[miningmx.com] — GOLD FIELDS LIMITED, the world’s fourth-largest listed gold miner, sees strong fundamentals for the sector, although rising electricity prices in South Africa and a strong rand were strong headwinds.
CEO Nick Holland said few new projects across the industry were expected to come on stream in the near future and such projects would be at lower grades, supporting gold.
“There isn’t a significant amount of supply coming out anywhere (and) the average value and size of exploration discoveries has declined significantly,” he told Reuters in an interview on Wednesday.
“Gold has a reasonable underpin at $1,000 an ounce and I don’t think it is easily going to go below $1,000.”
Gold pushed to a fresh record high just below the key $1,350 level on Wednesday, riding on dollar weakness and market anticipation that the US Federal Reserve may ease policy to stimulate economic growth.
“The price has had a good run and we should expect that it could possibly consolidate for a while at these sort of levels,” Holland said.
He said the gold price performance has helped to partially offset the impact of a strong rand, which has strengthened more than 25% since the start of 2009 and is trading near a two and a half year high, given that every 10% change in the rand hit Gold Fields’ earnings by the same amount.
Another major drag on South African gold miners is rising electricity prices, with power utility Eskom mulling two price increases of around 25%, on top of three similar consecutive increases it has already announced.
“It probably means that the production curve for the industry will contract even quicker… you will find more marginal production being closed,” he said.
To limit its exposure to the rand and rising electricity prices Gold Fields is investing heavily to diversify its portfolio into other markets in West Africa, Australia and South America.
Bullish on uranium
Holland said Gold Fields plans to make a decision this year as to when proceed with its plan to build a uranium plant, which would amount to the group’s “fifth mine” in South Africa.
The company has said in the past the plant would treat 402 million tonnes of historical tailings dams on surface, sufficient to produce 58 million pounds of uranium and around 4.2 million ounces gold in total.
“We are quite bullish on uranium, the price is certainly going to go higher. It is something that will definitely get off the ground, the only question is when,” he said, adding that the company might decide to develop the project with a partner.
Holland said the company was on track to reach its annual production target of between 3.5 to 3.8 million ounces in the year to the end-June and was pushing ahead to reach its one million ounces per quarter goal within the next 12 to 24 months, largely dependent on the ramp up at its South Deep mine in South Africa.
Holland said he was not concerned about talk of mine nationalisation in South Africa, but said that a move in that direction could lead to an exodus of an already strained pool of skills in the sector and impact mines’ performance.
“Mines are still a significant job provider. There are a lot of headwinds in this industry already and we have to be careful to try keep this sustainable,” he said.
