JOHANNESBURG – Mining analysts have said they expected local companies to consolidate as a strategy to mitigate against operational inefficiencies and rising input costs following two mega-mergers in the global gold sector last year.
Seleho Tsatsi, an investment analyst at Anchor Capital, yesterday said the mergers pointed to the consolidation of South African gold mining.
“It is becoming difficult to be cost competitive, and consolidation is a strategy to deal with the volatility in the industry,” he said, adding that the future of the gold industry also depended on the gold price, which has been flat in the last five years.
US-based Newmont Mining agreed to buy its rival Goldcorp last month to create the world’s biggest gold company, months after Barrick Gold announced its merger with Randgold Resources.
South Africa’s gold mines have struggled with rising input costs, including electricity, water tariffs and labour, while production levels have been falling.
Output has been declining, stretching back seven years, with Statistics South Africa earlier this month reporting that output in November had dropped 14percent year-on-year.
The mines have also shed jobs and currently employ 112200 people, from 144799 in 2011.
Tsatsi said the continent's largest gold producer, AngloGold Ashanti, was to dump its remaining assets locally, following the offloading of some of its mines in the past.
“AngloGold Ashanti could finish what it started and leave South Africa. It will make sense to exit South Africa and avoid some of the geopolitical issues in the country. Large companies, including Anglo American, that have exposure to South Africa are trading at a discount compared to their counterparts like BHP Billiton,” he said.
AngloGold Ashanti sold its Moab Khotsong mine to Harmony Gold and also the Kopanang Mine to Chinese-owned Heaven-Sent Sunshine Investment. The Mponeng Mine in Carletonville, which is 4km deep, is one of AngloGold Ashanti’s remaining local assets.
Gold Fields on Tuesday denied rumours that it planned to merge with its rival AngloGold Ashanti, saying reports were “absolutely false”.
“The South Deep Mine has been a problem asset for Gold Fields for a long time. It is difficult to imagine someone buying the mine. Gold Fields either has to close the mine or restructure it," Tsatsi said.
Regarding Sibanye-Stillwater, he said mergers were unlikely for the diversified company. “Sibanye has concluded a number of acquisitions in the last few years and it seems unlikely to buy assets in the short term.”
Gold has dropped 30percent from a 2011 high of $1569 (R21810) an ounce to $1 279.81 an ounce yesterday and declined by more than 8percent between 2016 and 2017.
Ian Cruickshanks, the chief economist at the South African Institute for Race Relations, said mines would consolidate to share the costs of production in the existing mines. “The gold sector is correctly called a sunset industry. Do we see new investments in the industry? No,” Cruickshanks said.
South African gold accounted for only 4.2percent of global production, the sector’s prospects had waned and investments in its ultra-deep gold mines had declined.
Cruickshanks also said new investments into the industry were unlikely, as the gold sector was getting to the bottom of its reserves. “It is five minutes to midnight for the industry,” he said.