Although South Africa is now Africa’s second-largest gold producer, after Ghana, its gold mining industry still accounts for more than 21% of the continent’s total mined gold production, precious metals refining and smelting complex Rand Refinery CEO Praveen Baijnath tells Mining Weekly.
Almost one-fifth of South Africa’s economy is dependent on the mining sector, with gold being a significant contributor.
Market conditions are causing local gold mining majors to divest from or scale down their local assets to survive and instead invest in more favourable jurisdictions, such as Ghana.
Notably, AngloGold Ashanti is trying to shed the last of its local mining assets – the Mponeng mine, on the border of Gauteng and the North West, and Surface Operations, which processes and extracts gold from marginal ore dumps and tailings storage facilities.
Meanwhile, Gold Fields’ Gauteng-based South Deep mine is losing about R100-million a month, according to the company’s website, despite cost-saving initiatives and efforts to improve efficiency.
AngloGold Ashanti has two wholly owned and managed operations in Ghana, while Gold Fields owns the Tarkwa and Damang mines in the West African country, and also has a 45% share in a joint venture with mining company Asanko Gold.
According to financial markets data provider Refinitiv’s GFMS Gold Survey 2018, South Africa’s gold production decreased from about 235 t in 2008 to about 140 t in 2017.
Nonetheless, Baijnath says “the South African gold mining industry is not dead” and is still among the top three producers on the continent.
Studies show that South Africa still has significant gold reserves but requires a mining model that is economically viable, says Baijnath, who in this edition’s gold feature talks about the Rand Refinery’s need to supplement South Africa’s dwindling output.
“The question is whether these resources are economically feasible for extraction and, hence, can be converted into reserves,” he says, adding that much can be done to improve the situation.
Examples include ensuring policy certainty, business and labour working towards sustainable enterprises, creating investor confidence and access to capital, and support for junior miners.
That said, some of South Africa’s established gold mines, such as, the Blyvoor gold mine, in Carltonville, Gauteng, are set to restart operations. Greenfield projects are also coming to fruition, especially tailings projects.
The days of South Africa accounting for nearly three-quarters of global gold mine production are long gone, says World Gold Council (WGC) chief market strategist and research head John Reade.
“As it has been since 2007, China remains the largest gold-producing nation. It accounted for 12% of global gold production in 2018 and, despite recent environmental regulations denting production levels over the past two years, China’s gold mining output has been on an upward trend for decades, with somewhat of an acceleration since liberalisation of the gold market began in about 2001.”
The existing asset base and supporting infrastructure held by the other dominant gold-producing countries – Australia, Russia, the US, Canada and Peru – have helped them maintain gold production, says Reade.
However, mine production is more geographically diversified than ever, with the world’s top six gold-producing countries accounting for only 45% of global gold production, with worldwide mine output estimated at about 3 500 t/y.
“This is a key strength of the gold market and this is a feature of gold supply that will not change,” says Reade.
The African mining industry is growing, with Ghana, Mali, Burkina Faso and Tanzania featuring in the top 20 gold-producing countries in 2018, according to precious metals consultancy Metals Focus. Reade believes it is very possible that further growth will come from West Africa.
In Africa, artisanal and small-scale mining have also been reassessed, suggesting that this sector is larger than previously thought and growing swiftly.
Meanwhile, last year, notable production growth came from Canada, Russia and Australia, with Canada and Russia benefiting from recent ramp-ups at new projects.
“In Canada, projects such as Brucejack and Rainy River have boosted output. In Russia, the ramp-up of Natalka made a sizeable contribution to national production and, in Australia, there is an exploration renaissance,” states Reade, adding that the WGC’s ‘Gold Demand Trends Full Year and Q4 2018’ report highlights that exploration spend in Australia reached multiyear highs last year.
Status of Demand
The global gold market is generally healthy, although the usual differences between sectors and regions exist, says Reade.
In the first quarter of this year, overall demand for gold was up 7% year-on-year. However, with global economic growth slowing, jewellery, technology and long-term savings are on the back foot, while investment demand is being helped by heightened risk and uncertainty.
The WGC divides the drivers of gold demand into economic expansion, risk and uncertainty, opportunity cost and momentum, as this framework helps explain strength or weakness in various segments of the market.
“Under ‘opportunity cost’, interest rates – especially real interest rates – are low, yet the dollar has been strong this year, counteracting the low rates environment to an extent. Momentum is not really a factor at the moment, as the US dollar gold price has been broadly rangebound this year; a break-out of this range will likely attract short-term speculators to buy or sell gold,” Reade explains.
He says central banks have been the main driver of gold demand in the first quarter of this year, with consumption at 146 t, nearly 60 t higher than in the first quarter of 2018.
Inflows into gold-backed exchange-traded funds (ETFs) also had a strong start to 2019. Assets under management (AUM) grew by 40.3 t during the first quarter of this year, equivalent to $1.9-billion. Inflows into European gold-backed ETFs were particularly noteworthy, with assets rising 20 t over the period.
“This is part of a recent trend. Since the beginning of 2016, European AUM has grown rapidly and now accounts for 46% of global gold-backed ETF AUM,” highlights Reade.
The WGC expects central banks to continue to be a net buyer of gold for the foreseeable future, although the council says it is difficult to forecast accurately in this area.
Notably, China resumed its purchases in December 2018 and has the potential to buy a lot of gold, as the metal only makes up about 2.5% of its international reserves, says Reade.
Against this positive outlook, he says, it should be noted that some central banks have bought a lot of gold in the past few years and could slow or end their purchases.
With regard to demand from Africa, Reade says the WGC acknowledges that its monitoring of the continent’s gold demand could be more thorough and the council has plans to correct this.
“We are about to embark on a multiyear programme to track gold demand in West Africa, as it’s the most important economic region on the continent, containing the country with the largest population and economy.”
With Africa’s rapid economic growth over the past 20 years and projections of material population growth over the next 30 years, the WGC sees the potential for Africa’s gold demand to grow considerably in the medium to long term, he adds.
Technology demand for gold continued to decline globally in the first quarter of the year, the second successive quarter of year-on-year declines after eight successive gains.
“This segment is the most sensitive to the business cycle and these declines are a direct consequence of a weaker electronics sector and the ongoing trade dispute between China and the US,” Reade tells Mining Weekly.
Although demand for gold by this sector fluctuates, using gold in technology is entrenched and the WGC expects this to recover cyclically. As a secular trend, the increased connectivity of the world and the rapid electronification of major developing markets will help drive gold use in technology and will be more than enough to offset any residual substitution and thrifting.
There is also plenty of research and development in the gold space, especially in healthcare-related applications, says Reade.
“Gold nanotech has tremendous use in rapid diagnostic monitoring, with recent news describing how it has great potential for tuberculosis testing, with gold already used in malaria and pregnancy testing. It’s a fascinating and complicated subject,” he says.
Nanotech applications for gold use microscopically small quantities, but, despite other applications presenting macrolevel demand, the WGC believes that this demonstrates the genuine use of gold in a twenty-first-century society.
Gold jewellery is certainly less popular in the West than it was 20 or 30 years ago, says Reade. However, India still has a strong cultural affinity for gold, with the WGC estimating that the country has between 22 000 t and 25 000 t of gold stock.
“[In terms of the] demographics, a smaller proportion of young people, the big increase in the gold price and fashion trends towards experience over possessions have all played a role in this secular decline,” says Reade, whose sentiments are shared by Jewellery Council of South Africa CEO Chris van Rensburg, who was interviewed for this edition’s gold feature.
However, jewellery demand appears to have bottomed in some major markets, with some cyclical growth seen in the US, for example, over the past few years.
Jewellery fabricators and retailers have also worked to modernise their product lines and the way that they market jewellery, which has helped.
“We are conducting a survey that will shed much light on attitudes towards gold jewellery – and as an investment – in several major markets and expect to publish reports once we get this data later this year.”
Having been involved in the gold industry for more than 30 years as a miner, equity analyst, commodity strategist and fund manager, Reade has seen the gold market change fundamentally from one dominated by central bank sales, producer hedging and jewellery demand to one where central banks and investors are responsible for about 40% of demand.
“One thing is certain, the gold market will change again over the next 30 years, but I am sure that gold will be at least as relevant in 2050 as it is now,” he concludes.