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Gold road ahead, ‘capture’ concerns, technology needed

26th August 2016

By: Martin Creamer

Creamer Media Editor

  

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Four years ago, Gold Fields CEO Nick Holland told the Melbourne Mining Club that the gold industry’s biggest problem was constantly promising rising production. Shortly after his speech, the gold price collapsed and the industry responded by cutting costs, reducing debt and slashing capital expenditure (capex).

The industry stopped making too many ounces and started making money in the form of free, unfettered cash flow.

Last week, he addressed the same mining club, but, on this occasion, he spent considerable time on the issue of capex in general and stay-in-business capital in particular. He also did so at a time of a rising dollar gold price and, in many cases, a still-leaping local currency gold price.

Holland’s new finding is that the industry is not spending enough to sustain itself into the future and he expressed concern about the big fall in exploration capex, pointing out that the average gold reserve life of the 11 major companies studied had fallen from 24 years to 17 years.

Hence, the dogfight for acquisitions as some majors show preparedness to pay premiums to get more ounces through acquisitions, ounces they need to fill the gold-reserve gaps in their production profiles.

High-grading – once outlawed in South Africa – is also taking its toll, with the head grade rising above the reserve grade for much of the past three years.

In 2015 alone, 52% of production resulted from the mining of grades higher than the reserve grade, which Holland cautions will come back to haunt companies, as happened in the early 2000, when the eventual mining of the lower grades pushed up costs.

In the current circumstances, the industry needs to ensure that it uses the benefit of the higher gold price judiciously.

Section 54 safety-stoppage notices are causing top-tier concern in the gold and platinum industries, evoking both company and civic organisation protest. AngloGold Ashanti CEO Srinivasan Venkatakrishnan (Venkat) last week deplored the seeming overserving of these notices to the detriment of his company’s South African gold mines, a day after the increasingly outspoken South African National Civic Organisation (Sanco) called on the Office of the Public Protector to investigate the issuing of these notices to mines.

Mining companies served with these notices are forced to stop mining operations while safety investigations are conducted under the Mine Health and Safety Act, which can take inordinately long periods.

While Venkat’s chagrin stems from the damage the notices are doing to safety in the name of safety, Sanco North West province chairperson Paul Sebegoe alleges that the notices are examples of State resources being used to assist a private-sector company to “capture” parts of the mining business, an allegation that cries out for top-level attention.

On the technology front, it is pleasing to note that capex cuts in gold mining have not hampered AngloGold Ashanti’s resolve to succeed in arriving at a final design for its innovative Mark IV high-technology machine. The company reports that it is continuing to make headway. Existing drill-and- blast methods are both unsafe and unproductive. Besides adding to the risk of seismicity, they allow only 60% of the ore to be accessed. New technology must ensure that underground danger is kept at bay and more than the current 260 days of mining can take place each year. The Mark IV allows for continuous mining, which is economically essential.

Edited by Martin Zhuwakinyu
Creamer Media Senior Deputy Editor

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