Racist South Africa: Gold Mining Industry will Collapse

Racist South Africa: Gold Mining Industry will Collapse

South Africa’s 140-year-old gold industry – which was once the world’s largest – is now facing a major crisis. The country’s mineral council says 75 percent of gold mines are unprofitable or barely making money.

The announcement comes as the sector enters wage talks with its employees. Around 200 employer and employee representatives are set to start the negotiations on Wednesday. The number of work stoppages in South Africa increased by eight percent over the past two years to 132.

One of the world’s largest gold producing nations, South Africa, is facing a steep decline in output because of depleting reserves and aging infrastructure, according to the country’s biggest miner, AngloGold.

“Gold is a sunset industry. It doesn’t matter what you do, it doesn’t matter how you do it, you are not going to be able to change that,” AngloGold Chairman Sipho Pityana told Bloomberg. AngloGold is a Johannesburg-based mining firm which claims to be the world’s third-largest gold company.

South Africa’s gold mines are some of the deepest in the world. Depleting reserves, poor infrastructure and growing accident costs have resulted in a 16 percent output decline in May year on year. Gold production has been falling for eight straight months. Investors in AngloGold are considering other countries such as Brazil, according to chairman Pityana.

“People are asking ‘are you going to split the two businesses?’ It’s an option that remains on the table, it’s not an obviously decided matter,” Pityana said. “All of those things are subject of major debate in our boardrooms, among the executives.”

South Africa’s gold output has fallen 85 percent since 1980, but the country is still among the world’s top-10 producers. In 1980, mining accounted for 21 percent of South Africa’s gross domestic product, the largest contributor along with manufacturing. Today, mining accounts for seven percent of the economy. In 1987, the industry employed 763,000 people; that number has dropped by 40 percent.

Bernard Swanepoel, a former CEO of Harmony Gold Mining Co. told Bloomberg that South Africa’s gold mining is likely to become extinct in the mid-term. “I really think it’s the last chapter, but the last chapter could be a good chapter. Thirty more years of gold mining in South Africa could be a good chapter.”

Motsamai Motlhamme, head of employment relations at the council, reportedly said the parties need to “find common ground in the interest of the sustainability of our industry.”

Most of the world’s deepest and historically richest gold mines are clustered some 40 miles south-west of Johannesburg. The deeper they go, the more expensive and difficult the work of extracting the ore becomes. The council said the mines are old, deep, with falling grades and productivity, and rising costs. As a result the industry has lost 70,000 jobs over the past five years. The cost of extracting the gold may soon exceed its value, experts say.

At its peak in 1980, mining accounted for one fifth of the country’s GDP; the number now stands at about 7.3 percent.

“Increases without a commensurate improvement in the gold price, exchange rate, cost profile or outputs will mean that the cost of labor as a portion of overall costs will rise, and the number of marginal and unprofitable operations will increase,” the council said on Tuesday.

South Africa’s Reserve Bank Deputy Governor Kuben Naidoo said inflation in the country has accelerated from the seven-year low it reached in March and the rand’s (RSA national currency) plunge to its weakest in seven months may boost price growth.

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S. Jack Heffernan Ph.D. Funds Manager at HEFFX holds a Ph.D. in Economics and brings with him over 25 years of trading experience in Asia and hands on experience in Venture Capital, he has been involved in several start ups that have seen market capitalization over $500m and 1 that reach a peak market cap of $15b. He has managed and overseen start ups in Mining, Shipping, Technology and Financial Services.

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