South Africa’s gold mines, the deepest and among the oldest in the world, are in big trouble.
The four largest producers in the country are losing money on about 35 percent of production at current prices, according to company data compiled by Bloomberg. At the same time, higher costs are cutting into profits as electricity bills climb to a record. Workers are also pushing for wage increases, with some threatening to strike if salaries aren’t doubled.
The nation, whose Witwatersrand Basin has supplied about a third of all gold ever mined, dropped from the top producer to sixth-biggest in just eight years.
Now that miners who still crawl through tunnels using hand drills and dynamite have extracted much of the easy-to-dig metal, companies use modern technology to go deeper. That’s another expense, especially when bullion prices are near a five-year low.
“What you’re seeing in South Africa is a major margin squeeze,” Srinivasan Venkatakrishnan, chief executive officer of AngloGold Ashanti Ltd., the country’s biggest gold miner by market value, said in an interview. “If you do nothing, the future of South African gold mining always heads towards a declining trend.”
South African output slid at the fastest pace among the 10 biggest-producing countries in the past decade. Mine supply halved in the period to about 145 metric tons last year, according to the World Bureau of Metal Statistics.
The metal has slumped 40 percent from its 2011 record to about $1,122 an ounce. At that price, half of mines owned by the nation’s top producers are losing money, data compiled from second-quarter financial reports show. Goldman Sachs Group Inc. has said bullion may go below $1,000.
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