S African 2006 gold output may not recover from 2005 low

S African 2006 gold output may not recover from 2005 low

London (Platts)--20Apr2006

South Africa's gold production in 2006 may not recover from its 80 year
lows posted in 2005, the Chamber of Mines South Africa said in a statement,
while platinum group metals have surpassed gold in terms of 2005 sales.
The factors afflicting the industry last year were the low price of gold
in rand terms, high oil prices and falling grades at certain mines. The Chief
Executive of the CoM, Mzolisi Diliza, said that reviews of mining practices
had seen some improvements but output may still suffer.
"A year ago the gold mining industry faced many challenges including
viability issues, which brought about major restructuring. In 2005 South
African gold production fell by 13% to 296 mt, the lowest level since 1924.
This year, the improved economic outlook means a much slower rate of decline
in production--or even a stabilisation in production," he said. Other factors
which may have an impact on South Africa's gold production in 2006 is the "big
'reserve play effect' of falling costs and rising prices gives a larger ore
reserve to mine. This should help stabilise the contribution of gold mining to
the economy and to employment."
The chief executive also said that the platinum group metals sector has
seen good growth in recent years, noting that it now outstrips the gold
industry in term of sales. "Improvement in rand prices and the growth in
production over the past few years has propelled the sector to become the
largest component of the South African mining industry with sales of Rand 38
billion ($6.34 billion) in 2005, followed by coal at Rand 35 billion and gold
at Rand 27 billion," Diliza said, adding: "With rising rand precious metals
prices in 2006, mining is clearly demonstrating its resilience and importance
to the economy of South Africa."
The gold price in rand has increased by almost 50% in the first quarter
of 2006, when compared to the same period in 2005, the CoM said, helping to
off-set the aforementioned higher oil prices. The first quarter of 2005 saw
the rand gold price as low as Rand 82,000/kg while mining costs were Rand
89,000/kg. The CoM said in 2006, due to the slower appreciation in the rand
exchange rate, the gold price has averaged about Rand 109,000/kg in the first
quarter of 2006 and is currently at Rand 120,000/kg.
While the CoM calls the rise in precious metals and crude oil prices a
"double edged sword," it also admits that South Africa's balance of payments
will benefit.
"Assuming a Rand 6/$1 exchange rate, based on 2005 production numbers,
every 10% rise in the gold and platinum prices sustained for an average of a
year will generate an additional Rand 5.3 billion in exports. This should more
than offset a 10% rise in the crude oil price which would add an additional
Rand 1.9 billion to the import bill," Diliza said in a statement, adding:
"Unfortunately, higher crude oil prices will result in higher local fuel
prices which will push up inflation and raise the costs of mining."
On Thursday morning gold fixed at a 25 year high of $644.50/oz, platinum
fixed at an all time high of $1,130/oz and palladium at $370/oz.
---James O'Connell, james_oconnell@platts.com

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