SA gold slide seen slowing
14/05/2007 13:28
By: Angus Macmillan
Johannesburg - After plummeting 13.1% in 2005 and 7.5% in 2006, the rate of decline in South Africa's annual gold output is likely to be much smaller in 2007 says Roger Baxter, chief economist at the Chamber of Mines.
In an interview with I-Net Bridge, Baxter said the rate of output decline "is definitely slowing" and a 40% increase in capital expenditure by gold mines in 2005/06 "bodes well for underground mining in 2007/08".
While South Africa produced just 275 metric tons of gold last year, compared to 297 tons in 2005, it was in good company as four out of five of the world's top gold producers also reported lower output.
ut of the top five producers - South Africa (275 tons), the US (252 tons), China (247 tons), Australia (245 tons) and Peru (203 tons) - only China managed to increase production last year.
Baxter said: "Over the past five years, South Africa's gold output has fallen by an average of 6.8% a year, but we have managed to remain the world's top producer as over the same five-year period US output has fallen 5.4% a year, Canada 6.6%, Brazil 2.7% and Australia 2.8%.
Global gold output fell by 3.8% last year and has fallen 1.4% a year over the past five years."
The two major growth gold growth stories have been Peru, which has grown its output by an average of 9.1% a year between 1992 and 1996, and China with average annual growth of 5.1% over the same period.
Although gold is not the dominant player it used to be in the South African economy, Baxter stresses that it is still a vital industry and has in many ways laid the platform for the country to diversify and broaden its economic base.
The gold industry, which has shrunk sharply over the past two decades, still accounts for around 1% of gross domestic product, 10% of export revenue and provides around 150 000 jobs.
Baxter explained: "With 33% of the gold ever mined in the world, that's about 50 000 tons, coming from South Africa, gold has been a catalyst for the country's broader economic development and will continue to play an important role even if platinum and coal now have bigger annual sales.
"Over the past couple of years, the local gold industry has felt the impact of decisions to cut capex in 2004/5, but the big increase in capex in 2005/6 has led to more stoping face becoming available - this bodes well for underground mining in 2007/08."
Also improving the outlook for the industry and a possible stabilisation in output is the higher bullion price, which improves grade flexibility and enables mines to profitably extract gold from lower grade ores that were unprofitable just a few years ago.
Reflecting on the mining industry as a whole, Baxter said its 5.8% contribution to GDP - similar to that of the motor industry - should be seen in a wider, more analytical context.
The sector accounts for over 50% of South Africa's exports - generating around R150bn in annual exports - provides import substitution and foreign exchange savings through coal, being Sasol's major oil feedstock, and provides the foundation for initiatives such as the Motor Industry Development Programme (MIDP) to be affordable and successful.
