South Africa’s Gold Mines Face Uncertain Future – by Alexandra Wexler (Wall Street Journal – September 1, 2015)

http://www.wsj.com/

South Africa’s gold industry needs radical reshaping to survive beyond the next few decades

WESTONARIA, South Africa—At Sibanye Gold Ltd.’s Kloof mine in the heart of the world’s largest known gold reserve, more than 10,000 workers toil daily at depths of around 2 miles—a striking image of the scale and ambition of an industry that until recently enjoyed booming profits and plentiful production.

But the golden era for South Africa’s producers now appears to be over. Upended by a toxic combination of falling prices, intensifying labor disputes and the surging cost of ever-deeper exploration, the country’s largest producers are flailing. Squeezed by tumbling profits and a lackluster outlook for gold prices, several of South Africa’s biggest gold producers are even dialing back expectations for the lifespan of their operations.

“This is an industry that’s mature, old and in some degree of distress,” said Dawie Mostert, Sibanye’s senior vice president of organizational effectiveness. “We need to make sure that there is sustainability” for the future.

Sibanye’s nearly 50-year-old Kloof mine, deeper at some points than six New York City Freedom Towers stacked end to end, is expected to close in 2033. The company faces increasing headwinds after reporting a 70% drop in net profit in the first half of the year.

Things aren’t looking much better for Sibanye’s peers. In August, AngloGold Ashanti Ltd., the world’s No. 3 gold producer, reported a net loss of $142 million for the three months ended June, compared with a loss of $80 million a year earlier.

South African miner Harmony Gold Mining Co. Ltd. reported a net loss of $352 million for its fiscal year ended June 30, while Gold Fields Ltd. reported an annual fall in second-quarter profit of 40%.

Although mining—like commodities in general—is often described as a cyclical business, the troubles that gold producers face in South Africa are more profound. If South Africa’s largest gold miners are going to survive beyond the next few decades, a radical reshaping of the entire industry is necessary, companies say.

Most are investing heavily in new technologies to reduce labor costs, become more efficient at gold extraction and be able to work 24 hours a day, 365 days a year. Currently, miners in South Africa work about two thirds of the day, 275 days a year.

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