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.