South Africa’s lumbering gold-mining industry is smiling broadly as commodity prices hit quarter-century highs on world markets, opening up new frontiers once thought financially unviable.
Gold charged to a new high of $645 an ounce in London on Thursday before cooling off to finish the week on Friday at $623,50.
The commodity continued its bull run, buoyed by rising oil prices and geopolitical fears as tensions rise over Iran’s nuclear programme.
The price of platinum reached $1 131,50 an ounce on the London Platinum and Palladium Market on Thursday, a new record for the star metal in South Africa’s commodities industry.
Analysts this week predicted rosier times ahead for the gold-mining sector, still one of the cornerstones of the South African economy.
”What a difference a year has made,” says Roger Baxter, chief economist at South Africa’s Chamber of Mines, referring to the hard times experienced by the industry in 2005. ”The positive rise in gold prices means that suddenly you are looking at a very different set of circumstances.”
Baxter says he believes higher prices could put a brake on declining gold production in South Africa, which last year dipped by 13% to reach its lowest levels since 1923 of 296,3 tonnes.
The country’s gold mines went through a tough period of restructuring last year as mining houses cut jobs and streamlined operations, buckling under a stronger local currency, foreign-exchange controls and declining resources.
The rise in gold price, coupled with a stabilisation in the local rand against international currencies, is opening new frontiers once thought unviable, says Baxter.
The rise in prices has initiated what analysts refer to as the ”reserve play effect”, which means that mines have more money available to access previously unmined reserves and turn them into resources.
”The reserve play effect will allow the South African gold-mining industry to mine a larger ore reserve compared to last year when it was constrained by costs and price pressures,” Baxter says.
But higher prices have not only benefited underground operations.
Mining house DRDGold, South Africa’s fourth-largest gold producer, is recycling old mine dumps around Johannesburg and using new technology to extract gold that slipped through the extraction process decades ago.
”While there was a lower gold price, surface operations helped to keep our underground mining operations alive,” says DRDGold spokesperson Ilja Graulich.
”Obviously with a higher gold price lower-grade gold dumps become more viable [to recycle],” says Graulich, who adds his company is recycling about 20 dumps over the next eight years.
But analysts also warn that the effects of higher gold prices will only be felt as long as the local currency remains stable and does not strengthen against the dollar and the euro.
”Obviously the higher gold price is going to be beneficial for the mining industry,” says Joshua Cohen, market analyst at the Johannesburg-based Econometrix Treasury Management.
”The problem is that when the rand strengthens at the same time, it cancels that effect. The weaker the rand, the greater the revenue,” he says.
The Chamber of Mines says it fears that rising oil prices, which hit historic peaks of more than $75 a barrel this week, could offset the gains made by gold mining.
”Unfortunately higher crude oil prices will result in higher local fuel prices, which will push up inflation and raise the costs of mining,” it says.
Some analysts also dispute predictions that gold prices will bounce as high as the record $850 an ounce within the next two years.
”The price is rising too fast. It’s not that it can’t go higher, but I have some concerns,” says Nick Godwin, mining analyst at the Johannesburg-based T-Sec brokerage.
”There’s going to be a crash. When it will happen we don’t know, but shares are going to get hurt,” he says. ”Don’t think this party is going to go on for ever.” — Sapa-AFP