South African gold output continues to fall – how much further?

South Africa’s vitally important minerals sector saw further production falls in May with the once dominant gold sector declining by a further 14.6% year on year.

Author: Lawrence Williams
Posted: Friday , 12 Jul 2013 

How the mighty have fallen!  Not so long ago South Africa dominated global gold output with the rest coming nowhere in comparison, but the country’s gold output has been on the decline since the 1970s.   
It fell to fifth largest gold producer in 2012 when it was overtaken by Russia and on the latest output  figures the country has drifted downwards towards being now only the world’s sixth largest gold producer, having been overtaken by Peru as well – however that is on production so far this year.
In yesterday’s publication of minerals output and revenues, Statistics South Africa noted that the country’s gold output fell again in May commenting that  its ‘overall mining production decreased by 0.7% year-on-year in May.The largest negative growth rates were recorded  for ‘other’ metallic minerals (-32.3%), diamonds (-19.7%) and gold (-14,6%). The main contributor to the 0.7% decrease was gold (contributing -2.4 percentage points). Manganese ore (contributing 1.5 percentage points) was a significant positive contributor.’
But will there be any recovery in South African gold production ahead?  The short answer is that, barring a huge gold price increase, the country’s gold output will likely continue to decline at a rapid rate. 
South Africa has some of the world’s highest cost producing gold mines – a recent estimate has suggested that at current gold prices around half the industry is operating at a loss – and this would suggest that gold production could continue to decrease at an escalating rate as companies will no longer be able to afford to keep unprofitable mines and shafts open. 
Add to this the pressures on the companies from massive wage demands brought on by mining union competition for membership between the NUM and AMCU, and this is a recipe for the potential annihilation of the country’s gold mining sector in its current form. 
Some of the production fall may be mitigated, though, by selective mining of higher grade ore to try and maintain profitability at the expense of mine longevity.
South Africa’s gold sector though is not the only part of the country’s vitally important mining industry to be affected.  The platinum miners are facing many of the same problems as the gold sector although this year’s figures may end up being a little better than in 2012 given the levels of labour disruption that year.
South Africa’s gold sales have now for some time lost their dominant position in terms of revenue.  The country’s No.1 revenue earner nowadays, according to Statistics South Africa, is coal, followed by platinum group metals with gold languishing in third place – and could even be knocked into fourth place by iron ore sales if the production decline continues. 
The relative figures in terms of  unadjusted sales in April – the latest available – according to Statistics South Africa  are as follows:
Metal Mineral Sales Value (million ZAR) Sales Value (million US$) 
Coal8 506.6847.1
Platinum Group5 612.6558.9
Gold4 877.6485.6
Iron Ore4 875.3485.4
Between them these four accounted for almost 80% of the total value of South African metals and minerals sales in April. 
The South African government has to be particularly concerned about the fall off in the volume and value of the minerals produced, particularly with regard to gold and pgms, given that it is very much a resource economy and heavily dependent on the sector for its export earnings.  Both the gold and platinum sectors are in crisis and with the mining unions set on what the industry will see as untenable demands and prone to unacceptable militancy and inter-union rivalries, things may well get worse before they get better.