Aproduction run rate of about 700 000 oz/y of gold is expected to be reached by the end of 2016 at gold producer Gold Fields’ Gauteng-based South Deep gold mine.

This is despite the slight drop in mining stocks in 2012, which further dropped by 20% in the first four months of this year, states professional services firm PricewaterhouseCoopers (PwC).

Creamer Media’s Research Channel Africa ‘Gold 2013’ report states that the share prices of South African gold companies have failed to increase in line with the rise in the gold price in recent years and South African gold stocks are reportedly undervalued.

“In April, market capitalisation declined for 37 of the world’s top 40 miners, wiping $200-billion (18%) off the total. Gold miners were hit the hardest, losing a further $58- billion (30%) following the largest one-day drop in gold prices. Historically, there has been a strong relationship between gold stocks and the gold price. However, in the past three years, gold stocks have underperformed gold prices,” says PwC mining leader for Africa Hein Boegman.

He adds that, despite rising gold prices, the gross margins have also decreased, in line with market capitalisation. “While high gold prices are generally good news for gold miners, the gross margins are what matter even more, as the market seeks a return on investment,” he notes.

Although 2012 was a turbulent year for commodity prices, PwC’s ‘Mine: A Confidence Crisis’ report, released in June this year, shows total market capitalisation was about the same at the end of 2012 as it was at the beginning of 2012 – $1.2-trillion; but not for gold miners. The world’s top 40 gold miners lost $29-billion in 2012, while, during the first four months of 2013, they lost a further $58-billion in value.

The ‘Gold 2013’ report further states that South Africa continues to hold the world’s largest reserves of gold, even after more than 126 years of mining; however, Gold Fields CEO Nick Holland has noted that the decline in South African gold production over the past five years has been significant. At a media roundtable in November 2012, he said: “We are down to about 180 000 kg of gold a year, while seven years ago, we were producing double that.”

In December last year, South Deep produced 62 700 oz of gold, increasing the total for 2012 to 270 000 oz. The mine expects production to improve by between 10% and 15% during 2013.

Gold Fields spent R2.5-billion in 2012 and is expected to spend R1.9-billion this year on capital expenditure (capex). However, capex is expected to drop to R1.5-billion in 2014, after which the operation will be at a steady state. To date, the gold miner has invested R36-billion in South Deep.

“Miners are trying to rebuild the market’s confidence – capexes have been scaled back, hurdle rates are being increased and noncore assets are being disposed of. Across the board, there is a shift from the days of increasing value, solely by increasing production volumes, to a renewed focus on increasing returns from existing operations through managing productivity and improving efficiencies, both of which have suffered in recent years,” Boegman points out.

Gold Fields has outlined several reasons for its decision to unbundle its South African mines, including that the mining opera- tions currently grouped in the separate Gold Fields and Sibanye portfolios have differing operational and managerial requirements and divergent strategic demands. Gold Fields last year unbundled all its South African mines, with the exception of South Deep.

Gold Fields’ South African production represents only 13% of the company’s total production, which is down from 47%, although this will rise again as production from South Deep ramps up.

The company contends that its separation from Sibanye will enable the two entities to focus on their respective goals and operate more effectively to the benefit of share- holders, employees and communities.

Responses to the unbundling have largely been regarded as an effort by Gold Fields to protect itself against the negative sentiment towards gold miners that have operations in South Africa.

“South Africa’s gold mines are already the deepest in the world and deep-level mining has significant financial challenges, as it is particularly expensive. Mining in South Africa generally faces notable cost increases, including increased labour costs. One slight reprieve, however, is the recent announcement by the National Energy Regulator of South Africa that State-owned power electricity utility Eskom will be limited to an average yearly rate increase of 8% over the period from 2013 to 2018.

“While still significant, this increase is half of the 16% increase that was sought by the State-owned entity. As electricity is a major input cost for gold miners, this announcement represents a degree of relief,” highlights the ‘Gold 2013’ report.

The revamp at South Deep is expected to provide an additional 30% face-time and help achieve further productivity improvements. The new operating model includes, among others, more competitive grading, remuneration and targeted incentives. Gold Fields hopes to elevate South Deep’s performance in the ‘tall’ orebody to global best-practice levels.