Further to the second-last item above, the death of South African gold mining has been one of the biggest stories you never read about.
Investors in the gold space today talk about “go-to” project destinations like Australia, U.S. states like Nevada, and Canada — those being the second, fourth and fifth largest producing nations globally this past year.
But few observers mention South Africa’s massive gold mines.
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That’s a stark contrast to a decade ago. When South Africa was the world’s number one gold-producing nation — putting out 8.75 million ounces during 2006.
At that time, South African operations were the Cadillac of the gold business. But the last 10 years have changed a lot — with South African gold production steadily declining to just 4.5 million ounces in 2016. Good enough for just the #7 spot amongst producing nations globally.
In fact, as the chart below shows, even before South Africa lost its title as top gold mining nation in 2006, the industry had already been in decline for several years. Falling from a peak of 12.9 million ounces (402 tonnes) in 2001 — yellow line in the chart.
South Africa’s gold production (yellow line) has steadily fallen from 12.9 million ounces (402 tonnes) in 2001 to just 4.5 million ounces (140 tonnes) in 2016 (source: U.S. Geological Survey)
A big part of the fall in South Africa’s gold output has been blamed on issues like labor. With tough relations between mining companies and workers’ unions pushing up costs, and creating delays or full-out stoppages in mining — of the kind that South Africa courts ruled this week will now be illegal.
That gives some hope for improvement, which could help unlock more production here. After all, groups like the U.S. Geological Survey still assess South Africa as having some 193 million ounces of in-ground gold resources — the third-largest total in the world, not far behind leaders China and Russia.
The chart above also provides a few other clues that South Africa’s gold mining business might be fixable. Namely, the purple line — which shows production of another major South African mineral commodity, chromium.
South Africa is by far the world’s largest chromite mining country — producing 14 million tonnes of contained chromium in 2016. Representing 46% of all global supply.
As you can see from the trend in the chart, the chromite mining business in South Africa hasn’t suffered at all in recent years. Even as gold production plunged 65% since 2001, chromium output has steadily risen 155%.
The fact this mineral industry is flourishing suggests that gold mining problems are due to industry-specific factors, rather than overall country issues. With often-militant unions in the gold mining space being one of the likely suspects.
If that’s true, this week’s court decision could help get things going again for South Africa’s gold producers. Especially in concert with the rise of new mining players like Sibanye Gold, which seems willing to tackle tough issues head-on.
Mining is an always-cyclical business — for markets and mining nations. There’s still a lot of damage to repair in South Africa’s industry, but if it can get done, we could see an unexpected resurgence here.