Modern Mining June 2020

mining?

Traditionally, gold has been a safe haven in times of uncertainty.

on top of the zero interest rates and quantitative eas- ing in the hopes of jumpstarting businesses. In an environment where the gold price is soar- ing, one would imagine that this could buoy more investment into the South African gold mining indus- try, given that the country currently hosts more than half of all gold reserves in the world. MacRae, how- ever, says there is more to investment decisions than just the commodity price. Declining production The history of gold in South Africa dates back to 1873 when the first large-scale production began when alluvial deposits were discovered at Pilgrim’s Rest, followed shortly by gold discovery in Witwatersrand in 1884. The discovery of gold in the late 19th century gave rise to the development of the city of Johannesburg, Egoli, or the City of Gold and for many years, South Africa was the world’s primary gold producer. This is no longer the case and South Africa’s gold output has continued to decline for several decades. From peak production of around 1 000 t in 1970, the nation’s gold output fell to 130 t in 2018, with South Africa now only accounting for roughly 4% of the world’s gold production. “The decline, however, is not a result of any signif- icant depletion in reserves and one would be wrong to assume that South Africa is running out of gold. In fact, over 50% of all gold reserves are found in South Africa, with the Witwatersrand Basin remaining the largest gold resource in the world. The decline in production over the decades has been driven by a combination of closure, maturing assets and industrial strife which has created an inhospitable operating environment,” says MacRae. The remaining reserves have become too difficult and costly to access. She reasons that at the start of gold mining back in the 1800’s, it was easy the to access surface ore that was initially mined. Two cen- turies later, the remaining high-grade reserves are deep below the ground. “It would take significant investment for mining

companies to be able to access these reserves – investment which is only viable in a high gold price environment like now,” she says. No interest Investors, and especially foreign investors, are not attracted to South Africa’s mining industry, argues MacRae. She reasons that the industry simply has its challenges and many have stated that it’s simply too complicated to invest in South Africa’s mining indus- try for a range of reasons. She outlines a mixture of reasons she believes are standing in the way of investment, and these include the stringent BEE requirements; constant changes the government can, and does, make to the Mining Charter, resulting in significant uncertainty for investors; as well as the real risk of industrial action by the workforce, ultimately resulting in high wage costs year on year. “That being said, I think the main stumbling blocks are primarily a mix of the high investment involved

Investors have once again flocked to buy gold, with global demand resulting in gold reaching a seven‑year high of more than US$1 700/oz in recent days.

June 2020  MODERN MINING  19