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SA gold production to fall further Posted: Mon, 11 Apr 2005 [miningmx.com] -- SOUTH Africa’s annual gold production sank to its lowest level in 73 years, and a further decline was expected this year, said analysts and gold mining company directors. This was because roughly half of current South African gold production was being produced at a loss, according to figures supplied by the Chamber of Mines of SA (CoM). South Africa’s output for 2004 totalled 342.7 tonnes, an 8.8% decline year-on-year, and its lowest level since 1931, the CoM said. “This precipitous fall in production was caused by the dual impact of the fall in the rand gold price and the continued upward rise incosts,” it said. South African gold sector supplies just under 20% of total world production. Further declines in supply, while bad news for South Africa’s foreign exchange earnings, and employment in the country, would be positive in supporting the gold price. Nick Holland, finance director for Gold Fields, said the outlook for the gold price was positive, partly owing to a weakening dollar, but also owing to promising supply-demand fundamentals. These comments followed reports quoting Bobby Godsell, AngloGold Ashanti CEO, that the gold price could kick on to $500/oz. The metal is currently trading at $429/oz. Jewellery demand is expected to improve after three years of decline, Holland said. “Also watch out for the South African gold companies. Latest production figures are expected to be much lower following closures of production from DRDGOLD and Harmony Gold,” Holland said. Bernard Swanepoel, Harmony Gold CEO, said in a recent Reuters article that gold production would stabilise at 791,000 oz per quarter, equal to 3.1 million oz/year. This is 6.5% or 200,000 oz lower year-on-year. In addition, DRDGOLD had shed 300,000 oz/year in gold production from its North West province shafts. Gold output from the underground section of DRDGOLD’s Blyvoor mines, of some 140,000 oz/year, was also unprofitable at the current rand gold price which raised the prospect that this production could be mothballed. Including DRDGOLD’s liquidated North West province shafts, and Harmony’s curtailed production, South African output could drop a further 500,000 oz this year, excluding the risk of DRDGOLD’s Blyvoor closing. Analysts, however, said that production increases from Western Areas, which owned 50% of the developing project – South Deep – and Moab Khotsong, an AngloGold Ashanti mine, would compensate for this production loss over the next two to five years. Roger Baxter, chief economist at the Chamber of Mines, said apart from the strength of the rand, South Africa’s gold mining sector was faced with rising cost pressures over which it had no control. About 10 mines employing 90,000 people were loss-making, Baxter said. This was equal to about half of the country’s gold production excluding capital expenditure. A 12.6% increase in the spot price of gold during 2004 was rubbed out by a 14.7% appreciation in the rand against the dollar. The net effect was that the rand gold price declined 3.8% to average at R84, 785/kg in 2004 following a 15.8% decline a year earlier. Water, rail, steel and labour costs all increased compounding the revenue decline, Baxter said. Higher grade mining news. Straight to the point. Straight to your mailbox. Subscribe now for miningmx's free news alerts.
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