AngloGold, the world’s third-largest gold producer, has announced that South Africa faces an inevitable drop in output and has dissected what that means for gold miners that operate in the country.
Although gold mining was once the largest industry in South Africa, it now faces an inevitable decline as shrinking output shows no sign of stopping, Sipho Pityana, chairperson of AngloGold Ashanti (ASX:AGG,NYSE:AU), revealed on Monday (July 23).
Pityana believes that the country’s output will continue to shrink as miners hunt for deeper orebodies while trying to cut costs. This leaves companies with operations in South Africa, AngloGold included, questioning their future there.
“Gold is a sunset industry. It doesn’t matter what you do, it doesn’t matter how you do it, you are not going to be able to change that,” Pityana told Bloomberg.
The gold mines in South Africa are the deepest in the world, as well as the most labor intensive. In May, the country’s gold production dropped 16 percent from the previous year, falling for the eighth straight month due to raised costs and curbed output.
Behind the costs and curbs are depleted reserves, accidents and aging infrastructure.
Despite the current situation, Pityana believes that some producers may still have a future in South Africa if they are able to mine safely, profitably and reward shareholders with returns. He added that automation could offer the answer to mining super-deep reserves in the future.
For AngloGold’s part, it garners about 13 percent of its output from South Africa, which is down from 43 percent in 2007. The company’s other mines stretch from Australia to Argentina to Ghana.
With the current challenges in South Africa, Pityana admitted that some of AngloGold’s investors are left questioning the value of investing in the country, compared to other countries such as Brazil.
“People are asking ‘are you going to split the two businesses?’ It’s an option that remains on the table, it’s not an obviously decided matter,” Pityana said. “All of those things are subject of major debate in our boardrooms, among the executives,” he added.
While AngloGold has reduced its operational presence in South Africa, Pityana noted that the company will most likely maintain its primary listing in the country.
AngloGold will also continue to look at options such as potential sales, purchases or mergers, but will not be making a definite decision at this time. “You take a view as a board when you really have to,” the chairman said. “We are not in that place.”
As of 12:47 p.m. EST on Monday, gold was trading at US$1,223.60 per ounce.
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Securities Disclosure: I, Nicole Rashotte, hold no direct investment interest in any company mentioned in this article.