RANDS AND SENSE
Rand weakness against the dollar should boost earnings for exports, but the gains for agriculture, gold and tourism are muted. Vehicle exports are revving higher, driven by government support
The continued weakening of the rand has added some lustre to the value of gold sales for South African miners. But it has done little to lift the long-term gloom shrouding the sector. Harmony Gold welcomed the weaker rand, as it meant higher earnings for every kilogram of gold sold in dollars, said Marian van der Walt, the company executive for corporate and investor relations.
“Though the increase in the rand-to-kilogram gold price provides a welcome relief to us, our focus remains on increasing our margins through an increase in production.”
Two weeks ago, Harmony CEO Graham Briggs warned that the company could close mines and shed thousands from its 30 000-strong workforce if producers gave in to wage demands that were higher than the 11% increase it had offered in the latest round of wage talks.
Harmony had the highest costs of the world’s 18 biggest gold producers in the first quarter and made a net loss of R4.5 billion in the year to June 30. It is negotiating wages with workers from AngloGold Ashanti and Sibanye Gold.
Unions this month rejected what the companies said was their final offer.
International output is poised to drop for the first time since 2008.
Gold has tumbled 40% from a record $1 921.17 an ounce in September 2011 as buyers lost faith in the metal as a store of value.
Prospects for higher US rates and a stronger dollar have seen bullion rebound to more than $1 100 as currency devaluations from China to Kazakhstan and a global sell-off in equities boosted demand for a haven.
About 10% of the world’s mines are losing money, according to London-based researcher Metals Focus, and with prices at about $1 100 an ounce, production will probably plunge 18% by the end of the decade.
The industry, on average, needs about $1 200 an ounce to break even.
“Exploration has been slashed, projects have been put on the back burner,” said Nick Holland, CEO of Gold Fields. “The gold industry supply side is going to drop.”
Peter Major, head of mining at Cadiz Corporate Solutions, said: “The gold mining sector is unlikely to reap the benefits of the rand’s latest weakness, despite expectations of increased rand earnings from gold sold in dollars.”
An increase in rand revenue would “just give our struggling mines a bit longer to live”, he said.
The prices of primary industrial commodities – platinum, copper, iron ore, oil and coal – were settling back to their longterm average levels, Major said, but gold at $1 100 remained about double its long-term average.
“For nearly 100 years, South Africa averaged 500 tons of gold a year.
“From 1940 to 2002, we averaged more than 600 tons a year. But now we struggle to produce 150 tons.
“We are not making the most of our huge mineral assets and I will be surprised if we have any gold mines operating by 2020.”