For South Africa, the latest figures from the country’s government statistical department, make fairly dismal reading, particularly with respect to its once word-dominant gold mining sector.  The June figures, released yesterday, showed .that gold production continues to fall year on year – it was down 14% on that for June 2012 – and is now only the country’s fourth most important mined metal by value, having been overtaken by iron ore.  Coal remains the most important metal or mineral by sales value, with platinum second, but the latter too is showing a year on year production decline.

According to the report the country’s overall mining production decreased by 6.2% year-on-year in June 2013. The largest negative growth rates were recorded  by ‘other’ metallic minerals (-38.0%), diamonds (-22.9%), PGMs (-18.9%) and gold (-14.1%). The main contributors though to the overall 6.2% decrease were platinum group metals (contributing -4.6  percentage points) and gold (contributing -2.3 percentage points). Iron ore (contributing +2.0 percentage points) was the most significant positive contributor.

In value terms, the latest figures released are from May when overall mineral sales decreased by 8.5% year-on-year. The largest negative growth rates were recorded for gold (-42.6%), nickel (-20.0%) and ‘other’ metallic minerals (-15.5%). The major contributor to the 8.5% overall decrease was gold (contributing -10.0 percentage points).

For a resource economy like South Africa where metals and minerals account for a high proportion of GDP and export earnings, the decline in both volume and value has to be very disturbing – particularly as in the key PGM and gold sectors there looks to be no end in sight to the production falls while metal prices remain at current levels.  

The PGM and gold mines in particular are facing ever-increasing labour relations problems with workers calling for very large wage increases, stimulated by inter-union rivalries – with disputes tending to turn violent when demands are not met.  And all this is at a time when the mines are struggling economically as low metal prices put a high proportion of the gold and platinum mining operations into the lossmaking and marginal categories.  If gold trends lower still, as some analysts predict, platinum will likely follow suit, and this would place the whole precious metals mining sector in the country in jeopardy.  The miners can only afford to carry losses for a short time without some massive closedowns – and that is politically unacceptable in a country where the ‘benefits’ of the change from the old white dominated apartheid regime to the current black dominated one, are being called into question by the bulk of the population, which remains in poverty by world standards.  Expectations are just not being met in terms of transfer of wealth from the ‘haves’ to the ‘have nots’.

So how long can the shakeout in the gold and platinum sectors continue?  While metal prices remain where they are we can expect to see continuing production falls as lossmaking sections and operations are closed.  Many of the mines are old and nearing the ends of their economic lives anyway and with prices where they are there is little incentive to develop – or even look for – replacement ounces, at least as far as the gold sector is concerned.  On platinum though there are some interesting new possibilities which could transform the sector long term, although the traditional highly labour intensive operations could still be heavily impacted in the short to medium term.

In terms of global gold output it appears that South Africa has been slipping down the table – from the world’s top producer less than a decade ago to No. 6, having just been overtaken by Peru.  Currently China is No. 1, Australia No. 2, U.S.A. No. 3, and Russia No. 4.  Back in 1970 South Africa produced almost 80% of global gold production, now it manages only around 6% – how the mighty have fallen!  At the current rate of decline, South Africa could next be overtaken by Canada within 5 years and fall below 100 tonnes output by the end of the decade!

With the mantle moving from precious metals to bulk minerals – coal and iron ore – the South African industry and economy is changing.  But from an overall labour numbers standpoint, the continued decline of the highly labour intensive underground gold and platinum mining sector has to be a huge concern for the government.  As mines close there are likely to be renewed calls for the nationalisation of the industry from the more radical element of the ruling African National Congress, but a more pragmatic government would not want to be saddled with a lossmaking industry on the decline.  The likely cost to the exchequer would be far too high without a massive rise in precious metals prices.