Special Report

Mining in Africa

Gold Gold is pulling prices not seen for 25 years, and will probably do even better in 2008 if supply remains as tight and the oil price continues to knock economies around (see View from the City page 26). All being equal, analysts say they won’t be surprised if gold cracks the $1,000 barrier in the year ahead. It might even go higher. For Africa, this is good news tinged with the not-so-good. some say the price of gold is at such heady levels because there is not as much of it around as there was. According to the International Gold Council, global mine output is falling – down a full 3.1% in 2006 and was nearly flat in 2007. This is certainly true for South Africa, and a number of other African gold producing nations. equally, gold production is rising in some places. China, for instance, could overtake the us this year as the world’s second biggest gold producer. hou huimin, second in command at the China Gold Production Association, says output could rise 8% to a record 260t in 2008 from 240t in 2006. on the other hand, further once rich sources are petering out. south Africa is busy losing its crown, producing just 134t in the first six months of last year, dropping a third in the last five years as the costs of digging deeper begin to bite. Today, south African production is at its lowest since 1922. “one reason why south African production isn’t ramping up with gold prices is there are fewer mining companies,” says sean Broderick, Moneyandmarkets’ contributing editor. “The 20-year bear market in gold forced many marginal mines to close. And over the past 15 years, a wave of mergers has created a bunch of mega-sized gold miners. “While the top five miners each produce between 3.5m and 7m oz every year, they’re more likely to concentrate on working their existing mines and buying up other mines, and focus less on new exploration. These are just several of the forces that will help power gold into the stratosphere during 2008.” Ghana is Africa’s second biggest producers and it is awaiting clearer signals of what will happen to the gold price a few years from

South Africa is the world’s biggest gold producer and China, its biggest trading partner, an increasingly important market for the precious metal.

World gold production 2006

1. South Africa 275mt (11.1%)

2. United States 260mt (10.5%)

3. Australia

251mt (10.2%)

4. China

240mt (9.7%)

5. Peru

203mt (8.2%)

6. Indonesia

167mt (6.8%) (2005)

7. Russia

152.6mt (6.2%)

8. Canada

104mt (4.2%)

9. P. New Guinea 66.7mt (2.7%) (2005)

10. Ghana

63.1mt (2.6%) (2005)

Other

699mt

Total 2,467mt

source: Goldsheet Mining directory

now. At around 63 tons a year, Ghana has quickly become the continent’s second-biggest producer. Although gold does not play a large part in the country’s overall GdP, it is its single most important source of foreign currency and thus price and output fluctuations affect external accounts. over 90% of the country’s output originates from underground mines in the Ashanti region. Zimbabwe is a significant producer, but accurate output statistics are difficult to come

by because large tonnages are smuggled out of the country by small-time miners to bypass having to sell the metal to the government. Big producers are stagnating. While global prices for gold have hit new highs with handsome profits elsewhere, Zimbabwean firms are struggling. They must sell their gold at a fraction of the market price to the government. Just 60% of the money they receive in return is paid in hard currency while the balance comes in the increasingly worthless local Zimbabwean dollar. And now Zimbabwe’s mining firms are anxiously waiting to see if Zimbabwe’s President robert Mugabe is as good as his word in nationalising companies that he accuses of letting gold be smuggled out of the country as part of a Western plot to bring down his government. Mark Verden, chief executive officer of the Zimbabwe Chamber of Mines, says the mining industry is trapped in a “vicious circle because we are not benefiting from these high international prices”. he adds that some of Zimbabwe’s gold miners are not paid for months disrupting their import of essential raw materials for processing. Audited production in Zimbabwe for 2007 is expected to drop to about 8.7t from 11.3t last year. Its peak turnover of 27.0t was in 1989. Mali is regarded as Africa’s most up-andcoming gold-producing country. Following the opening of several new mines, including Morila and Yatela in 2001, Mali has become Africa’s third largest gold producer after south Africa and Ghana. In 2005 gold production in the country reached just over 49t, generating more than half of the country’s foreign currency. Mali has enormous potential for further gold discoveries with its potential reserves estimated at this juncture at 350t a year. Major international mining companies operating in Mali include randgold resources and Anglo Gold, with IAMGold partnering AngloGold. six gold mines are currently in full operation.

Platinum demand for platinum has grown much faster than supplies during the last five years. The Chinese platinum jewellery market has boomed along with a robust return to platinum in autocatalysts and other

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African Business | February 2008