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South Africa's gold industry entering final phase of slow death

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Higher wages and power prices, combined with the geological challenges of the world's deepest mines, will mean more job losses and less production in the country over the next five years, said Gold Fields CEO Nick Holland.

Johannesburg

BACK in 1987, South African President Cyril Ramaphosa - then a 34-year-old labour union leader - led 300,000 black miners in a strike that symbolised resistance to the apartheid regime. Now, striking gold workers face a less politically charged battle, but one they can't win.

The nation's 130-year-old gold industry - which has produced half the bullion ever mined on earth - is locked in the final stages of a decades-long death spiral. Most of South Africa's gold mines are unprofitable at current prices.

Dwindling output has cut gold's contribution to little more than 1 per cent of the South African economy, down from 3.8 per cent in 1993 - the year before Nelson Mandela's African National Congress won the country's first democratic elections.

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While the industry's demise won't reverberate in the way it once would have, the mines minister has criticised Gold Fields' plan to cut jobs as the ruling ANC seeks to shore up its base before elections next year.

Operations at mines run by Gold Fields and Sibanye Gold in South Africa have been halted by strikes over job cuts and wages respectively. Both producers cut their output projections for this year.

South Africa's gold industry now employs just over 100,000 people, less than a fifth of the number that used to power the apartheid economy. The economic and social impact of a further contraction in the industry will be magnified as every gold miner supports between five and 10 dependents, while creating two jobs elsewhere, according to the country's Minerals Council.

Higher wages and power prices, combined with the geological challenges of the world's deepest mines, will mean more job losses and less production in the country over the next five years, said Gold Fields chief executive officer Nick Holland.

"When you work out the math, when you keep doing that year after year, you are going to go out of business very quickly," Mr Holland said in an interview. "The industry will just continue to see a slow death."

Sibanye, the country's biggest producer, faces wage strikes at three of its mines. CEO Neal Froneman acknowledges that pressure is building on the miner to resolve its safety problems after more than 20 fatalities this year.

South Africa's gold output plunged 19 per cent in September, the biggest decline in almost four years, as producers struggle to contain costs.

"It's an industry in decline, yes, and if sunset means the sun setting in 10 years or 15 years, that's still 10 or 15 years away," Mr Froneman said in an interview last month. "There is still money to be made.'' BLOOMBERG