Mining & resources
July 21, 2004
By Nicky Smith
Johannesburg - It is not just the gold mining sector that is under severe pressure with the rand at current levels; all commodities are having a tougher time.
Roger Baxter, the economist at the Chamber of Mines, said a strong rand and wage increases that were higher than the inflation rate, coupled with inflexible pricing for public services, had the boot against the mining sector's throat.
The rand gold price fell 16 percent last year and has fallen 3 percent so far this year.
Stephen Roelofse at Sanlam Investment Management said most gold mines had no margins at this exchange rate.
Baxter said more than half the country's gold mines were loss making. If capital expenditure was included, this edged up to almost 90 percent of mines.
It was likely, though, that instead of more shaft closures, the gold industry would scale back on production, which created its own problems as production costs per unit started to climb.
While cash costs for gold producers vary, an average cost, including capex, was calculated by Baxter at about R90 000 a kilogram. The rand gold price is at R77 500 a kilogram and cash costs, excluding capex, are about R80 000.
However, a producer such as AngloGold would have a margin of between 20 and 25 percent.
Platinum producers have also been hurt by a stronger currency. A company such as Anglo Platinum, with historically higher cost structures, has had to slow its capex plans to expand production.
Platinum prices have only this year returned to levels last seen in 2002. After the rand has appreciated just more than 12 percent, they are still expected to have a margin of at least 30 percent.
Producers of commodities such as iron ore and coal are taking an earnings knock, but strong global demand, especially from China, has seen prices for these commodities outpace the rand's appreciation.
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