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

LONDON (Mineweb) -

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.

  • Dow Jones 30,000 Trigger Leaked by 27-Year-Old Stock Research Firm CLICK HERE
  • The Inevitable: Dow Jones 30,000 CLICK HERE

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$)
Coal 8 506.6 847.1
Platinum Group 5 612.6 558.9
Gold 4 877.6 485.6
Iron Ore 4 875.3 485.4

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.

Source: http://www.mineweb.com/mineweb/content/en/mineweb-gold-news

Wits Gold bids for Burnstone, decision expected next week

JOHANNESBURG – Witwatersrand Consolidated Gold Resources (Wits Gold) on Friday said that it had offered to buy embattled Great Basin Gold’s (GBG’s) suspended Burnstone gold operation, in Mpumalanga.

The TSX- and JSE-listed group aimed to deliver dividends to its shareholders and generate cash flow in the near term, as Wits Gold brought Burnstone into production.

“Moving to producer status will serve as a solid platform with which to start generating free cash flow for shareholders,” Wits Gold CEO Philip Kotze said, adding that the bid was in line with the company’s strategy of owning and developing shallow mines in South Africa.

  • Dow Jones 30,000 Trigger Leaked by 27-Year-Old Stock Research Firm CLICK HERE
  • The Inevitable: Dow Jones 30,000 CLICK HERE

Wits Gold would pay $7.25-million in cash towards GBG South African subsidiary Southgold Exploration’s debt, which was restructured and cut by 55% to $177.35-million.

Southgold would, from generated actual cash flow, repay the remaining $170.1-million liability.

Wits Gold would also advance a $100-million shareholder loan with an interest rate of 4%, which was also to be paid back on a preferential basis from Southgold’s operating cash flow.

The offer to buy the mine would be put to vote on July 11, but Wits Gold had signed irrevocable undertakings from the major creditors that its bid would be voted for to eliminate deal uncertainty.

Burnstone was put on care and maintenance in September, after several production setbacks and an inability to afford the mine’s required working capital to reach cash-flow breakeven forced the mine into business rescue.

Kotze noted that a new underground mining plan, which would allow for flexibility in the production approach, had been developed, after due diligence found the previous mine plan “far too ambitious”.

GBG’s mine plan had created market expectations, which had resulted in the team rapidly trying to deliver into high production, at 250 000 oz/y, without the required structures in place, he explained.

Burnstone, which started producing in 2010, encountered a geological fault that GBG did not find during exploration drilling, leading to the company having to revise its 2011 production guidance to 30 000 oz – which it missed by 6 000 oz – from the previous levels between 85 000 oz and 110 000 oz.

The mine’s production target – before suspension – for 2012 was 90 000 oz to 100 000 oz.

Wits Gold lowered production by 50%, with plans in place to potentially ramp up production in a gradual phased approach to a maximum 130 000 oz/y for a $100-million investment. First production is expected 12 months after the initial takeover.

“We have a number of options that require less capital for lower production or more for higher production [than the middle ground of 50 000 oz/y],” he said, noting the current Wits Gold plan for the mine required $50-million in capital expenditure and would enable production ramp-up to about 70 000 oz/y.

Wits Gold expected to take control of the operation – which has more than six-million ounces of gold in proven and probable reserves and a forecast life-of-mine upwards of 25 years – during the second half of 2014, after which the final mine plan would be decided on according to the market at the time.

Wits Gold aimed to initially focus on establishing the appropriate infrastructure for the relevant plan, and develop until enough ore reserve had been opened up for sustainable production.

The company would complete the footwall development in advance, and create a drilling platform to predetermine the geological structure and paychannels.

Wits Gold also planned a three-dimensional seismic survey, which would constrain the highly faulted underground structure and enable mine design optimisation.

Source: http://www.miningweekly.com/article/wits-gold-bids-for-burnstone-decision-expected-next-week-2013-07-05

All Time Record Gold Transactions Reported By LBMA

Today’s AM fix was USD 1,410.25, EUR 1,085.98 and GBP 926.94 per ounce.
Yesterday’s AM fix was USD 1,406.25, EUR 1,083.90 and GBP 926.75 per ounce.

Gold climbed $19.00 or 1.36% yesterday to $1,413.80/oz and silver also gained 1.25%.

  • Dow Jones 30,000 Trigger Leaked by 27-Year-Old Stock Research Firm CLICK HERE
  • The Inevitable: Dow Jones 30,000 CLICK HERE

Gold is marginally lower today in dollars but higher in other currencies but remains near a two-week high and is heading for the best week in a month in all currencies, with a gain of 2% in dollar terms.

The South African rand has collapsed 7.7% against gold this week again showing gold’s hedging properties.


The precious metals have been weak again in May with gold falling 4.4% despite this weeks’ recovery. Silver is down 7% and platinum by 2.6%. Palladium has recovered from recent weakness and those who accumulated on weakness are set for the best month since November after it surged 6.6% in May.

Weakness in gold and silver is leading to robust demand internationally as store of value buyers accumulate gold and silver on this dip. This is particularly the case in Asia where premiums remain robust and supply demand imbalances remain.

The persistent strong demand of this week began on the price falls in April. This demand is clearly seen in the London gold and silver trading data released by the London Bullion Market Association (LBMA) yesterday.

London gold trading jumped to a 20 month high in April and silver volumes surged 25% after the price falls led to an increase in physical buying, the LBMA said in a report.

Trading in gold averaged 24.1 million ounces a day in the London market, the most for any month since gold reached record nominal highs in August 2011, the LBMA said in a statement yesterday as reported by Bloomberg.

The 24.1 million ounces was a 10% increase on March when 21.8 million ounces a day were traded.

Silver volume surged nearly 25% to 165.2 million ounces a day, up from 132.5 million ounces in March.

There were 5,395 gold transactions on average per day, the highest on record, while silver transfers at 1,007 a day were the second-highest ever, according to the report.


Gold fell 14% in London in the two trading sessions ended April 15, the biggest drop in more than 30 years, on ‘speculation’ that Cyprus or other European countries would sell holdings in the precious metal, the LBMA said.

The price has rebounded as much as 13% through early May as demand increased for gold coins and jewelry.


“April was characterized by continued offloading of both metals by ETF funds,” the LBMA said. “But this was more than offset by strong physical demand, particularly from India,” the world’s biggest consumer.

The value of gold transferred in April increased about 3% from the previous month to a daily average of $35.8 billion, the LBMA said. Silver values climbed about 9% to $4.17 billion a day.

The South African rand collapsed 7.7% against gold this week. In the same way that Japanese people preserved their wealth through gold ownership this week and in recent months (stock falls and currency devaluation), gold has protected South African people from currency devaluation in recent years and again this week. More importantly, it will do so in the coming years.

Source: http://www.goldcore.com/goldcore_blog/all-time-record-gold-transactions-reported-lbma