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Is South Africa Struggling Against Dwindling Gold Fortunes?

Until the early 21st century, South Africa dominated the global gold industry from 1896. According to the US Geological Reserves, South Africa is only behind Australia as the country with the highest gold reserves in the world. In 1979, it produced an incredible 79 percent of the world’s gold. But that has changed. South Africa has experienced dwindling fortunes over the last decade and has fallen from the second largest producer of gold, to fifth and still falling.

South Africa’s Gold Pot

Transformed from a largely agricultural economy into an industrial powerhouse, the streams of gold discovered in Witwatersrand in the 1800 ignited a gold rush. The country’s GDP was carried on the back of miners, although this has greatly reduced. South Africa was once the world’s biggest gold producer, with more than 75 percent of all global reserves in 1970. The country soon rose to become Africa’s largest economy.

The Saddening Statistics

Statistics South Africa, an analytics agency, provided data that illustrated the general historical trend of the continuous dive of the gold industry. It stated South Africa produced 87% less gold in January 2015 compared with the same month in 1980 and has thus contributed less to the South African economy. The gold industry’s contribution to South Africa’s GDP has dropped from 3.8 percent (1993) to 1.7 percent (2013). Its domination in South Africa’s minerals sales dropped from 67 percent in 1980 to 12.5 percent in 2014, falling well behind coal.

The figure above shows how the monthly gold production index has fallen. Volume of gold produced in January 2015 was at a record low of 1980 compared to the 1980 index. The steady downward trend is however, quite noticeable. By Statistics South Africa

The figure above shows how the monthly gold production index has fallen. Volume of gold produced in January 2015 was at a record low of 1980 compared to the 1980 index. The steady downward trend is however, quite noticeable. By Statistics South Africa

The continued rise in costs at South African gold mines, owing to the strengthening of the rand and continued labour problems, has caused several mines to curtail operations and expansion projects.

South Africa’s Miners

The drop experienced by the country whose Witwatersrand Basin has supplied about a third of all gold ever mined has been dreadful. It has been difficult for both the companies and the miners. Several mines have been closing business since the downturn. Durban Deep, one of the most profitable mines in the world, producing over 20 billion dollars’ worth of gold closed down in 2001 together with its 18,000 employees. Also recently, 70-year old Blyvooruitzicht gold mine, located about 80kms southwest of Johannesburg, was shut down.

According to a report compiled by Bloomberg, the four largest producers in the country are losing money on about 35 percent of production at current prices.

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The associated cost of mining has increased overtime. Electricity tariffs, in a country with power shortages, has reached a record high. Mining Weekly.com reported that between 2007 and 2012, electricity tariffs to the mining sector surged 238%; diesel costs shot up 69%; reinforcing steel jumped 57%; and worker remuneration increased 12%.

The labour unions have kept on pushing for increase in wages with some threats of strike if salaries don’t double. There have also been backed claims that mining workers work in terrible conditions. Only recently, the largest class action in South African history was issued against the 32 mining companies where as many as 500,000 former miners stand to benefit.

For the mining workers, the downward spiral has been tragic. Several miners continue to lose their jobs as companies can no longer afford to keep them. Some have turned into illegal miners and are even finding it difficult to cope. The reserves have been largely depleted and miners require to dig deep before coming across worthwhile results. Several die when mines collapse. Mining workers who contracted tuberculosis and silicosis as a result of the unhealthy conditions in the gold mines (Silicosis is an incurable lung disease caused by inhaling rock dust; and suffering from silicosis greatly increases the chances of contracting TB, a more serious condition).

 Effect on the Economy

South Africa in the space of a decade dropped from being the largest economy in Africa, to being the third largest behind Nigeria and Egypt respectively. The economic growth has stalled and the rand has fallen by 30 percent against the dollar in the past two years.  The demand from China for South Africa’s mineral has also vanished. Washington Post reported that about a third of the gold industry’s 180,000 employees were sacked between 2004 and 2015.

South Africa’s agricultural sector too has been hit by drought thus is not able to provide the cushioning effect required.

 Any Hope in Sight?

The county still has enormous gold reserves, estimated at approximately 6,000 tons of gold. However, the Environmental Economic Accounts Compendium is its last publication of 2014 stated that gold reserves in South Africa will be exhausted in only 33 years. South Africa’s Chamber of Mines also issued a warning on 18th May, 2016 that nearly half of its members were in loss-making territory as a result of a sustained rout in commodity prices, climbing costs, falling productivity and regulatory issues.

The red line on South Africa’s gold industry and mining industry in general keeps advancing. Should South Africa shift quickly to other sectors while it can or hope that fortunes in the gold industry begins to witness an upsurge?


[Header image]– Ferry bumster -local boy preying on tourists’ naivety. Flickr / Evan Bench

 

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