Should anyone really have been surprised to read newspaper headlines a few weeks ago bewailing the fact that South Africa’s gold production had fallen to levels not seen since 1931?
Well, not really. Gold’s decline has been in place since the early 1970s when it peaked at fractionally more than 1Â 000 tonnes. It has fallen by almost 70% in the past 30-odd years, and the steady decline remains in place. And, in broad terms, our gold mining industry is repeating history.
Three-quarters of a century ago the industry was in deep trouble. While the United States had given gold a boost by demonetising the metal and pinning its price at $35 an ounce, South Africa clung for a couple of years to the gold standard abandoned by the rest of the world grappling with the depression.
The result was the same as the mines have experienced these past few years as the rand has strengthened from R12 to the dollar to its current R6,60 or so. Remaining on the gold standard meant that high mining costs pushed mines to the brink. And it was only when we abandoned our position and shifted to fiat money that costs came down, profits soared and the prospecting boom really took off.
Could it happen again if the rand were to weaken sufficiently? No.
We know where the gold is, or was. There are no more reefs to be discovered and mined. And nothing on God’s earth will restore gold mining to its former glory. As if to prove this, there was the desperation with which Harmony Gold attempted a hostile takeover of Gold Fields and its well-endowed mines.
We have repeated gold mining’s earlier history, and we have long since come to the end of what is humanly possible. Take the Free State as an example. Back in the early Sixties, a mine such as Free State Geduld was recovering an ounce of gold from every tonne it mined. A quarter of a century later, that mine was merged with its neighbours managed by Anglo American to form Freegold, with the idea that the cost savings of mining massive tonnages would allow the poorer ore to be extracted profitably.
When that stratagem played out, the Anglo group opted out and transferred ownership on favourable terms to black empowerment company African Rainbow Minerals (ARM). Politics helped dictate the move just as they had done in the early Sixties.
General Mining gradually swallowed Union Corporation and was, eventually, transformed into what is now the international BHP Billiton group. AngloGold Ashanti’s longer-term future does not lie in this country — there is no more gold to be found. And, for that matter, the futures of others such as Gold Fields, Harmony Gold and DRDGold lie beyond our borders. Strategies, such as Gold Fields’s abortive attempt to merge its offshore assets with those of Canada’s Iamgold into a new foreign-domiciled entity, will be worked out to circumvent this country’s toxic exchange controls. But shares in those foreign assets are most unlikely to be passed to black empowerment hopefuls.
Gold Fields is transferring 25% of its local operations to Mvelaphanda.De Beers has yet to come up with a device to hand over an appropriate share of the South African mines that will perpetuate Oppenheimer family and Anglo American control while not irritating the Botswana government, which owns 15% of the worldwide De Beers group. And Anglo Platinum is complying with the mining charter by partnering black firms in developing some new platinum mines.
Black economic empowerment (BEE) that merely enriches a fortunate few and that does not introduce fresh skills or capital to the target mining companies seems to be a major deterrent to foreign investment here. Since Anglo American persuaded the government to allow it to change its domicile to London by saying that this would allow it to raise money at more favourable rates to invest here, it has not introduced a penny of fresh foreign capital into South Africa.
Who can blame it? Exchange controls restrict what it can do with the capital it has here. So why, as it were, throw good money after bad? Look at it through the business eyes of Tony Trahar, and investment anywhere but South Africa makes sense. Perhaps the country has to depend on the emergent black mining groups such as ARM and Mvelaphanda to mobilise the capital here and abroad to open new mines. It was the route followed by Afrikaner business once it had won control of operating mines. So will we see another repeat of history?
Let’s be realistic — none of South Africa’s mines (whatever the mineral) is likely to become involved in beneficiation projects mandated by the government. We only have to look at the offset programme that was supposed to accompany South Africa’s latest arms procurement programme to see what prescription can achieve. Beneficiation will proceed if, and only if, the businesses involved generate attractive returns.
The fact is that this country’s mining sector is in a state of considerable flux, much as it was when the National Party set about empowering its people. Mines will only be expanded or opened if they are sufficiently profitable. And funding them will, increasingly, be the responsibility of the new mining groups created through BEE and that now want to move beyond redistribution towards greenfields developments.