Swansong of a sunset industry or the rise of an SA gold mid-tier? – by Geoff Candy (Mineweb.com – July 17, 2012)


Just like the landscape of Johannesburg, South Africa’s gold mining sector is undergoing a dramatic change, the question is: what will it end up looking like?

GRONINGEN (Mineweb) –  Mine dumps loomed large over my childhood. Growing up in the east rand of Johannesburg, a stone’s throw away from the ERPM mine operations, they were a part of my skyline. When we were kids we went to the drive-in on top of them and, later on, tried to “dune board” down them. But, in the last few years they have gradually begun to disappear.
As the gold price has risen and mines have got deeper, so many of these dumps have been re-drilled and reprocessed but, it is not just the landscape that is changing – the industry that gave birth to Africa’s “city of gold” is changing right along with it.
“The cynical among us might describe it as rearranging the deck chairs on the Titanic,” says Bernard Swanepoel, Joint CEO of Village Main Reef, one of the new class of junior gold miners coming up in South Africa at the moment.
Speaking to Mineweb from a sparse boardroom at Village’s offices in Johannesburg, Swanepoel explains, “If you take the long view, then after 120 years, even if we talk about the next 30 years, it is clearly the last phase of the SA gold mining industry.”
Seemingly proving his point, the majors (AngloGold Ashanti, Harmony Gold and Gold Fields) while still active in the country, are increasingly focused on finding ounces in other parts of the world. And, while much of it has to do with diversifying their country risk, as the well-worn adage goes, if you want to hunt elephants, you need to go to elephant country and, for these big game hunters, the savannas of countries like Papua New guinea are looking more and more appealing from a trophy point of view.
That is not to say the Witwatersrand Basin is not an elephant, indeed many would argue it remains the bull elephant in the global gold herd but, it is getting old. In 2011, the South African gold fields only produced around 6m troy ounces of the yellow metal, placing them fourth behind China, Australia and the US in the producer rankings.
This is a far cry from the peak reached in 1971, when, according to the South African Chamber of Mines numbers, they produced 79% of the gold mined globally – a total of roughly 31m troy ounces and, to put it bluntly, there is no longer enough gold coming out of the country to satisfy the ever growling mills and refineries of the majors.
The majors continue to manage their mines in South Africa very well, but their attention is elsewhere and this opens up new opportunities.
Nick Holland, CEO at Gold Fields, told Mineweb earlier this year, there is a lot of potential around the Wits Basin and, there is beginning to a merge a mid-tier of companies able to bring this potential to account.
“First of all they might be able to extract more value out of certain assets that other companies couldn’t, take Evander for example that has been sold by Harmony; secondly they might have a very different approach to some of the higher risk exploration projects, unlike the majors who have probably got a lot of South African exposure already, like us for example.”
Pan African Resources CEO, Jan Nelson agrees, saying that, at the moment, the landscape is populated very much by majors and juniors. But, he says, a mid-tier is developing.
“Juniors are going to have to consolidate, with the majors considering exiting the country and divesting their SA assets, who do they sell them to if there is only a bunch of juniors, there is a gap that needs to be filled.”
Swanepoel adds, that by definition a big mining company has to act like a big mining company, “They need big and fancy head offices and humongous overheads and only a certain type of ore body lends itself to that.”
So, he says, they need to have a set of players to whom they can hand down assets which no longer fit into a big mining company.”
“It is like dumping an old car into the hands of someone to whom it is a new car. It gets treated differently, washed twice a week etc. And so, I suspect the best thing for these assets is for them to be handed down to people who really want to own them who want to run them differently.”
 He adds that the current high gold price has a role to play as well because, with the higher prices, has come an understanding that these still-operational assets are, under current prices, worth owning.
” Those of us who were smart enough to buy some of them a year or two ago we look a bit smarter than even we like to think we are, because there is always a dose of very good luck in these sorts of things.”

 For the rest of this article, please go to the Mineweb.com website: http://www.mineweb.com/mineweb/view/mineweb/en/page33?oid=155236&sn=Detail&pid=102055