Dineo Faku
THE GOLD mining sector was “under water” and its troubles, with so many factors weighing against it, were just beginning, Gold Fields chief executive Nick Holland said last week.
“As of today, gold is at $1 300 [R13 000] an ounce and the gold industry is under water. The global gold industry is under water. The platinum group metals industry in this country is under water.”
According to Holland, the HSBC global mining index has lost 29 percent since the beginning of 2010, while the Dow Jones industrial average is up 47 percent and the FTSE 100 index has risen 22 percent. Gold rose 3 percent to fix at $1 369.25 in London on Friday.
Mining investments were under threat as costs rose and the industry was in crisis in South Africa and other mining jurisdictions, Holland added.
“It doesn’t end there either, because existing operations are also being cut back. I think every week now you’re reading about a mine that has cut back jobs, rationalised its operations, or shrunk it. And you’re going to see more. We’re not at the end of it. I think we’re at the end of the beginning.”
Earlier this month, AngloGold Ashanti, the third-biggest gold producer, said it would cut 40 percent of its 2 000 senior managers worldwide.
Sibanye Gold, the company which was spun off from Gold Fields in January, has plans to cut jobs at its Beatrix West section following a fire and subsequent shaft closures.
Village Main Reef retrenched staff at Buffelsfontein and subsequently pulled the plug on the mine, and took a R469 million write-down on the Blyvooruitzicht mine, to which it halted funding.
Gold producers have reduced capital expenditure, restructured their operations and cut thousands of jobs.
Holland added that costs had increased by 12 percent a year as mines were getting deeper, while at the same time yields had decreased.
“That means you double your costs every four years. That’s what you’re looking at over here. At the same time yields are going down. That’s a very powerful combination on the wrong side when you’ve got those two together.”
South Africa’s gold production declined from 400 000 tons a year 10 years ago to 167 000 tons last year.
Wage negotiations between gold producers and unions are also a threat to mines as workers demand hefty increases.
Unions have demanded that minimum entry-level salaries be raised to R12 500 a month from about R5 000 now, while employers have offered a 5.5 percent increase to R5 275.
Holland said the mining industry needed to find a compromise in wage negotiations.
“How can you keep paying above-inflation wages when productivity is declining? What do we do? If we are to improve productivity it means labour unions have a responsibility.”
About three quarters of employees are working at loss-making businesses.
Holland said governments were seeing mining as a means of putting more into their central coffers because of the metals boom.
Australia, Namibia and Zimbabwe had expanded their share of profits from natural resources in the past three years by raising their mining taxes or favouring state control of projects.
While it was a government’s “duty” to maximise the benefits of a country’s natural resources for its people, investors must be allowed to make reasonable returns, Holland said.
He called on the government and workers to work together to improve the state of the industry, adding that there was a need for long-term collaborative relationships between everyone involved in the mining sector.
“That is the mining companies themselves, (the) government, organised labour, communities, and development agencies,” he explained.
“Everyone has a role to play. If we point fingers at each other, say ‘It’s your fault, you’ve got to do this’, or everyone stands back and says, ‘You’ve got to do it, we’re going to sit back,’ then we’re going to fail.”
n With additional reporting by Bloomberg