SA’s gold output fell for a 10th month running in August, while an 80.5% plunge in sales of the precious metal in the period means the country is losing out on the record gold price boom.
Gold output was down 4.6% year on year in August after dropping 3.5% in July. The sector, once the star of SA’s mining industry, last reported positive growth in October 2023.
SA’s gold production profile weakened while the price of gold soared in recent months, with the spot price gaining about 27% since the start of the year.
Besides boosting the price that miners get for gold, rising prices should have a positive effect on production by enabling SA miners to maintain production levels by sustaining marginal deposits for longer.
But many gold mining companies reported falling output in their latest results. Sibanye-Stillwater reported a 17% drop for the first half of the year.
Gold Fields and DRD Gold said production fell 25% and 5%, respectively, for the six months to end-June.
Gold Fields, SA’s biggest gold mining company by output, blamed the 25% fall in output on backfill rehandling challenges and poor ground conditions at its South Deep mine.
Amid deteriorating operational performance, South Deep, which has SA’s biggest gold reserves, saw its production guidance for this year revised down to 7,800kg-8,200kg, from the 9,500kg-9,700kg target, set only two months prior. Gold production accounts for 16% of SA’s total mining output. On top of falling gold production, iron ore output slipped a further 15.2% year on year in August after falling 19% in July.
Investec economist Lara Hodes said demand for iron ore, the main input for steel production, was "‘affected by increased seaborne supply globally and demand dynamics in China”.
Kumba, the country’s largest iron-ore producer and the fifth-biggest in the world, earlier this year lowered its production outlook for the next three years to between 35-million tonnes (Mt) and 37Mt from 37Mt and 39Mt previously forecast for 2024. It expects between 39Mt and 41Mt tonnes in 2025. The revised outlook is intended to keep the business viable by drawing down on stockpiles that have built up as a result of theft and maintenance problems at Transnet’s freight railways.
Stats SA data also shows positive contributions to the mining sector in August came from manganese ore, where production rose 16% year on year, and chromium ore, which was up 24.8%. Output of platinum group metals (PGMs) increased by 4.7%.
These positive contributions lifted overall mining output for August by 0.3% year on year after a 1% drop in July. This significantly exceeded the Reuters consensus, which predicted a 2.1% year-on-year contraction for August.
While overall mining production was up in the period, mineral sales fell 9.9% compared with the matching period a year earlier, driven primarily by an 80.5% drop in gold sales. Lower sales bodes ill for tax collections from corporates as mining companies report losses and huge impairments, particularly in the PGM sector.
FNB senior economist Thanda Sithole said that while easing energy constraints help support recovery in SA’s mining, sector activity was “expected to remain moderate in the near term, due to a stable yet challenging external demand environment”. Port and rail infrastructure inefficiency still limit productivity and profitability in the sector, said Sithole.
The rising cost of electricity was a growing constraint to the sector, with electricity prices up more than sixfold since 2007, said Sithole.
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