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SA gold industry must carve future
David McKay
Posted: Thu, 02 Feb 2006
[miningmx.com] -- THE debate about beneficiation in the mining industry has returned in the unlikely form of a new government-backed book, primarily written to provide statistical basis for discussion, but which also acts as a healthcheck of South Africa’s gold mining industry. One sobering fact raised by the book is that of South Africa’s 40,000 tons of known gold ore resources, about 8,000 to 10,000 tons are economically recoverable.
The author, Jessica Cross, who runs an independent metals consultancy business, Virtual Metals, says in the book: ‘Gold In South Africa’ “sets the scene for discussion”. It finds, for example, that as the gold mining industry slips into decline, there are more challenges than opportunities in keeping it going.
Inbound tourism, South Africa’s refining capacity, the emergence of a black middle class are all deemed positive developments for increased
consumption of locally manufactured gold jewellery.
But laws forbidding the ownership of gold other than jewellery and gold coins, the current lack of access to cost-effective finance and insurance, the inability of South Africa to compete with jewellery produced by cheap labour offshore (in China) are major problems. Low productivity, a shortage of skills, the effect of crime on holding jewellery are just some of the other issues Cross raises.
The strength of the rand is a growing problem. According to Cross’s book, imports of fine gold jewellery into South Africa increased 50% to 1.28 tons in 2004. In value terms, this equates to R65m in 1999 increasing to R150m in 2004. Cross records one gold jewellery buyer as claiming it was cheaper to import material than manufacture it locally. “It’s an amazing claim, and frightening,” Cross says in an interview.
The strength of the rand has also encouraged “a high level of smuggling of finished jewellery in South
Africa,” she says. This is to avoid the 20% import tax and 14% VAT. “Since undeclared imports are not reflected in the official trade statistics, official figures may understate the true levels of gold jewellery entering the country, possibly by a significant margin,” Cross writes.
“It shouldn’t be daunting, there are more challenges than opportunities,” says Cross who insists the book is penned in an effort to breathe new life in South Africa’s gold industry, not to inscribe its epitaph. “A good starting point is that we really need to understand what we mean by beneficiation.”
That’s a point on which the entire beneficiation debate uniquely turns in South Africa.
For mining companies, dabbling in the downstream industry – turning aluminium sheet into pots – is not a core activity of which shareholders would necessarily approve. For the government, encouraging these activities is vital because it speaks to its social delivery and employment creation
policies. The differences represent a dialectic of public and private interests.
Last year, the government submitted two pieces of legislation regarding beneficiation – the Diamond Amendment bill and the Precious Metals bill – for public comment. Both provoked outspoken private sector ire. The Chamber of Mines of SA, for instance, was critical of the legislation because it punitively installed beneficiation, threatening to impose sanctions on mining companies failing to support it.
The private sector believed the government, too, should help encourage beneficiation.
Over and above these flashpoints, Cross warns that excessive reflection on beneficiation and other policy issues, such as black empowerment, might obscure the industry’s view from the importance of remaining internationally competitive. The industry is far from sunset, she says, but “it needs to operate in a climate that is not prescriptive,”
The fact the book is backed by the
government (trade and industry department and the Industrial Development Corporation), and the private sector (AngloGold Ashanti and the World Gold Council) is, according to Cross, positive. “The coming together of sponsors is indicative of the new thinking,” she says.
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