COMMON OBJECTIVE NEEDED Without an attitude shift from the main industry players, the gold industry will continue to decline
Photo by: Bloomberg
The biggest potential for gold-industry growth lies in mining companies, government and unions undergoing a “radical” attitude shift, says consulting engineers and scientists SRK Consulting.
“Without the attitude shift from these main industry players, the gold industry will continue to decline. The only other option is a dramatic and sustained increase in the gold price, which in the view of most experts is unlikely,” says SRK Consulting chairperson and corporate mining consultant Roger Dixon.
He notes that there has been a substantial decline in the sector in terms of output and employment, adding that halting this decline will require the collaborative efforts of government, industry and organised labour to plan a way forward to prevent further job losses in the near future.
“Not all players have the same common objective. There are some basic financial equations that apply in any industry, such as costs subtracted from revenues equals profit. This must be understood by all; if there is not a positive answer in this equation, then there will be a further loss of jobs.”
He elaborates that limited success with mechanised mining, combined with expensive labour and electricity costs as well as resistance to change, makes it unlikely that the industry will return to growth soon.
“Given the long-term trend towards lower gold production in South Africa, I would say the resource value is declining rapidly,” notes Dixon.
He says profitable opportunities are limited, owing to a combination of factors, including unreliable and expensive electricity, skills shortages, and expensive labour costs; there are also few areas in which South Africa enjoys comparative advantages.
Labour and electricity are two of the largest cost factors in the gold mining industry, and both have been rising well above the inflation rate over the past ten years; this presents a key reason for the decline in profitability and sustainability in the industry.
However, Dixon says the cost increases must be considered against the depreciation of the rand against the US dollar, which is the currency in which South African gold companies are paid for their product.
Meanwhile, the industry mainly relies on manual labour and artisans rather than a larger spread of technical skills. “However, as we move into the age of the Internet, the skills profile of the country will change,” says Dixon.
Universities are producing enough graduates in mining and associated disciplines. However, SRK notes that more experiential training for these graduates is still required, so that they can handle the different requirements of current mine management - a difficult task in a shrinking industry.
“Many of the major mining companies have preferred to focus on executing existing operational strategy, rather than the development of new approaches, particularly approaches requiring fundamental technical innovation,” says Dixon.
Technological progress in mining production has been slow, and is one of the reasons why productivity remains stubbornly low; however, Gold Fields’ South Deep mine in Gauteng, Harmony Gold’s Target mine in the Free State, and AngloGold Ashanti’s Mponeng mine in the North West, have made some progress in terms of more mechanised mining.