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

CityPress - - Business - PETER DE IONNO peter.deionno@city­press.co.za

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.”

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