While it was absolutely no surprise that South Africa’s gold output continued to slide in the first quarter, the sharp rise in costs ahead of tough wage negotiations that get under way next month must be a worry for gold-mining companies, which invested an impressive R1,6-billion in capital expenditure between the beginning of January and the end of March.
Statistics released on Monday by the Chamber of Mines show that national gold output fell by 7,6% to 62,8 metric tonnes when compared with the first quarter of last year. Compared to the fourth quarter of the last year, the fall was 7,8%.
Although gold output is expected to pick up in the second quarter, there is a very real possibility that annual output in 2007 could be lower than last year’s 275,1 tonnes, the lowest total since 1922.
In its comment on first-quarter gold production, the chamber said the year-on-year increase in cash production costs was 19,6% and that total operating costs increased by 17,5% before capital expenditure. These rises eroded some of the grade flexibility provided to the mines by higher billion prices.
On a year-on-year basis, the average grade mined declined to 4,32g per tonne, facilitated by a 17,4% increase in the dollar gold price to $650 an ounce and the 17,6% depreciation in the rand to R7,23 to the dollar.
Good news for the local gold industry and for South Africa is the big increase in first-quarter capex after declines in capex in 2004 and 2005. “Most of the benefits of higher prices have been invested by the mining companies in capex, which is the lifeblood of the industry,” said the chamber.
Meanwhile, the chamber and its members will be paying careful attention to wage talks in the platinum sector and between the government and public-sector workers.
Wage talks in the gold-mining sector are expected to get under way in mid-June, by which time negotiators will have a good idea about their own negotiations to establish a new two-year agreement. Wages form a big part of overall costs in the gold-mining industry.
Anglo Platinum resumed wage talks on Monday, Impala Platinum begins talks on June 4 and the government and public-sector unions are this week holding talks to avert strike action scheduled to start on June 1. — I-Net Bridge