Less than 20% of SA’s gold mines profitable

Six out of 26 gold mines make money Union says council trying to motivate low wage hikes

The state of SA’s gold mining industry is worse than first thought, with fewer than 20% of gold mines making money at prevailing prices — while large job cuts are forecast in coming years, following decades of steeply falling employment.

Data from the Minerals Council SA (formerly the Chamber of Mines), released as wage talks in the sector have kicked off, show that 80% of SA’s gold mines, once the powerhouse of the country’s economy and global gold industry, are unprofitable at prevailing gold prices of about R520,000/kg.

“Looking at the ‘spot price of gold’ and the ‘spot all-in costs’ [cash costs, sustaining capital and new investment costs], we think that over 80% of companies are not covering their costs at today’s gold price,” said Henk Langenhoven, the council’s chief economist, adding “very few companies sell [at] spot prices”.

Gideon du Plessis, the general secretary of trade union Solidarity, pointed out that the Minerals Council had as usual opened wage talks by painting a gloomy picture of the industry to motivate for the lowest possible wage increase.

“In keeping with the tradition of the past few decades, mine houses involved in the gold sector negotiations presented a gloomy picture of the sector’s poor performance and weak prospects in their respective presentations,” Du Plessis said.

However, it is not just the council flagging a major crisis in the sector. Analysts have warned that costs are simply too high for SA’s ageing deep-level, labour-intensive mines, where falling grades, mined volumes and productivity have contributed to employment dropping more than two-thirds to 111,800 from 392,000 in 1994.

The country’s gold output could halve within five years

from the 140 tonnes it generated in 2017, said Nedbank gold analyst Leon Esterhuizen.

According to his calculations, just six out of SA’s 26 gold mines were making money, with the gold price so far in 2018 averaging R522,460/kg.

“Only four of those six are comfortable,” he said.

“I think this industry is done. Some people will say that’s nonsense and a weak rand will save us. Not even a weaker rand will save us. Look at the gold rally in 2001 to 2011 when the rand weakened over much of that time, we produced a helluva lot less gold,” he said. He said gold mines were targeting highergrade areas to try to keep afloat, while wages and electricity costs kept increasing at above consumer price index numbers.

“The drop in productivity is a function of the companies cutting back volumes faster than people, which is an indication you will see significant numbers of people retrenched in the next couple of years.”

The National Union of Mineworkers (NUM), the dominant of the four unions representing nearly 80,000 workers in the talks, said the council’s offer of up to R550 per month for miners and up to 4.5% wage increases for artisans and others was “not even close to what our members are demanding”.

Sibanye-Stillwater, AngloGold Ashanti, Harmony and Village Main Reef started wage talks a week ago to set a fresh two-year wage deal.

The opening demands from the two biggest unions — NUM, with 51% representation of the 79,517 employees at the four companies, and the Association of Mineworkers and Construction Union (Amcu), with 34% — did not reflect an awareness of the difficulties the companies said they faced. Among a long list of demands, NUM is demanding that basic entrylevel wages be increased 33% to R10,500 a month from R7,785. Amcu, with its usual demand of R12,500 a month, put its demand at 58% above prevailing wages.

With labour costs making up 53% of gold mining costs, an increase of those proportions, combined with the costs of the other demands, would force marginal mines out of business and lead to large job losses.