Update on South African Gold Miners

September 17th, 2015 by

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For decades, South Africa was the world’s number-one source of freshly-mined gold. Its Witswatersrand basin has, in fact, yielded the majority of all the gold ever mined in human history—all of it coming in the last hundred years or so.

If you include many of the mining companies operating in the country that have been sold off to multinationals (mostly from China), South Africa is still the site for most of the exciting developments in gold mining. Catch up on the news coming out of the South African gold mining industry!

Poor Performance

Even a cursory evaluation of the financial health of South Africa’s top four gold mining companies reveals that the prospects have been disappointing for these firms. Though these miners—AngloGold Ashanti (NYSE:AU; ASX:AGG; JSE:ANG), Gold Fields (NYSE, JSE:GFI), Harmony Gold (NYSE:HMY), and Sibanye Gold (NYSE:SBGL; JSE:SGL)—have generally been able to cut their costs significantly over the course of the year (a 12% reduction for Gold Fields and cuts totaling 6% for Sibanye, for instance), they are still suffering from rather high all-in sustaining costs (AISC) for their operations.

empty-gold-mine-cartMoreover, all of these firms (excepting AngloGold) are still using outdated gold spot prices to value their current ore reserves: Gold Fields uses an “assumed average gold price” of $1,300/oz for its calculations, while Harmony Gold’s estimate of $1,230/oz is still well above where gold prices currently stand (and will likely average by the end of the year). AngloGold’s assumed spot price is far more accurate at $1,100 per ounce.

There’s also the matter of the rand, South Africa’s national currency. The rand has devalued against the U.S. dollar by about 14% since last June; although this helps make exports from the country more attractive in the short-run, it does mean that dollar-denominated expenses that inevitably come up later will be more costly.

Labor Dispute

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Virtually all of the country’s mining firms have also been plagued by workers’ strikes over the past 2 years. Three of the four biggest companies (AngloGold, Harmony, and Sibanye) along with Evander Gold Mines, have placed a new offer on the table to the country’s two major mine workers’ unions, the Association of Mining and Construction Union (AMCU) and the National Union of Mineworkers (NUM).

The unions have been dogged in their demands for higher wages and better benefits, but the mining companies (especially amid falling metal prices) have been adamant that meeting such demands would destroy the industry, leaving the mine workers without jobs, anyway. The new offers are broken down in detail on Mineweb.

Two Big Miners Team Up

goldminerIn more encouraging news, two of the biggest players in South African gold mining, Randgold (NASDAQ:GOLD; LON:RRS) and the aforementioned AngloGold Ashanti, are partnering to try and develop the latter’s Obuasi mine in Ghana into a fully operational venture. This site currently uses highly outdated methods, and the two companies have reached an agreement to modernize the Obuasi project together.

The South African Reserve Bank must approve the agreement before it becomes official. According to AngloGold, the Obuasi mine has rich ore reserves with significant portions of the orebody expected to yield 6.7 g/t (grams per tonne), which is considered very well-concentrated. (Global averages are closer to 1 g/t for a given chunk of ore.)