Reviving king of gold means investing in new technologies
DURING his early years as a miner in South Africa, Joas Mahanuque spent six hours a day on his knees drilling for Impala Platinum. The dust-filled tunnels half a mile underground were too low for him to stand, and temperatures reached 105 degrees Fahrenheit (40 degrees Celsius).
Today, he has essentially the same job 2.5 kilometres beneath the surface for Gold Fields. But unlike most of the preciousmetals miners in the country, Mahanuque sits comfortably atop a new seven-ton vehicle, using a joystick to control an eight-foot drill as ventilated air blows behind him.
“It’s not hard,” the 37-year- old said while taking a break under the bright tunnel lights of South Deep, the country’s only fully mechanised underground gold mine. “You just sit and operate and make money.”
If only it was that easy for the rest of the once dominant South African gold industry. After more than a century as the world’s top producer, the country has slipped to No. 7 over the past decade.
Mines are deep, labour intensive and are being developed with mostly drill-andblast methods little changed since the 1950s, which means costs have soared and output has dropped.
But even after all those years
South Africa is endowed with an unbelievable mineral resource. If we don’t have this shift to a new way of thinking about technology, we are going to sterilise resources. The industry will be dead by 2033 if we don’t change.
of digging, South Africa still has the third-largest gold reserves. So, companies like Gold Fields are investing in new technologies to make extracting the ore more profitable.
The opportunity is vast. South Deep has 37.3 million ounces of reserves in the ground, which means it is capable of producing 500,000 a year for at least six decades.
“South Africa is endowed with an unbelievable mineral resource,” said Neal Froneman, the chief executive officer of Sibanye Gold, the biggest producer of South African gold.
“If we don’t have this shift to a new way of thinking about technology, we are going to sterilise resources. The industry will be dead by 2033 if we don’t change.”
The problem is that cutting costs and reviving output has been difficult. An estimated 80 per cent of the industry’s output still comes from workers using hand drills in narrow tunnels rather than the bulk mining techniques employed elsewhere. South Africa unearthed just 140 metric tons of gold last year, down 58 per cent from 2004.
Even at South Deep, Gold Fields endured a decade of accidents and technical mistakes. The company spent 33 billion rand ( US$ 2.6 billion) to acquire the operation and then to figure out the right method of mining the ore effectively. Gold Fields’ market value is about 37 billion rand. Even with the new machines it added, like the drill operated by Mahanuque, full production is still another five years away.
Yet the potential is immense. South Africa has about 6,000 tons of reserves, trailing only Australia and Russia, according to the US Geological Survey. Some 1,000 tons could be easily mined if the industry can use technology to cut by half the ratio of gold it can produce profitably from every ton of waste rock, according to the Chamber of Mines. That’s worth an additional US$ 40 billion at current prices.
The geology of South African deposits makes a quick fix challenging. Gold is found mostly in narrow reefs that dip at 30degree angles in hard-to-break rock as far as four kilometres below the surface, where seismic events are common.
Workers can travel up to four hours a day through tunnels to work sites, where they drill holes in seams often just 30 centimetres wide using hand drills. They use explosives to break the rock.
South Africa’s apartheid system – the white minority rule that ended in 1994 – provided cheap labor and minimal safety standards for decades, so companies had little incentive to invest in technology. Even after vast safety improvements since then, a worker is killed every 12 days on average in South Africa’s gold mines.
“People come from overseas and think we’re pretty antiquated,” said Alastair MacFarlane, a lecturer at the University Witwatersrand, Johannesburg, and a nonexecutive director of Impala Platinum. “We haven’t made huge strides in the way we do things in 100 years.”
With costs rising eight per cent a year, mainly due to labour and electricity, and gold hovering around US$ 1,250 an ounce for the last four years, South Africa’s gold producers are being forced to examine more efficient ways of extracting the precious metal. — WP-Bloomberg
Neal Froneman, the chief executive officer of Sibanye Gold