Analysis: Price-cost pinch dulls last luster of South Africa's gold

Sun Jul 7, 2013 7:40am EDT
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By Ed Stoddard and Sherilee Lakmidas

KROMDRAAI/JOHANNESBURG, South Africa (Reuters) - A hand drill lying in the hillside tunnel of a 19th-century South African gold mine testifies to the back-breaking labor by black miners that built what was once the world's biggest bullion industry.

But even with basic tools and cheap labor, costs overran returns at the Kromdraai gold mine north of Johannesburg, which listed in London in 1893 and closed in 1914.

A century later, South African's remaining gold mines, which still employ a mostly black and lowly paid workforce, look set to follow the same fate, as the sun sets on an industry that has produced a third of the bullion extracted from the planet.

Gold's sliding price and surging costs are hitting an industry that laid the foundations for Africa's largest economy but has been slowly dying for decades as ore grades decline and shafts reach depths of 4 kms (2.5 miles), the world's deepest.

Unrest is also flaring as restive miners demand more for their toil after over a century of low wages linked to a system of migrant labor that outlasted the end of apartheid in 1994.

A weaker rand currency, which lowers local costs for domestic gold producers, has given them a temporary life-line of sorts but not enough to halt the terminal decline.

According to Roger Baxter, chief economist at South Africa's Chamber of Mines, in the fourth quarter of 2012 the price of gold averaged 509,000 rand per kilogram, but it fell in the first six months of this year to under 400,000 rand/kg.

"This precipitous fall in the price ... has been the biggest decline that has taken place since the 1920s," he said.   Continued...

Striking miners evicted from company housing at a gold mine occupy a hill near the mine in Carltonville, west of Johannesburg, in this October 2, 2012 file picture. REUTERS/Mike Hutchings/Files