SA gold miners on final deathwatch as scientist finds gold reserves more than 90% less than claimed

Research shows that production rates should fall permanently below 100 tonnes a year within the coming decade

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.

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responses to this article

Nonsense As a person who have been in the South African gold industry for years I find this article extremely funny. The truth is thst the PROVEN reserves in SA are still more than what was mined in the history of the country. The problem remains that much . .more of those are too close to the pay limits using the current infrastructure and production techniques. The problem therefore lies in the inability of the large mining houses to invest in new infrastructure. Being myopic is an age old disease down here in SA. The opportunities are endless but the will is weak! . .less by leonleon304 on November 17 2009, 10:37 Find this comment inappropriate? Report it

His a lier I agree with Leonleon, This is utter nonsense, Seems like another sad attempt to destabilise the country n put doubt on our gold reserves. The only thing holding us back is Infrastructure . by Moza on November 18 2009, 01:21 Find this comment inappropriate? Report it

Pen Sword and Destruction The pen is not only mightier than the sword but also a destroyer of an industry compounded by an electronic media. Watch how the auther of this article attempts to influence the readers whilst placing doubt about the Gold industry and its future. . .more Eventually he articulately arouses the readers to a contorting misrepresentation of how the industry performs with environment instead of remaining focussed on the statistics he raised (not quite certain about that either). The writer is an environmentalist who endangers humans (do you agree?) The auther utilses environmental displacement as a reason to abandon the industry into the future in what would otherwise continue to be a enormous wealth bearer for the country including the companies and their employees,families and humanitarian gains over poverty and repression. As a matter of interest, the 'environment' won't change until he writes productively for all.. In anycase who uses mercury underground other than artisans in 2009. Even then I doubt if it is used below the surface as it has no place to be there in first instant. Come on auther stick to the relevance of the issue without turning into a environmental advertisement. Its not about Gold or Environment its about common sense and productive outcomes releiving missery. . .less by ue8wrong on November 18 2009, 06:43 Find this comment inappropriate? Report it

Look at the chart Your output is collapsing. Stop making excuses. Every clump of dirt in SA is not gold ore. Stop acting like it is just cost to extract that is the problem. There is trace gold in almost all dirt. It doesn't make it ore. by Hey retards on November 18 2009, 22:05 Find this comment inappropriate? Report it

declining production The same reports of gold ore industry shows declining production. These are facts. by hard facts on November 19 2009, 08:59 Find this comment inappropriate? Report it

Mega mine legacy The gold is gone...but for other reasons. The actual gold reserves being quoted by the majors in SA can be reduced by a factor of 10 due to most the resources being sterilised over the decades through "rape and pillage" mining methods. by Gold Digger on November 19 2009, 09:17 Find this comment inappropriate? Report it

SA reserves I don't believe that this article takes into account an ongoing bull market in gold for years yet. South Deep, for example, need not necessarily be the waste of capital this piece makes it out to be. Generally, a very one-sided piece if factual in . .more some respects. . .less by Macroscope on November 21 2009, 14:33 Find this comment inappropriate? Report it

minerals Is africa still poor. by gold mines on December 09 2009, 11:59 Find this comment inappropriate? Report it

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