South Africa gold mining continues to lose its shine

JOHANNESBURG – Gold production is on its longest losing streak in more than a decade.

Fresh from losing its status as continent leader to Ghana, South Africa’s gold industry suffered a further blow yesterday with output in the sector plunging 19.5percent year on year in April, dragging down production in the whole mining sector with it.

South African gold production has declined by more than 54percent since 2005, for reasons including increased depth of mining, less working time at the face due to greater distances from shaft infrastructure, declining grades, rising costs and stoppages.

René Hochreiter, a mining analyst at Noah Capital Markets, said the gold sector was fast approaching its sell-by date and that platinum, manganese and coal held more promise.

“If you add in total costs, including capex, most of South Africa’s gold production is loss-making. The resources are very deep and the cost of getting those resources is so high that it is not worth it,” Hochreiter said.

“I don’t see South African gold production reaching the kind of tons it did 15 to 20 years ago. Production will basically continue to decline because of the costs.”

Output in the sector this year was also harmed by the five-month strike at Sibanye-Stillwater gold mines by the Association of Mineworkers and Construction Union and power outages that took place in the first quarter of the year.

Statistics South Africa said mining production shrank 1.5percent on a yearly basis in April with declined output in iron ore, chromium ore, nickel and building materials joining gold as the main negative contributors in the period.

Gains were recorded in copper, manganese ore, platinum group metals, diamonds and other non-metallic minerals sectors. On a monthly basis, mining output dropped by 2.3percent, following an increase of 4.2percent month on month in March.

Minerals Council South Africa chief economist Henk Langenhoven said gold production was unlikely to recover to its previous levels.

“Gold’s lower production was accelerated by the Sibanye-Stillwater strike action. However, the Minerals Council has been saying for a long time that more than 60percent of gold mines are marginal or loss-making and the fact that Sibanye is closing shafts is an example of the reality of this,” Langenhoven said.

FNB economist Matlhodi Matsei said although April’s print outcome spelt a weak start to mining production in the second quarter, the sector would like to see an improvement in the remainder of the quarter.

“Factors that are likely to support recovery include improved electricity supply compared to the first quarter, as well as some normalisation in gold mining production following the end of the protracted strike at Sibanye-Stillwater,” Matsei said.

“Nevertheless, the backdrop of cooling global activity and ongoing trade tensions present downside risks to this potential recovery.”

The mining and quarrying industry decreased by 10.8percent in the first quarter largely as the result of low production of coal, gold, iron ore and chrome ore. Together with manufacturing, trade and agriculture, the sector formed the biggest negative of the first quarter’s shock 3.2percent contraction.

Activity data this week showed that the manufacturing and trade sectors rebounded strongly at the start of the second quarter.

Capital Economics emerging markets economist Virág Fórizs said while mining figures for April were softer than expected, stronger conditions in the rest of the economy suggested that the second quarter started on a brighter note.

“Manufacturing output growth jumped to 4.6percent year on year in April, while retail sales rose by 2.4percent year on year. And measured on a month-on-month basis, the manufacturing and retail sectors also recorded stronger growth in April than in the first quarter. Taken together, the figures for April point to South Africa starting the second quarter on a firmer footing,” Fórizs said.

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