Gold price jump fails to light up revenues
SA producers face falling gold reserves
November 17, 2009
By Ethel Hazelhurst
For a graph tracking the US dollar gold price - click here
Click here to read an article in the South African Journal of Science entitled "South Africa's gold production and reserves"
As the price of gold continues to surge to record highs, local producers face falling gold reserves and a strong unit, which reduces their rand revenues.
The precious metal hit $1 133.20 an ounce on the London bullion market yesterday, according Sapa AFP.
The price could run even further, but local producers will not be able to reap the benefits of previous gold booms. Chris Hartnady, a research and technical director of Cape Town earth sciences consultancy Umvoto Africa, said the Witwatersrand goldfields were about 95 percent exhausted. He said: "Production rates should fall permanently below 100 tons a year in the next decade."
His findings were based on Chamber of Mines figures.
"The South African residual gold reserve after production through 2007 is only 2 948 tons, a little less than three times the 1970 production figure, and much less than 10 percent of the officially cited reserve."
According to Hartnady, the country's gold reserves are less than half of the current US Geological Survey estimate of 6 000 tons, and the country is not first, but fourth in world rankings, after Australia (5 000 tons), Peru (3 500 tons) and Russia (3 000 tons).
Walter de Wet, the head of commodities research at Standard Bank, said both local production and ore grade were declining, but he was unable to quantify the extent of the drop.
Gold producers are also hampered by the strong rand. De Wet said at its present level gold is worth R8 300 an ounce, compared with more than R10 000 in February, when the dollar price was $990 and the rand-dollar exchange rate was just more than R10.
Jean-Pierre du Plessis, the joint managing director at fund manager Valugro, said despite the gold price having risen about 30 percent in the year to date in dollar terms, "the rand-gold price, which is the key factor in local mines profitability, is pretty much unchanged".
He said: "Of the locally listed gold counters, AngloGold Ashanti has the largest portion of its mining assets offshore, so (it) should be the biggest beneficiary of the 30 percent rise in the dollar gold price.
"Unfortunately for them though they have a hedge book in place (currently being unwound), which sees them miss out on much of the current move in the gold price. The combined result of the hedges and the rand at R7.40 to the dollar has meant the three majors have been unable to convert the incredible run in the dollar-gold price into profits anywhere as spectacular."
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