Gold News

GOLD NEWS
IGNOMINIOUS END TO GLORY DAYS
South African gold on final deathwatch as top grade scientist finds residual gold is more than 90% less than claimed

Research shows that production rates should fall permanently below 100 tonnes a year within the coming decade
Author: Barry Sergeant
Posted: Monday , 16 Nov 2009

JOHANNESBURG -

The apparent bottom line in a paper published in the South African Journal of Science is that South Africa's gold industry is on final deathwatch, despite claims of massive existing below-ground reserves. Chris Hartnady, research and technical director of Cape Town earth sciences consultancy Umvoto Africa, has found that South Africa's Witwatersrand goldfields are around 95% exhausted, and anticipates that production rates should fall permanently below 100 tonnes a year within the coming decade.

Gold production from the Witwatersrand, the biggest known gold field in the world, peaked at around 1,000 tonnes in 1970 and has declined ever since. Hartnady says that while initially (1970-1975) the decline was "quite precipitous", it has been interrupted by only short periods of slight trend reversal (1982-1984 and 1992-1993).

Leon Esterhuizen, a London-based specialist analyst at RBC Capital Markets, has reacted to the research by saying that "South African gold is dying -- this is not new news", but adds "that it may be dying faster than we currently believe is novel". On the levels of reserves, Hartnady finds that the South African "residual gold reserve" after production through 2007 is only 2 948 tonnes, a little less than three times the 1970 production figure, and much less than 10% of the officially cited reserve.

The country's gold reserves are less than half of the current United States Geological Survey (USGS) estimate of 6 000 tonnes, and the country is not first, but fourth in world rankings, after Australia (5,000 tonnes), Peru (3,500 tonnes) and Russia (3,000 tonnes), Hartnady's research shows. The USGS currently cites South Africa's gold reserves at around 6,000 tonnes, while SA claims a 36,000 tonnes reserve base figure (or about 40% of the global total). Hartnady's findings are based on Chamber of Mines figures and mathematical modeling pioneered by the distinguished American geologist M. King Hubbert.

Esterhuizen comments that "most recent indications from Harmony (even with gold bullion at new dollar records over USD 1,100/oz) is that its old shafts - effectively the Free State gold field - are dying. DRDGold has got Blyvooruitzicht on life support and is trying to get permission to keep the plug in for a little bit longer (with everything around Blyvooruitzicht now having been shut down), while Pamodzi Gold's demise and Simmer & Jack's failure at Buffelsfontein just proves the point -- all of this, at record gold prices in rand terms".

Analysts have also expressed surprise, if not amazement, about recent comments from AngloGold Ashanti CEO Mark Cutifani to the effect that its South African operations will be restructured. How is it, analysts ask, that "the highest margin operating gold assets in South Africa are . . . being re-structured ?"

A growing number of skeptics are also asking whether Gold Fields's developing South Deep operation - which it bought in 2007 for USD 3bn - will truly ever be able to make money. It is already evident that it will probably never deliver a real return on the capital that it took to bring it to life, says Esterhuizen. He also notes particular current promises by both Gold Fields and Harmony of growth from the South African base over the next three years.

Hartnady's prognosis is pretty grim: "Given the energy and environmental problems associated with ongoing groundwater control, water-resource contamination by acid mine drainage, and the possibility of widespread mercury and other factors of pollution caused by illicit underground ore-processing by the zama-zamas (illegal miners), the glory days of South African gold mining appear to have arrived finally at an ignominious end.

"There can be no further illusions, maintained by unrealistic expectation of a future fortune, about the seriousness of the present situation. In their various possible forms, the slow-onset disasters of environmental degradation associated with the death-throes of a formerly illustrious industry now pose a serious threat, and may ultimately cost far more than the net present value of some 3,000 tonnes of gold".

Esterhuizen mentions a number of other challenges faced by South African gold diggers: royalties (a new thing), zooming electricity charges, BEE (black economic empowerment) burdens, safety shutdowns, "massive security costs", and ever-present currency exchange control. In these areas, Esterhuizen argues that "government may achieve a ‘small' miracle or, more likely, simply hasten the end".

Esterhuizen says that "a small opportunity may be the possible stronger future uranium market -- effectively reducing gold costs by obtaining revenue from by-products". This is already happening at a number of gold mines where uranium is also produced. Certain closed shafts known to hold good quantities of uranium are also being investigated for possible recommissioning.



Selected gold stocks active in Africa










Stock


From


From


Value




price


high*


low*


USD bn

South Africa & beyond













AngloGold Ashanti


USD 44.70


-4.0%


234.3%


16.185

Gold Fields


ZAR 108.67


-13.1%


90.6%


11.037

Harmony


ZAR 79.24


-40.4%


27.8%


4.560

South Africa focus













Simmer & Jack


ZAR 2.02


-43.4%


30.3%


0.333

First Uranium


CAD 2.35


-70.6%


83.6%


0.374

DRDGold


ZAR 3.54


-62.9%


23.8%


0.182

Wits Gold


ZAR 91.00


-7.1%


226.8%


0.343

Gold One


AUD 0.35


-64.3%


250.0%


0.263

Central Rand


ZAR 2.00


-75.0%


5.3%


0.067

Pan African


GBP 0.08


-10.1%


313.3%


0.182

Pamodzi Gold


Suspended










Mintails


AUD 0.05


-47.8%


123.8%


0.042

West Wits Mining


AUD 0.13


-13.8%


290.6%


0.014

Global & Africa













Barrick


USD 42.89


-2.6%


114.0%


42.159

Newmont


USD 50.99


-1.9%


140.9%


24.496

Iamgold


USD 18.42


-1.8%


584.8%


6.779

West Africa













Goldstone Resources


GBP 0.02


-49.2%


350.0%


0.003

Avnel Gold


CAD 0.15


-48.3%


650.0%


0.012

Medoro Resources


CAD 0.58


-38.3%


1833.3%


0.107

African Aura


CAD 1.14


-18.6%


1325.0%


0.058

Randgold Resources


USD 80.88


-0.9%


210.1%


7.244

Red Back


CAD 15.14


-5.8%


330.1%


3.334

Moydow Mines


CAD 0.79


-10.2%


1480.0%


0.046

African Gold Group


CAD 0.65


-4.4%


2066.7%


0.040

Semafo


CAD 4.15


-0.7%


388.2%


0.993

Golden Star


USD 3.45


-11.8%


762.5%


0.779

Resolute Mining


AUD 1.06


0.0%


190.4%


0.378

Nevsun Resources


CAD 3.20


-10.9%


661.9%


0.427

Perseus Mining


AUD 1.85


0.0%


829.6%


0.550

Etruscan Resources


CAD 0.48


-29.1%


171.4%


0.072

Cluff Gold


GBP 0.69


-14.6%


219.8%


0.135

Mineral Deposits


AUD 1.05


-2.3%


275.0%


0.556

Keegan Resources


USD 5.93


-14.4%


1436.3%


0.169

Searchgold Resources


CAD 0.04


-20.0%


300.0%


0.006

Gryphon Minerals


AUD 0.56


-5.9%


840.7%


0.091

Shield Mining


AUD 0.15


-21.1%


733.3%


0.010

Adamus Resources


AUD 0.48


-9.4%


380.0%


0.128

Orezone


CAD 0.63


-16.0%


142.3%


0.032

Axmin


CAD 0.13


-28.6%


316.7%


0.036

PMI Gold


CAD 0.12


-23.3%


1050.0%


0.013

Azumah Resources


AUD 0.28


-11.3%


587.5%


0.040

Pelangio


CAD 0.62


-4.6%


2380.0%


0.064

Ampella Mining


AUD 0.63


-8.1%


1353.5%


0.075

Castle Minerals


AUD 0.27


-1.9%


194.4%


0.016

Volta Resources


CAD 0.38


-20.0%


660.0%


0.019

North Atlantic Resources


CAD 0.06


-62.5%


200.0%


0.002

Avion Resources


CAD 0.46


-5.2%


1037.5%


0.096

Signature Metals


AUD 0.04


-29.1%


875.0%


0.028

Channel Resources


CAD 0.08


-46.4%


650.0%


0.004

Riverstone Resources


CAD 0.21


-48.1%


272.7%


0.010

Pan African













Africa West


CAD 0.05


-44.4%


100.0%


0.002

Pan African


GBP 0.08


-10.1%


313.3%


0.182

Goldplat


GBP 0.13


-5.6%


52.2%


0.024

African Queen


CAD 0.70


-5.4%


775.0%


0.026

Central African


Suspended










Caledonia


CAD 0.07


-50.0%


160.0%


0.031

Mwana Africa


GBP 0.15


-15.9%


480.0%


0.096

Midlands Minerals


CAD 0.25


-10.7%


233.3%


0.013

Africa, other













Shanta Gold


GBP 0.07


-21.9%


470.0%


0.012

Banro


CAD 2.41


-28.5%


173.9%


0.244

Kilo Goldmines


CAD 0.48


-17.2%


140.0%


0.029

Loncor Resources


CAD 1.55


0.0%


933.3%


0.045

Moto Goldmines


Just taken over










Sunridge Gold


CAD 0.66


-22.4%


1000.0%


0.039

Luiri Gold


CAD 0.25


-3.8%


900.0%


0.015

Helio Resource


CAD 0.65


-28.6%


333.3%


0.041

Tanzanian Royalty


CAD 3.63


-44.2%


27.4%


0.312

Centamin Egypt


CAD 2.34


-11.0%


387.5%


2.276

Obtala


GBP 0.20


-33.9%


77.3%


0.063

GMA Resources


GBP 0.04


-36.7%


210.0%


0.028

New Dawn


CAD 1.36


-26.5%


2620.0%


0.038

Kasbah Resources


AUD 0.06


-22.5%


120.0%


0.009

African Consolidated


GBP 0.14


-19.7%


216.7%


0.067

KIG Mining


EUR 0.20


-80.7%


1461.5%


0.015

Lake Victoria Mining


USD 0.84


-43.6%


147.1%


0.024

Red Rock


GBP 0.02


-35.4%


313.3%


0.012

Also in Africa













MDN


CAD 0.58


-31.8%


38.1%


0.052

Douglas Lake


USD 0.30


-56.5%


150.0%


0.022

Great Basin


CAD 1.62


-31.9%


70.5%


0.516

Gold Wheaton


CAD 0.31


-7.6%


90.6%


0.411

High River


CAD 0.43


-10.4%


681.8%


0.266

Crew Gold


CAD 0.20


-87.2%


14.7%


0.020

Oromin


CAD 0.87


-39.2%


126.0%


0.079

Vatukoula Gold


GBP 0.01


-16.3%


181.4%


0.087

La Mancha Resources


CAD 1.82


-10.8%


3209.1%


0.247

Avocet Mining


GBP 0.99


-3.0%


105.2%


0.319

CGA Mining


AUD 1.77


-17.7%


86.3%


0.469

Chalice Gold


AUD 0.55


0.0%


685.7%


0.071

NGEx Resources


CAD 0.75


-8.5%


341.2%


0.096

Mainly copper













First Quantum


CAD 71.93


-9.4%


464.2%


5.388

African Eagle


GBP 0.05


-63.0%


311.1%


0.023

* 12 month













Source: market & company data, compiled by Barry Sergeant