Research: Empty gold mines heading for a crisis Reply

Our Research posts are about the latest academic research being done in the School of Economics. This week:

THE DECLINING PRODUCTION BY GOLDMINES IN SOUTH-AFRICA

by Prof. Ewert Kleynhans (NWU)

This study investigates the decline in the production of gold by South African goldmines, especially in the Dr. Kenneth Kaunda District Municipality (DKKDM). The research began when academics started to be concerned about the mines that are closing down in the region and many of their friends losing their jobs. It was realised that this could lead to poverty, hardship and all the economic development challenges that it may bring along.

The Dr. Kenneth Kaunda District Municipality (DKKDM) includes the local municipalities of Klerksdorp, Potchefstroom, Ventersdorp, Merafong City and Wolmaransstad. The economies of these municipalities are mainly dependent on gold mining. The reserves of the South African goldmines are declining as their gold deposits are becoming depleted. A large section of the population of the mining industry could be unemployed in the near future.

Gold reserves in South Africa are declining fast, while platinum is gradually taking its place as the leading export product on world markets. South Africa’s main export products in 2009 were respectively monetary gold (R53.4 mil.), low grade coal (R33.98 mil.) and semi-manufactured platinum, which together with unrefined platinum attracted foreign reserves worth R45.3 mil. Other products containing gold and scrap metal gold are now in the 45th place on the list of export products (Trade Map, 2010).

While monetary gold was still South Africa’s main export product, gold exports only grew by 10.9% (ITC, 2010). On the other hand the exports of processed platinum increased by 26.2% during the same period, and in the preceding year by 49% (Trade Map, 2010). Between 2005 en 2011 the average export growth rate were: monetary gold 17.8%, low grade coal 17.1% and semi-manufactured platinum 25.6% (ITC, 2010).

Monthly gold index, StatsSA (2012)

Monthly gold index, StatsSA (2012)

As seen in the graph, gold production declined during the previous 4 decades (StatsSA, 2012a). This was also confirmed by the Chamber of Mines (2005:25). Gold production declined consistently since 1996 at a rate of 60.1%, and with that also South Africa’s share in the total world gold production. By the end of the nineteenth century (1899), South Africa produced 24.2% of the world’s gold. This rose to 62.3% in 1960 and peaked at 79% in 1970. Since then South Africa’s share declined for the past 40 years and by 2002 it was 19.2%, which is even lower than it was in 1894 (Chamber of Mines, 2010c).

By 2008 South Africa already dropped to the 3rd place in world gold production, with China and America leading. The decline in gold production during the first decade of the 3rd millennium (1999-2008) averaged 7.5% annually. Employment figures in South African gold mines declined during the same period annually by 4.4%. Between 1999 and 2006 more than 87 000 jobs were lost (Chamber of Mines, 2010d:28).

The impact of the relatively low gold price in Rand, rising costs and restructuring of certain operations, already harmed the feasibility of a large section of the industry. Gold production declined by 13.1% to only 297.3 ton per annum, which is the lowest production volume since 1923 (Chamber of Mines, 2005:25). According to Statistics South Africa (2007:6) gold production drop, for instance by 5.2% in July 2007 alone, and the trend persist. In July 2010 gold declined by 3.4%, while manganese production increased by 33.4% and the platinum group metals 13.5% (StatsSA, 2010:7). By February 2012 gold still declined 5.3% and by April 2012 with 6.1 % (StatsSA, 2012b:3).

The exploration company Randgold Resources estimated that most of South Africa’s gold mines will have to close down during the next 12 to 14 years (Van Rensburg, 2011:1). Most reserves are already exhausted; and the costs involved mining lower grade ore, and deposits located very deep, are becoming excessive (Hassan, 2012). Although South Africa still possesses the world’s most gold reserves, most of it is of a too low grade to mine profitably. Cost inflation is rising sharply in the gold mining industry (Chamber of Mines, 2012). The accompanying graph illustrates the sharp increase in operating costs of gold mines. Mines will in future also have to carry the costs involved in acid water; treatment of silicosis; the rehabilitation of old abandoned shafts without owners and the upgrading of hostel complexes on their grounds, which will have to adhere to modern standards, as well as new health and safety regulations (not to mention unrealistic wage claims). All this makes gold production unprofitable, and will eventually force all gold mines to close down.

Cash operating cost per kilogram

Cash operating cost per kilogram

Mining dominated the economy of the Dr. Kenneth Kaunda District municipality (DKKDM), but mines have a limited lifespan and most mines in the region are closing down. Dyason already noted this trend in 2005, and indicated the negative growth in the gross geographic product of Klerksdorp (the city in the DKKDM with the highest number of economically active people), which are mainly due to the declining mining operations.

As gold reserve decline, jobs are also lost. The number of workers in the DKKDM declined from 342 439 in 1996 to 137 611 in 2005, which represents a decline of 40% (Chamber of Mines, 2005:28). An example is the closure of 2 mines in Stilfontein, which is located in the DKKDM. When they closed down in 2005 a total of 6 500 mineworkers lost their jobs. Later that year Simmer & Jack Mines LTD bought these mines and reopened, but they only employed 3 000 workers (Jansen, 2007:30), which meant that half of the workforce still lost their jobs.

This study focused on the DKKDM region as a case study, because it is currently a problem in that area, but as more mines in the country becomes depleted, this research will become more important and be extended to the whole country. This research already led to several academic publications. Watch this blog for more info on that in future.

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