rand gold taking toll...in africa mines.

Rand Gold Price Puts Strain On Mining Industry



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Business Day (Johannesburg)

June 10, 2004
Posted to the web June 10, 2004

John Fraser , Resources Editor
Johannesburg

Pit closures and job losses looming

RISING production costs and a falling rand gold price are further squeezing the margins of SA's gold producers sparking fears that new pit closures and job losses are on the horizon.


Whereas the average rand gold price for the first quarter of this year was R88887/kg, more recently the price has fallen to about R81000/kg.

In the meantime, although producers have worked hard to cut costs, many of their costs are out of their hands.

"It doesn't look healthy if you look at an average price of R81000/kg for gold, and then look at the total production costs (including capital expenditure) of R90000/kg in the fourth quarter last year," said Roger Baxter, Chamber of Mines chief economist .

"Resource companies are trying to get their costs down where they can, but some costs, such as those for water, rail tariffs and port charges are out of their control."

Baxter said the industry was in difficulty, with current cost levels as well as the rand gold price, and it was not a happy time.

"With the current exchange rate of R6,50 or so to the dollar, one has to ask whether it's not just the gold industry but the entire mining sector which is under pressure and feeling the pinch."

He noted that last year the dollar gold price had risen 17%, but the rand gold price had fallen 16% "because of the 28,8% appreciation of the rand against the dollar".

"For the entire mining industry, revenues declined by R20bn last year, which means that SA is missing out on the synchronised global commodities boom."

Investec analyst Leon Esterhuizen said that in the first quarter of this year, AngloGold's cash costs were R55000/kg, those for Gold Fields R69000/kg and Harmony's approximately R83000/kg.

"With the gold price at R81000/kg, Harmony is in serious trouble," he suggested.

And he noted that total costs for AngloGold were about R69000/kg, for Gold Fields R77000/kg and R96000/kg for Harmony.

"Gold Fields is just making it, but Harmony is well into the red, while AngloGold has margins of 15%," Baxter suggested. "Of course, that's assuming they don't cut costs or increase grade."

Another analyst said that Durban Roodepoort Deep's cash costs for its South African operations were R81398/kg in the first quarter of this year, suggesting that it was now operating at a loss in SA.

Esterhuizen noted that further pain would come next month when most mining companies implemented a 7% annual pay rise, which was negotiated as part of a two-year package last year.

"As labour accounts for about half of production costs, this increase will push up these costs by about 3,5%-4%," he said.

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Analysts believe that if the rand gold price remains at current levels, further job losses will be inevitable in the industry.

Gold Fields' CE Ian Cockerill has won backing from AngloGold Ashanti CE Bobby Godsell for a suggestion that wage increases in the mining industry be linked to productivity improvements.