SPELLS TROU­BLE

Finweek English Edition - - THE WEEK -

The volatil­ity goes on for SA’s gold stocks. Af­ter record­ing fresh 12-month highs mid­way through 2016, shares in the large coun­ters such as Gold Fields, An­gloGold Ashanti, Har­mony Gold and Sibanye Gold are all un­der pres­sure again.

Ac­cord­ing to data sup­plied by Pan African Re­sources, a mid-tier gold pro­ducer with some 200 000 oz/year to its name, An­gloGold, Har­mony and DRDGold re­ported all-in sus­tain­ing costs (AISC) of above R510 000 per kilo­gram of gold against a cur­rent rand gold price of R524 263/kg. The im­pli­ca­tion is that it doesn’t take much of a strength­en­ing in the rand against the dol­lar to push them into loss­mak­ing.

In fact, in the case of An­gloGold and DRDGold, they are al­ready loss­mak­ing with av­er­age AISC as per their last re­port­ing pe­ri­ods of R550 531/kg and R531 948/kg re­spec­tively. Some shafts in nearly all com­pa­nies were loss­mak­ing with Pan African re­port­ing AISC of R589 181/kg at its Evan­der Gold Mines – the un­der­ground work­ings of which it has sus­pended sub­ject to re-en­gi­neer­ing.

Said Neal Frone­man, CEO of Sibanye Gold: “It will push con­sol­i­da­tion in the in­dus­try, I’m cer­tain of that.” Frone­man ac­knowl­edged at the group’s full-year re­sults pre­sen­ta­tion re­cently that his com­pany had con­tin­ued seek­ing out gold deals de­spite its breath­less ac­tiv­ity in the plat­inum sec­tor.

“I would have liked to have done fur­ther gold ac­qui­si­tions, but we just couldn’t find value,” said Frone­man. “But that is not the end; we need to com­plete our mine-to-mar­ket busi­ness in SA [in the plat­inum in­dus­try], and have that in our sights, and then look for fur­ther gold ac­qui­si­tions.” Un­til then, con­trac­tion of the in­dus­try seems un­avoid­able. In the last year, Sibanye has an­nounced plans to re­struc­ture (read: close) its Cooke 4 shaft on the West Rand, while sim­i­lar re­struc­tur­ings or clo­sures are set to af­fect some 800 jobs at cer­tain An­gloGold op­er­a­tions. Har­mony Gold is in har­vest mode at Masi­mong, Unisel, Bam­banani and Kusasalethu while Gold Fields has rescoped pro­duc­tion at its South Deep mine down to 500 000 oz/year from 650 000 oz/year pre­vi­ously.

More re­cently, Frone­man said some 200 000 oz/year in gold pro­duc­tion by his com­pany was at ad­di­tional risk if the cur­rent rand gold price pre­vailed. “What is sur­pris­ing is the strength of the rand.

“We’ve got a cou­ple of mar­ginal shafts un­der scru­tiny such as Beatrix 4 and some of the Cooke shafts 1, 2, 3. There’s also the odd busi­ness unit at Kloof and Drie­fontein un­der threat. Sus­tained rand strength could put the gold in­dus­try in a tight spot,” he ex­plained.

Sibanye plans its gold min­ing at a rand gold price of about R490 000/kg but a gold price of $1 200/oz at a rand price around to­day’s cur­rent level – R13 to the dol­lar – has the mak­ings of a se­ri­ous mar­gin squeeze.

“I think our plan­ning has been pru­dent, but once you start get­ting down to around R12.70 to the dol­lar that starts to eat into our plan­ning mar­gins, and then mar­ginal shafts will def­i­nitely have to close,” he said.

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