JOHANNESBURG (miningweekly.com) – The government needs to work out the steps to be taken to stave off the prospect of loss-making mines closing down, Gold Fields CEO Nick Holland said on Thursday evening.
Speaking at the Gordon Institute of Business Science (Gibs) on resource nationalism, Holland said most of the country’s gold and platinum mines – the biggest mining employers by far – were “under water” and there were already very senior mining people on the streets looking for work.
On the eve of the first anniversary of last year’s tragic August 16 Marikana killings, Holland made the point that business and labour would also have to come up with a new alignment model if the gold-mining industry were to survive.
“We need to find common ground on wages,” he said.
From being the world’s largest gold producer of 1 000 t a year two decades ago, South Africa’s gold-mining industry has slumped to the number six position after Peru, with a production of only 167 t of gold last year.
Holland told the well-attended Gibs gathering that mining investment was under threat after years of disappointing returns and that gold mining’s equity model was at breaking point.
Two-thirds to three-quarters of the 500 000 people directly employed in South African mining were employed in gold and platinum mining.
The critical importance of mining was that one mining job looked after the interests of 27 people.
The risk of resource nationalism, previously seen as the mining sector's foremost, was currently being overshadowed by falling metal prices.
Disappointed investors were voting with their feet and abandoning the mining sector.
Many hundreds of millions of dollars worth of mining projects were being delayed or cancelled.
“The industry is in crisis and it’s under threat,” Holland said.
He criticised the industry for making mining’s “pie” look more attractive than it really is because of failure to present costs realistically.
Inflating the “pie” had, in turn, resulted in governments the world over believing they should be getting a greater slice of that “pie”, whereas the correct approach was to focus on growing the mining resources economy as a whole, which was where the real value lay.
Mining’s greatest value was in its national economic multiplier effects.
Even in the boom years the gold-mining industry had failed to generate the proper levels of free cash flow and mining was currently characterised by declining margins and returns and operating cash flows that were insufficient to cover investments.
The situation had deteriorated to the extent that it was now necessary for the government to begin thinking about ways in which it could help the loss-making gold mines to keep going.
He believed that a gold price of $ 1 500/oz was needed to keep gold mining afloat and reliance should not be placed on the rand price of gold.
While the weak rand provided temporary relief, it was not a free lunch and would soon give rise to hurtful inflation.