Gold: saviour of the mining sector that refused to be resurrected

In the years that I have been reporting on the SA economy I’ve met quite a few investors who could be tagged with the nickname “Mr Gold”. These are men who still believe that the 1970s could one day replay themselves. While the country’s politics were ruinous and the apartheid experiment was collapsing all around them, for an investor in any of the many gold mines that were once listed on the local bourse the ’70s certainly were boom time. It was a decade that saw mining forge ahead of all other industries in the country and at the end of it its contribution to economic production would peak at 21%. For every R100 made in the economy in 1980, when Joy’s Paradise Road was SA’s number one single, R21 came from mining.

Today, mining is but a shadow of its former self, with the sector now only making up about 7% of the overall economy. In a few years we’ll be marking 50 years since gold production peaked. Whatever the promise of mechanisation it hasn’t delivered what some of the metal’s biggest cheerleaders have long hoped for. Gold Fields has sunk about R32bn into the South Deep operations for more than a decade in order for the “crown jewel” of SA mining to meet all the hype.

The miner has yet again dreamt up a plan to resuscitate that belief. But in the latest endeavour it seems its executives aren’t believers themselves, despite having bet the company’s future on the mine.

To many observers Nick Holland’s and his team’s failure to realise the promise of South Deep has come as no real surprise. The prevailing sentiment is that gold mining is not something the SA economy should be banking on in years to come — all the policy uncertainty that surrounds it is just speeding up its ultimate end.

AngloGold Ashanti, the biggest gold miner on the continent, now only has one operating mine in the country. Under its outgoing CEO, Srinivasan Venkatakrishnan, it has spent millions of dollars on research and development trying to dig deeper and safer for more gold. Whatever at some stage it had promised has also failed to materialise.

Now, while platinum miners still have plenty of the metal beneath the earth’s surface and more importantly, at reachable levels, they face problems that have the sector on its knees. Well, that’s except for Anglo American Platinum, which through its dominance in the market and the more mechanised nature of its operations, can survive a longer winter than its rivals.

A large swarm of Impala Platinum, Lonmin and Sibanye-Stillwater employees are about to hit the unemployment line in the coming months and weeks.

It’s no coincidence that the province of North West under its former premier, Supra Mahumapelo, is being held up as the poster villain for the country’s corruption crisis. The longer platinum struggles, the more one has to wonder whether Rustenburg will follow the same fate as dead or dying gold-mining towns such as Welkom. Further to this question, what happens to far-flung towns in the Eastern Cape that rely on the wages of workers in these platinum fields?

To keep the faith in SA’s troubled gold sector, CEOs have long spoken of the merits of mechanisation and how it will help unlock billions. What we’ve been told for decades, that machinery would save the day and reduce the industry’s reliance on labour and demanding unions, looks less likely by the day. Try as they may, miners can’t reimagine their mines to a degree where automation replaces rock drillers. Market conditions and the geography of our seams are quite literally shrinking the sector.

And while we consume this truth, there’s the real job threat from the fourth industrial revolution in other sectors of the economy, such as financial services. Efficiencies brought by this revolution have me convinced that even if growth ratcheted up overnight to levels we last saw before the 2008 crisis, I’m not sure it would eat into our unemployment crisis to any significant degree to stave off the tensions that we all feel in our day-to-day lives. Paradise Road is far off.

Even if growth ratcheted up, I’m not sure it would eat into unemployment