Great Basin Gold Ltd. (fka GBGLF)

[amarksp]

Top Gold Miners Reprieved as Rand Weakens

By Charlotte Mathews
22 Jul 2005 at 07:17 AM
http://www.resourceinvestor.com/pebble.asp?relid=11536

CAPE TOWN (Business Day) -- South Africa’s major gold producers are expected to report improved results for the June quarter compared with March as the rand gold price has strengthened on the weaker rand.

But the industry was some way off from making substantial profits, analysts said yesterday.

Quinton George, CEO of asset manager Trinity Holdings, said the average rand gold price for the June quarter was about R88,000/kg and has since risen to about R90,000/kg.

“This is definitely a turnaround quarter but the effect may not be seen as dramatically in the bottom line,” he said.

A second analyst, who asked not to be named, said SA’s gold mines lost R700 million in the March quarter and would probably earn R250 million in the June quarter. He expected total gold production would rise about 3% in the June quarter compared with March, while costs could be about 2% lower, mainly because there are far fewer holidays in the June than the March quarter.

Margins were likely to be better because of the improved gold price, and capital expenditure is also expected to be higher.

Capital expenditure tends to peak in the December quarter ahead of the year-ends of the big producers such as AngloGold Ashanti [NYSE:AU]. It slackens in the March quarter and picks up again in the June quarter.

“But the mines are not making great profits,” the analyst said.

“There will not be any new projects coming on stream until the price reaches R11,0000/kg and the mines are convinced that this level is sustainable, because projects have an eight- to 10-year life span.

“People think the industry has turned around because the rand has weakened and the gold price has gone up. But the mines need more than that.”

George said there were signs of an improving environment with a number of small deals and restructuring of marginal mines, including Simmer & Jack buying DRDGOLD’s [Nasdaq:DROOY] North West operations and Aflease doing deals.

Afrifocus analyst Mark Madeyski said all the mines would show an improvement in the June quarter because of increased revenue. Mines such as Durban Deep were still likely to be unprofitable but Harmony [NYSE:HMY] should break even, and AngloGold Ashanti and Gold Fields [NYSE:GFI] would do better.

“But they are not in the clear at the moment,” Madeyski said.

“I believe the days of deep-level mining are over as the technical and labour costs are too high. Mines that already have a deep-level shaft, like Western Areas, can keep on mining but it is not viable to start new deep-level projects. There may be small extensions by some groups such as Gold Fields and AngloGold but new projects will have to be shallow.”

Both Madeyski and George expected that a higher-than-inflation wage settlement would emerge from current tough negotiations.

George said that the inflation experienced by the miners was above the consumer price index but in SA’s environment of high unemployment and marginal mines, the unions were not in a strong negotiating position.