SA gold mines are on the brink of death

(July 3, 2017 - by Jan De Lange)

Beginning of the end: The entire mining sector could be headed for closure as mining costs rise and production decreases.

Johannesburg - AngloGold Ashanti’s announcement that it will close two mines and retrench 8 500 workers is only the first of many large-scale job cuts that were predicted in 2007.

A study done in 2006 and 2007 had predicted that virtually all of South Africa’s large gold mines would be shut by 2014. This turned out not to be true, mostly due to the unpredicted depreciation of the rand, which pushed up the local gold price.

Now, one of the people involved in the study says AngloGold’s announced mine closures are the beginning of the end.

The 2007 study, conducted by the Chamber of Mines through the Monitor Group, had advocated a massive change in how gold mines operate. Recommendations included 24-hour mining days and the control of water and power prices, despite these being outside the industry’s control.

“Unfortunately, nothing came of it,” said Gavin Hartford, a labour sociologist who was at the time appointed to try and get the mines and unions to agree on these plans.

“Instead, the rand weakened and blew life into the mines past 2014.”

“We are now clearly at a point where the gold industry’s end has arrived. We have to expect large-scale job cuts.”

The price of electricity has risen by 300% over the past five years, he pointed out.

“When we did the study, power amounted to about 6%, on average, of a mine’s expenditure. Now it is 30%.”

Hartford says he recently saw numbers from another major gold producer, which incontrovertibly show that its mines have no chance of survival.

The 2007 study made terrifying observations.

At the time the cost of mining a ton of ore was rising by 11.7% per year and the ore production per employee was dropping by 2.9% per year.

If these trends had gone unhindered, they would have led to the closure of the gold industry in eight years, then meaning 2014. It was estimated that if the cost inflation in mines could be kept under 6% it would buy the industry another four years.

If the falling productivity could be stopped, then the mines would win eight more years.

Hartford and other sources in the mining industry said platinum mines were also very likely to start announcing mass retrenchments.

“It is actually far worse at the platinum mines. It is unbelievable that there have not been any large job cuts yet,” said one source.