Elevated gold prices have been a saving grace for SA’s mining sector in recent months, driving big increases in mineral sales and offsetting the steady decline in the country’s gold production.
Gold prices surged to a high on Tuesday as a cocktail of factors, from hopes of further US rate cuts and China stimulus measures to elevated Middle East tensions, lifted demand, Reuters reported. Spot gold hit a record high of $2,639.95/oz earlier in the day.
The price of gold has soared in recent months, driving the total value of SA’s gold sales up 117.5% year on year in July, after it doubled in June.
This saw the country’s overall mineral sales in July rising 24.5% from the previous year, after a 17.9% increase in June — the two highest year-on-year increases of any month this year. In both cases, gold provided the biggest contribution to the overall boost in sales.
As well as boosting the price that miners receive, rising gold prices had a positive effect on production, as it enabled SA miners to maintain their production levels by sustaining marginal deposits for longer, contributing to higher sales of the precious metal.
In volume terms however, July marked the ninth consecutive month in which the country’s gold output has fallen — with production expected to fall 2.8% by the end of the quarter.
Excluding Harmony Gold and AngloGold Ashanti, SA’s biggest gold producers have all reported declining output in their latest results. Sibanye-Stillwater reported a 17% drop in gold output for the first half of the year, while Gold Fields and DRD Gold reported a decline of 25% and 5%, respectively, for the year to end-June.
Inhospitable
This year’s fall in output is a continuation of the steady decline in SA’s gold production, which has shrunk an average 5.8% annually since 1994. From 1994 to 2023, the country’s annual gold production plunged from 580 tonnes to less than 97 tonnes, while employment in SA’s gold sector plunged from 392,000 to fewer than 94,000.
The steady decline in local gold production over the past few decades comes as “a combination of closure, maturing assets and industrial strife has created an inhospitable operating environment” for the gold producers that mine in SA, according to World Gold Council senior analyst Krishan Gopaul.
Minerals Council SA’s Allan Seccombe said the country’s fragile electricity and water supply infrastructures, which continued to deteriorate in the absence of proper maintenance, were a constraint on production, while the declining performance of Transnet and inefficiencies at SA’s ports and railways restricted export potential across the mining sector.
“The effects of electricity supply constraints can be seen in gold export and local sales volumes,” said Seccombe, “which decreased 1.9% and 17.1% respectively, as smelters were unable to keep up with the refining of gold ore for the local and export market.”
Amid double-digit electricity tariff hikes, the rising cost of electricity is also a growing constraint to the sector, with electricity prices increasing more than six-fold since 2007. In the past three years, the total electricity bill for Gold Fields’ South Deep mine has risen nearly two-thirds, while Harmony Gold has seen R2.1bn added to its electricity burden in the past five years.
Structural challenges aside, the finite nature of SA’s gold reserves makes a gradual decline in production inevitable.
Amid the gradual depletion of the country’s gold reserves, mines had become deeper and working areas had moved further from shafts, resulting in less time drilling and clearing blasted rock, which fed into declining production, said Seccombe.
“We can’t assume production levels from two, five, 10 or 20 years ago because reserves have been depleted, mines are getting deeper, and we’ve been mining gold for over a century,” Seccombe said.
“Therefore, the focus should be on the fact that every bit of gold mined now is a gain for the country.”
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