Although South African gold production has declined in recent years, the region continues to show its growth potential.
Gold and diamond discoveries played an important part in the growth of the early Republic of South Africa. Historically, the country was the world’s largest gold producer for many years before conceding the top spot to China in 2007.
South Africa is currently estimated to have the world’s second largest quantity of gold reserves at 6,000 tonnes; however, China has maintained its leading position in gold production through the end of 2018, followed by Australia, Russia and the United States.
South Africa produced 120 tonnes of gold in 2018 and remains a top 10 gold producing country. Read on to learn more about South Africa’s geological and economic landscape, the region’s growth potential and a list of gold producers that currently have assets in South Africa.
South African gold: Geological and economic perspective
South Africa’s expansive gold ore deposits represent a considerable part of the world’s reserves, with approximately 95 percent of the mines operating underground reaching depths of over 3.8 kilometers. The main gold producing area is concentrated on the Archaean Witwatersrand Basin (Wits). The Wits has been mined for more than 100 years, produced more than 41,000 tonnes of gold and remains a relatively underdeveloped source of the yellow metal.
The Wits is a gold placer deposit, unlike most other gold deposits in the world, with gold being hosted by conglomerates and grits. The sedimentary basin is massive and stretches through an arc of approximately 400 kilometers across the Free State, North West and Gauteng provinces. The gold bearing conglomerates or reefs are generally tabular with varying dips.
Most of the Wits is covered by later stage sediments of the Ventersdorp and Karoo groups, with an outcropping in Johannesburg, which started the country’s gold rush and resulted in formation of the city of Johannesburg. South Africa does have other smaller gold producing regions outside of the Wits in the form of Archaean greenstone belts.
The main gold producing greenstone belts are the Barberton greenstone belt and the Kraaipan greenstone belt. The Barberton greenstone belt is situated in the Mpumalanga province, just north of Swaziland. The Kraaipan belt is located west of Johannesburg, near Kuruman.
South Africa reaped the benefits of macroeconomic stability and a global commodities boom from 2004 to 2008; however, growth began to slow in the second half of 2008 due to the global financial crisis’ impact on commodity prices and demand. Additionally, South Africa began to experience an electricity deficit towards the end of 2007. The national power supplier encountered problems with aging generating stations, which necessitated load-shedding cuts to businesses and residents in the major cities.
South Africa’s former economic policy has traditionally been fiscally conservative, focusing on attaining a budget surplus and controlling inflation. The current government largely follows the same prudent policies, but must contend with the impact of the global crisis and face growing pressure from special interest groups to use state-owned enterprises to deliver basic services to low-income areas and to increase job growth.
More than one-quarter of South Africa’s population currently receives social grants. Unemployment remains relatively high and outdated infrastructure has constrained growth. Legacy economic problems remain from the apartheid era — especially poverty, lack of economic empowerment among disadvantaged groups and a shortage of public transportation.
In terms of the mining industry,
In terms of the gold mining industry, the Minerals Council of South Africa (MCSA) has reported that 101,085 workers are employed in the South African gold sector. The council also notes that productivity has declined while wages have risen. “Despite this, gold mining activities remain a mainstay of employment in many communities around the country, and every employee in the gold sector supports between five and 10 other dependants,” states the MCSA. “On the upside, every direct job in the mining sector results in two indirect jobs being created elsewhere.”
The Minerals Council of South Africa (MCSA) has reported that mining contributed 351 billion rand (7.3 percent) to South Africa’s gross domestic product (GDP) during 2018, up from 335 billion rand (6.8 percent) in 2017. Total employee earnings have made large gains from 14.7 billion rand in 2007 to 26.5 billion rand last year.
Additionally, gold sales declined by 15 percent to land at R69.9 billion in 2018, down from the R82.7 billion in 2017. The gold industry in South Africa also took a hit when its gold production decreased to 132.2 tonnes last year, down from the 136.8 tonnes of output in the prior year. It is worth noting that South African gold only accounts for 4.2 percent of global gold production.
South African gold: Politics
In recent years, South Africa has been hit with political strife, mostly due to conflicts between the Association of Mineworkers and Construction Union (AMCU) and gold producers in the area. AMCU has held many protests and strikes at several gold and platinum mines within the last two years in the hopes of garnering more wages and stopping any merger between companies in which the union believed job loss would ensue.
In 2017, South Africa proposed a suspension on the granting of applications for prospecting and mining rights pending a court case to review new mining laws. As a result, share prices of some of the mining companies operating in the country dipped. Sibanye-Stillwater (NYSE:SBGL,JSE:SGL), South Africa’s largest gold producer, lost 1.61 percent on the back of the news, and AngloGold Ashanti (ASX:AGG,NYSE:AU), the world’s third-biggest gold producer, saw its share price decrease by 0.91 percent.
Towards the beginning of last year, AngloGold called for better mining regulations in South Africa. “At present, we have anything but a conducive regulatory environment,” the miner said. “The relationship between the Department of Mineral Resources and industry is at an all-time low.” The company further stated that targets are changed every time the country’s mining charter is reviewed.
Aside from regulations, AngloGold also let it known that it thinks the South African mining industry would benefit from a more stable political environment, revitalized rail and port infrastructure, investment promotion and a better understanding of financial returns and fund flows.
Furthermore, later that same year AngloGold stated that South Africa faces inevitable decline in gold production as shrinking output shows no sign of stopping. The miner noted that the country’s output will continue to shrink as miners hunt for deeper orebodies while trying to cut costs, leaving companies with operations in South Africa, AngloGold included, to question their future there.
South African gold: Growth potential
Despite economic and political concerns in the region, there is still room for growth in the gold space. One of the ways that gold miners in the region can increase productivity is through adopting technology geared to the mining industry, which could improve key dimensions of the drilling process.
In the medium and long term, localizing the value chain from mining operations, expanding downstream processing for key commodities and unlocking the potential of the country’s rich ore bodies are all possible in South Africa.
Increased investments in the mining sector is also extremely important in acceleration of South Africa’s economy. With the advancement of technologies and innovations on how gold is mined, the life of a mine can extend to 30 years or more and increased investment into these practises will garner more monetary advancement within the industry. According to the McKinsey Global Institute, production costs in South Africa have the potential to be cut by close to 20 percent in the medium term.
Additionally, as the mining sector grows, it has the potential to act as a catalyst for more stimulus within other sectors of the economy, including infrastructure, energy and transportation.
Finally, working with local communities within South Africa will also cause a growth in gold mining. By working on increasing the skills and safety of the individuals who work, or may one day work, at various gold mines in the region will help to increase productivity.
South African gold: South African gold producers
Although South Africa is not currently experiencing the economic prosperity it experienced from the mining industry a decade ago, there are still large miners in the country that have been producing impressive amounts of gold. Below is a list of current gold producers in South Africa with a market cap of over US$2 billion as of September 3, 2019.
Sibanye currently holds five gold assets in South Africa: Beatrix, Driefontein, Kloof, Cooke and the Rand refinery. Additionally, the miner acquired a 38.05 percent stake of DRDGold (NYSE:DRD,JSE:DRD) in August of last year. DRDGOLD operates the West Rand Tailings Retreatment project (WRTRP), which Sibanye has invested in.
In 2018, total gold production declined by 16 percent from the previous year to 1,176,600 ounces. This occurred primarily because of two safety-related incidents in the first half of the year, one at Driefontein and the other at Kloof.
However, Sibanye believes that its gold production will climb this year and is heavily invested in its Burnstone project located in the Mpumalanga province. The gold miner has stated that this project is its most advanced, with its Southern Free State project in the study phase. Despite setbacks that South Africa has experienced, Sibanye continues its steady growth in the region.
Gold Fields (NYSE:GFI)
Gold Fields is one of the world’s largest unhedged producers of gold. Its main focus is on its South Deep asset, the country’s largest and deepest underground mechanised gold mine, in addition to gold reserves in Ghana, Australia and Peru. Gold Fields is primarily involved in underground mining in South Africa, although in Peru it has exposure to surface gold and copper mining and related activities, including exploration, processing and smelting.
In recent years, South Deep has been a money pit for the company, causing it to lose approximately 100 million rand a month, but Gold Fields has a plan in place to restructure and increase the asset’s value.
The company plans to save close to 3,500 jobs and turn a profit by reducing mining areas, lowering overhead costs and using fewer machines more productively. Additionally, in July of this year, Gold Fields announced that it was collaborating with mining students at Wits University in order to build South Africa’s capacity to apply mechanised mining methods and supporting technologies in deep-level gold mines. In turn, the hope is that this will boost production levels at the Deep South asset.
AngloGold is a leading global producer of gold, with about one third of its operations in South Africa at West Wits and through its Surface operations (formally Vaal River).
Mponeng, the world’s deepest gold mine and the company’s flagship South African operation, is in the West Wits mining district south-west of Johannesburg. Mponeng exploits the Ventersdorp Contact Reef (VCR) via a twin-shaft system at depths of between 2,800 meters and 3,400 meters below surface. Ore is treated and smelted at the mine’s gold plant.
The Surface operation processes and extracts gold from marginal ore dumps and tailings storage facilities. Surface’s operations also include mine waste solutions; the waste is extracted hydraulically from various tailings storage facilities. Backfill is produced as a by-product, for use as mining support in mined out areas underground.
In 2018, AngloGold’s South African operations produced 487,000 ounces of gold at a total cash cost of US$1,033 per ounce.
Harmony Gold Mining (NYSE:HMY,JSE:HAR)
Harmony Gold’s operations are located primarily on the Witwatersrand Basin, encompassing 10 underground operations, an open-pit mine and surface operations that span four provinces, namely Gauteng, North West Province, Mpumalanga and the Free State.
In 2018, the company’s total attributable gold equivalent mineral resource was 117.8 million ounces of gold, a 13 percent increase year-on-year from the 104.3 million ounces reported in 2017. The yellow metal contained in the mineral resources at the South African operations represented 60 percent of Harmony’s total gold production.
Additionally, Harmony’s total attributable gold and gold equivalent mineral reserves amounted to 36.8 million ounces of the precious metal, a 0.3 percent increase from the 36.7 million ounces the company declared the previous year. Gold reserve ounces at the miner’s South African operations accounted for 46 percent during 2018.
This is an updated version of an article originally published by the Investing News Network in 2010.
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Securities Disclosure: I, Nicole Rashotte, hold no direct investment interest in any company mentioned in this article.