S.A. Gold output falls to 73-year low

[Paciente]

GOLD
Gold output falls to 73-year low
Posted Tue, 12 Apr 2005

South Africa's gold production fell by 8.8 percent to 342.7 tons or 11.019 million troy ounces in 2004, the lowest level of gold production since 1931, from 375.8 tons or 12.081 million oz in 2003, the Chamber of Mines said on Monday.

The fall in gold production was caused by the dual impact of the fall in the rand gold price, due to the strong rand, and the continued upward rise in costs, due in most part to costs outside of the control of the mining companies, which has accelerated the demise of older shafts, the Chamber of Mines said.

While the industry has consistently focused on improving productivity and reducing costs, there are simply too many costs that the industry does not have control of which places inordinate pressure on the sector, the Chamber added.

Rand appreciation

Despite the spot gold price rising 12.6 percent year-on-year to $409 a troy ounce in 2004, the further 14.7 percent appreciation in the rand exchange rate to 6.45 rand per US dollar in the same period meant that the rand price of gold fell by 3.8 percent to average R84 785 per kilogram in 2004.

The rand gold price had already fallen 15.8 percent in 2003 compared with 2002.

Cost pressures on industry

Complicating the whole issue has been the significant cost pressures that the industry has faced over the past three years, the Chamber of Mines said.

Water prices have risen by 18 percent per annum in each of the three years.

Steel prices, which comprise some 10 percent of the cash production costs of large-scale gold mines, have risen by double-digit rates in each year and remain at some 30 percent higher than comparable country steel prices.

Spoornet's general freight business rail tariffs rose 35 percent in 2003 and 16.5 percent in 2004, before a more reasonable three percent increase in 2005.

Labour costs, which comprise some 50 percent of cash production costs, have increased by substantially more than the inflation rate in 2003 and 2004, the Chamber of Mines said.

Production costs up 13.4 percent

The average increase in total production costs excluding capital expenditure rose by 13.4 percent year-on-year in 2004 from 1.4 percent for headline inflation and 4.3 percent for CPIX inflation.

"The crucial issue here is that many of these costs are outside of the control of the mining companies with the result that costs are increasing at a rate faster than normal inflation," the Chamber of Mines said.

With these cost pressures and the fall in revenues, some 10 mines, employing 90 000 people and accounting for about 50 percent of production, are marginal or loss-making at the current price, excluding capital expenditure.

"While the industry grapples with these cost and viability issues, it is vitally important that all stakeholders, especially those that impact on the costs of the gold mining sector, contribute to lowering the cost pressure on the industry," the Chamber of Mines stated.

"Given the precarious position of many marginal shafts, failure to reduce the cost pressures will be detrimental to the interests of the stakeholders involved in these shafts, and the country in general," the chamber said.

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