SA gold sector at a tipping point

Brendan Ryan | Wed, 21 Apr 2010 11:02

[miningmx.com] -- THE declining South African gold industry is fast approaching a tipping point where further restructuring will be needed resulting in the loss of many more thousands of jobs.

That’s the view of Gold Fields CEO Nick Holland who, in a wide ranging interview with Miningmx, said that “a solution is needed this calendar year.”

Holland added, “2010 is crunch time for the industry. We need to do something within the next three months to start moving to a different strategy otherwise it’s not going to be good for anybody.”

Holland was speaking against the background of a string of problems that have hamstrung the SA gold mines over the past 18 months - in particular the strength of the rand against the US dollar.

This has put a cap on the revenues being earned by the SA gold mines despite the rising dollar price of gold while the industry’s costs have been rising inexorably.

The current rand gold price of around R270,000/kg is nearly 20% lower than the level of R330,000/kg reached early in 2009 when the dollar gold price was around $920/oz compared with the current $1,140/oz.

Harmony this week announced it was closing another three marginal shafts bringing the total number of shafts shut down by the group in the past year to seven.

Holland commented, “absent a significant increase in productivity then, unless we see a major change in the rand gold price, some kind of rationalisation of the industry looks more and more probable.”

He added, “thousands of jobs are at risk because the gold industry is top heavy given the current level of production. We have to claw back some productivity or the inevitable is going to happen and we will be forced into a downscaling exercise.

“I don’t want to put those people on the street. I want to preserve jobs. I am trying to find a win-win situation with government and organised labour but we are running out of time.”

Looking on the positive side Holland said he believed a realistic solution could be found. An increase in gold production of just 10% from current levels would be sufficient to create sustainability.

Holland commented, “we have a very high level of fixed costs in this business and the problem is that we are not working the orebodies hard enough.

“Another 10% in gold production would make a phenomenal difference to the bottom-line.”

Holland singled out the number of working shifts being lost for a variety of reasons over and above normal holiday periods as the key issue.

He said, “we have to mine at a rate which allows us to recover our costs and make a return but we lost around 8% of our total shifts last year.

“We are not getting enough blasts at the mining faces. The production of ore from the mines is not enough to support the on-going cost structure of the industry.”

Holland’s proposed solution is a six-day working week with every second Saturday being a compulsory working shift.

He commented, “that would add an extra month to our working operations. That would make the difference between having sustainable operations and being forced into a downscaling exercise.”

Holland said Gold Fields was in the process of debating the proposed six day week with the unions but had not yet come to terms with them.

He said, “my approach is that - if not the six day week then what? I am open to ideas but we can only find a solution through a constructive approach by labour, ourselves and government.”

Asked about the recent mining summit Holland commented, “the main focus was on transformation of the industry and I don’t have a problem with that.

“It’s important that the SA mining industry reflects the demographics of our society and I have bought into that.

“Overall, I can see what the Department of Mineral Resources is trying to achieve and I really believe we have to transform.

“We have made considerable progress over the past five years although it has not been as rapid as we would like. It has not been easy because the pool of talent in the country is very small.

“We have to train more people ourselves which is why Gold Fields is investing R26m in the mining engineering faculties at the University of the Witwatersrand and the University of Johannesburg. “

The writer owns shares in Gold Fields.