South Africa Gov’t Tipping Point Mean Big Things Ahead For Gold?

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South Africa Gov’t Tipping Point Mean Big Things Ahead For Gold?
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I wrote yesterday about the collapse of mining in key African gold nation Tanzania. And today, emerging news shows another major gold producer entering crisis.

South Africa.

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The dire warning on South Africa’s gold sector came from ratings agency Moody’s. With that group releasing a report saying that mine closures are likely close at hand.

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Moody’s noted that recent moves by South Africa to amend its mining code have created great uncertainty in the country. With requirements like increased Black Empowerment ownership and higher royalties weighing on the minerals sector.

With these stricter financial conditions looming, Moody’s said it sees few mining companies investing significant capital in South Africa. As the agency put it, “Without a framework that provides policy predictability and certainty, Moody’s expects mining companies to keep a tight rein on capital expenditure.”

And as Moody’s sees it, that could be a death knell for the industry.

The report went on to note that without expansion capital, many of South Africa’s mines are unlikely to be viable. With the authors saying that many operations have been kept on life-support recently by a weak rand — which is now strengthening, putting increasing pressure on operations.

Moody’s believes that all leads to an inevitable end game: “If the substantial expansionary investment required to reconfigure loss-making mining operations and make them profitable is not forthcoming, mines will either be restructured or closed.”

This is the first full-out warning of imminent mine closures. And follows closely on public comments from South African Chamber of Mines CEO Roger Baxter noting that the mining sector is in “crisis”, with recent government policies having “frozen new investment”.

If closures are indeed close at hand, things could get very supportive for gold prices — with South Africa still being the world’s 7th largest producer of the yellow metal. Watch for announcements on specific mine shutdowns here to see if this trend will indeed catch a spark.

Here’s to the point of no return,

Dave Forest

Article by Pierce Point

Updated on

Dave Forest writes Pierce Points Free Daily E-Letter, an advisory on mining and energy read every day by BP, Rio Tinto, JPMorgan, BNP Paribas, Repsol, GDF Suez, GE, Platts, Warburg Pincus, and the UN. Sign up for free at www.piercepoints.com. Mr. Forest has funded and managed over $80 million in global exploration and development in natural resources, and continues to design and develop projects globally. He is a professional geologist.
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