The decreasing importance of gold to South African economy

Readers of LawrieOnGold may be interested in thefollowing note from Statistics South Africa (the SA government statistical body) drawing further attention to the continuing decline in the once dominant South African gold mining industry.  When I worked in the South African gold mining industry in the late 1960s it was producing over 70% of the world’s gold at over 1,000 tonnes a year.  Today South Africa is moving down the table of global gold miners and was estimated by consutlancy GFMS as to only have produced 164.5 tonnes in 2014 and in danger of dropping below Canada currently lying in 7th place

Top 10 World Gold Producing Countries 2013/2014 (tonnes) 

Rank Country 2013 output 2014e output Change Y/Y
1 China 438.2 465.7 +6%
2 Russia 248.8 272.0 +9%
3 Australia 268.1 269.7 +1%
4 USA 228.2 200.4 -12%
5 Peru 187.7 169.3 -10%
6 South Africa 177.0 164.5 -7%
7 Canada 133.3 153.1 +15%
8 Mexico 119.8 115.7 -3%
9 Indonesia 109.2 109.9 +1%
10 Ghana 107.4 106.1 -1%
World 3049.5 3109.0 2%

Source: GFMS, Mineweb

The Statistics South Africa comment and accompanying chart is set out below:

Monthly gold production reached a new monthly low in January, according to data released by Stats SA. Although a number of temporary factors might have contributed to the unusually low level, general historical trends show that gold has lost the prominent place it once had in the South African economy.

Stats SA has published comparable mining production indices that go back as far as January 1980, for the industry as a whole as well as for various minerals, including gold, iron, platinum and coal. The indices provide an indication of the level of production, set against a particular base period. Currently, the index has been set to 100 for the base period of 2010.

Historical values of the gold index show the extent of how production has fallen. In January 1980, the index was 359,0, while the volume of gold produced was far lower in January 2015, resulting in the low index of 48,4. In other words, South Africa produced 87% less gold in January 2015 compared with the same month in 1980. Figure 1 shows how the monthly gold production index has fallen. What is not shown in the graph, however, is that production started on its downward trend well before January 1980.

Figure 1: Monthly gold production index, 1980-2015 (Base: 2010=100)

sagold

The fall in production has reduced gold’s contribution to the South African economy. The metal contributed 3,8% to gross domestic product in 1993, falling to 1,7% in 2013. In terms of sales, gold made up 67,0% of all mineral sales in 1980, falling to 12,5% in 2014. Coal currently leads the pack, having contributed 27,0% of total mineral sales in 2014.

South Africa has also fallen in global gold production rankings. Prior to 2007, the country held the number one spot as the top gold producer in the world, according to the U.S. Geological Survey Mineral Resources Program. By 2014, South Africa had dropped to sixth place, according to Thomson Reuters GFMS, falling behind other countries such as Peru, USA, Australia, and Russia. China is currently the world’s top gold producer.

So with the waning importance of gold to South Africa, does the future hold any promise for the industry? One estimate suggests that the country will soon need to look beyond the precious metal as a major resource. Stats SA’s 2014 Environmental Economic Accounts Compendium provides 2011 estimates on depletion rates for various minerals. At current production levels, South Africa will exhaust its coal resources in 119 years, and platinum in 218 years. For gold, resources will be exhausted in only 33 years. An update to theCompendium is due for release before the end of this month, containing new depletion estimates, but if this estimate holds true, many South Africans alive today will see the country taking on a much reduced role on the global gold mining stage.

Given the fall in the gold price over the past three years, this will also have impacted adversely South Africa’s income from this source as well.  Indeed current metals and minerals pricing across the board will be having a damaging effect on the country’s exports and economy.  With even bigger falls in coal and iron ore, both of which are significant for the South African economy, and a comparative fall in platinum , South Africa’s other principal metal export by value, the government is surely wrestling with a significant change in its balance of payments, whichis thus a contributor to the large falls in the South African Rand against the rampant U.S. dollar.  Indeed, were it not for the fall in the Rand, which has applied something of a cushion in terms of Rand earnings, the production figures for the county’s metals and minerals might well have fallen further.  The fall in the Rand has enabled some marginal operations to stay afloat which otherwise would probably have closed down.

As for South Africa’s gold mines, the major Witwatersrand operations are getting ever deeper (which substantially increases mining costs and dangers, and grades are declining and there is little prospect of significant new discoveries to replace the output falls.  One can see little chance of anything but a continuing drop in output year on year unless there is a very significant rise in the gold price in the offing.

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