenly turned dramatically sour, raising concerns about the outlook for gold producers. Since the start of this month the JSE gold mining index has dropped 20 percent. At yesterday’s afternoon fix in London, gold traded at $1 392 an ounce, as it struggled to recoup losses that marked its worst two-day slump in 33 years on Friday and Monday.
Jacques Botha, the chief mining economist at Pan African Mining Research, said prices below $1 500 would make some producers vulnerable.
Percy Takunda, an analyst at Imara SP Reid, singled out AngloGold Ashanti’s local operations as among those that would come under pressure from a continued slide in the gold price. At about $1 400 an ounce, the Savuka, Great Noligwa, Moab Khotsong and, potentially, TauTona mines would be unviable, he said.
“The four assets in question represent 37 percent of South Africa’s production. A sustained gold price of around $1 400 an ounce would ultimately result in significant restructuring and cutting back of capital expenditure,” Takunda said in a research note.
AngloGold Ashanti, which recently saw chief executive Mark Cutifani leaving to head up Anglo American, is in the middle of a review of each of its 20 operations to identify areas where it can slash costs. The prevailing weakness in the gold price may add urgency to the process.
AngloGold shares finished 2.56 percent lower yesterday at R168. The shares have fallen by 11.4 percent in the past three trading sessions.
Harmony Gold shares closed down 3.95 percent at R45, after having slid 14.6 percent since Friday’s trading.
Gold Fields shares closed down 0.67 percent at R59.80, but the stock is down 8.4 percent since Friday.
But the spectre of shaft closures is not only a menace to South Africa. In Tanzania, a senior official in the Ministry of Energy and Minerals said yesterday that a sustained slump in gold prices threatened to shut mines and curb investment.
Tanzania is Africa’s fourth-largest producer of gold.
“We are concerned that as the price of gold continues to drop it will discourage future investment,” Ally Samaje, the acting mineral commissioner, told Bloomberg in an interview in Dar es Salaam.
“If this continues, there will be a point when companies can’t operate and mines will close.” – With additional reporting by Dineo Faku