JOHANNESBURG (miningweekly.com) – Steps must be taken to halt the rapid decline of South Africa’s crucial gold-mining industry, economic strategist Chris Hart urged on Thursday.

Hart, who was delivering the keynote address at the Tenova Mining & Minerals Symposium in Johannesburg, warned that if steps were not taken timeously, the industry on which the South African economy had been founded would be in danger of losing its critical mass.

Conversely, if the country set out to save the gold-mining industry, it stood to benefit from gold's pivotal economic contribution for another 100 years.

South Africa, the Investment Solutions chief strategist pointed out, had fallen from being the world’s biggest gold producer to the number six position, despite still having an abundance of gold reserves in the ground.

South Africa, Mining Weekly Online can report, has fallen below lowly Peru, with a mere 6% contribution to total global gold production, from a massive 68% contribution in the past.

“The industry is in crisis,” Hart warned, echoing what the Chamber of Mines of South Africa (CoM) states on its website, that in the last decade, the country’s gold production had declined at a rate of 8.2% a year or by 83% overall.

In 2012, gold production in South Africa fell to 167 t, the lowest level since 1905.

Hart spoke after Cadiz Corporate Solutions mining consultant Peter Major reportedly warned against the South African mining industry being misused as a political tool.

“Nobody will ever do another deep-level mine in this country unless we change the environment,” Independent Newspapers quoted Major as saying at an international conference.

Important transformation of the situations of hundreds of thousands of historically disadvantaged South Africans could not be attained without economic growth, Hart told the Tenova symposium, which was opened by Tenova Mining & Minerals president Walter Küng.

“You cannot achieve transformation when the need is expanding and the mining industry is contracting,” he added.

If the current downward trend continued, South Africa would be producing less than 90 t of gold a year by 2020 and be employing fewer than 60 000, the CoM calculated.

Last year, the South African gold-mining industry employed 142 193 people and paid them R22-billion in salaries and wages.

But the industry has been badly hit by rising costs.

Between 2007 and 2012, electricity tariffs to the mining sector as a whole rose 238%, from 18c/kWh in 2007 to 61c/kWh; diesel costs increased 69%; reinforcing steel rose 57%; and worker remuneration swelled at a rate of 12% a year, at a level 5% higher than producer inflation.

Simultaneously, 427 t less gold has been produced since 1989, resulting in 372 000 jobs being lost.

Even in spite of the massive decline, however, last year gold was still South Africa biggest mineral export, earning R72-billion in foreign exchange, which put it above platinum and coal.

The industry also paid R2.1-billion in corporate tax, spent R13.6-billion in capital expenditure (capex) and paid R1.2-billion in dividends.

Mining Weekly Online can report that the negative factors affecting South African gold mining include falling gold prices, rapidly escalating input costs, declining grade, falling productivity and illegal strike action.

In the first quarter of this year, more than 60% of the gold sector was either marginal or loss making on cash cost basis using the price of R401 000/kg and excluding capex.

If capex is included, all companies were loss making

WAY FORWARD

Needed is a quantum leap in productivity, using new systems and high technology.

Shift systems allowing for more than one blast a day could make a positive difference. Currently, only 220 to 240 shifts a year achieve a blast out of 300 shifts theoretically possible.

The chamber reports that progress has been made with an initiative called Sindisa, which has the potential to ensure the continued viability of the gold mining industry in difficult circumstances.

Sindisa issues dealt with during the recent wage talks included more productive shift arrangements.

For South Africa to play its rightful role in gold, cost pressures need to be moderated and productivity improved so that the sector can be repositioned for growth through competitiveness.