Mine closures, output cuts likely if gold price stagnates – Metals Focus

Otmane El Rhazi from The Bullion Desk.

The lower gold price could trigger a drop in South African gold production, according to Metals Focus, with many producers operating at a loss at current prices.

With a weakening rand – down five percent against the dollar in the year to date – already plaguing the South African economy and increasing energy and labour costs at mines in the region, it comes as no surprise, that three major South African producers have announced restructuring plans, the consultancy said in a note on Thursday.

With spot gold currently flirting with $1,200 per ounce, down from a 2014 peak of $1,388.70, some eight percent of costed South African gold production is marginal or loss-making on a total cash cost basis, representing around 10 tonnes of annualised production, Metals Focus said.

“If prices persist at current levels or weaken further, then further shaft closures, with the potential for industrial action, job losses and production cuts, appears likely,” it said.

All-in sustaining costs at AngloGold Ashanti, the world’s eighth-largest gold mining company, rose 14 percent to average $1,115 per ounce in the third quarter of 2014 from the first quarter. This has prompted the company to begin talks with unions and employees regarding possible job losses.

“[Since] AngloGold has stated that it would not be closing any operations, employee levels at its mines would most likely have to be reduced in order to lower costs,” Metals Focus said.

Sibanye Gold, another of the country’s largest producers, said last month it was in talks with workers and other stakeholders about potential redundancies at its Cooke 4 shaft, which employs 2,500.

“The National Union of Mineworkers (NUM) initially spoke of workers striking, but has now signed a deal with Sibanye to soften the job cuts. Some of the workers at the mine will be offered voluntary severance packages while others will be transferred to other operations,” Metals Focus said.

Earlier this year, Harmony Gold put one of its operations under care and maintenance and has begun negotiations with employees, ahead of potential job cuts, despite an increase in output in the third quarter.

Total cash costs rose one percent over the same period to average $1,042 per ounce, although all-in sustaining costs fell three percent to $1,254.

(Editing by Mark Shaw)

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