THE BOTTOM LINE
You’d have to be one hell of a contrarian to dive into gold
In 2018 the JSE Gold Index has fallen a chunky 18%
The last thing investors in South Africa’s troubled gold mining shares need are protracted, uncertain wage talks, culminating in either a strike or a settlement that squeezes narrow profit margins at a time when the rand gold price is subdued.
Analysts speaking about the mining sector in general point to a series of above-inflation wage increases and cripplingly high electricity price increases as the two major factors inhibiting the industry.For SA’s gold mines these two issues are most heavily felt. The mines are labour intensive, requiring large numbers of people in narrow working areas using brute force to drill and extract ore. They are also among the world’s deepest, needing high levels of refrigeration and ventilation, both of which use large amounts of electricity.
SA’s mines are, by and large, old, with working areas drifting further and further away from the shafts that lower employees into the earth. Over the years, combined with falling grades of gold, this has meant productivity has fallen.
The gold sector is not attractive for investors anymore. So far in 2018, the JSE Gold Index has fallen a chunky 18%, with the big faller being Sibanye-Stillwater, which is by far the most dangerous gold company to work for this year, with 21 people killed at its operations, making up nearly half of the 46 people who have died on South African mines in 2018.
AngloGold Ashanti, the world’s third-largest gold producer, has cut its exposure to SA to a single underground mine and a tailings retreatment business, drawing a firm line under its historical base as it looks for growth abroad in shallower, cheaper, safer mines.
There is a reality at play that all the well-intentioned demands from four unions may well run up against in this round of wage talks. The gold sector is in deep trouble. If implemented, unrealistic demands could well bring its demise forward.