SA’s golden era as one of world’s top gold producers ending

South Africa’s gold mining production could drop to levels below the 200 t mark this year, levels last seen about 100 years ago, owing to the power crisis that is set to plague it deep into 2008. This information came after reports that China swiped South Africa’s long-held title as the world’s biggest producer last year.

South Africa’s second-biggest gold miner Gold Fields CFO Nick Holland said that the electricity supply crisis in the country could lop off as much as 20% of mine output in 2008.

He told Mining Weekly Online that last year’s production figure of 272 t would drop drastically, probably to 220 t this year, and 200 t "in a couple of years".

“In my own mind, I had forecast that we would probably be down another 30 t or so by the end of the year, and that was assuming full power,” Holland told journalists in Johannesburg. This decrease was mainly because of mines closing marginal shafts.

However, State-owned power utility Eskom last week temporarily shut down South Africa’s mining industry, and told companies on Tuesday that they would have to operate at 90% of their normal power levels for at least until July.

Gold Fields CEO Ian Cockerill said that the miner would lose as much as 20% of its production for as long as this was the situation.

If one translated this to a 20% production decline across the country’s gold mining industry, the results were profound, Holland showed.

“Let’s assume that we are able to produce at 90% and that does result in a 20% drop, that’s going to take the industry closer to 200 t/y,” he put forward.

In fact, subtracting the 30 t that Holland predicted would be lost without even considering the power situation, and then the 20% potential losses because of Eskom’s failings, gives a 2008 gold production figure of 193,6 t.

Imara SP Reid analyst Steve Meintjies said that this was feasible, "unless Eskom could get back to previous levels of supply".

The last time that the mighty South African gold mining industry produced at these levels was around 1908, as the industry was emerging from the Anglo-Boer war, which also brought the mining industry to a standstill, albeit for a lot longer than Eskom did last week.

Interestingly, Cockerill said that the power supply problem in the country “is like being in a war-time rationing situation”.

To put the situation in context, Holland said that, dropping 20% of the country’s gold production would be tantamount to losing two Beatrix mines, which was one of South Africa’s largest.

And this, Holland argued, would send the precious metal’s price even higher, after it already set new records this year.

“It’s going to have a major impact on world supply figures,” he put forward. “Of course it’s going to have an impact on the gold price.”

Holland did not agree with analysts that said that supply and demand was irrelevant to the gold price. “Certain analysts would have you believe that supply and demand has no impact on the gold price, but I think it does.”

“Despite the fact that geopolitical issues and economic sentiments play a big part, the supply/demand equation also plays a big part,” he explained.

“This [the power crisis] is just going to exacerbate it, and that’s a big issue for the sector and the gold price,” Holland stated.

A higher gold price would mean increased revenue to producers.

But Gold Fields would still suffer from the loss of production.

“In terms of our production, if you look at a 20% cut at the South African operations, and recalculate the revenue streams at today’s price, you would roughly get back the revenue of what we’ve got now,” Holland said.

“So we may just be able to find that the gold-price increase does enable us to claw back,” he added.

However, Gold Fields corporate development head John Munro said that higher gold prices should by no means be viewed “as a saving grace”.