South Africa is the most costly country for gold mining

13 February 2018 Authored by Consultancy.co.za

Adding to the woes caused by a drop in the market capitalisation of gold in South Africa, the cost of mining the metal has also spiked, making the country the most expensive place to mine metals in the world. New research from UK-based consultancy GFMS shows an all-in sustaining cost of over $1000 per ounce for South Africa; well above the global average.

Mining is one of the most crucial sectors in the South African economy, currently contributing approximately 10% of the country’s GDP annually. The mineral rich country acts as a nucleus of sorts for mining companies across the world. Alongside steady revenues from coal and iron ore, the mining sector also relies heavily on precious metals such as gold and platinum, which tend to be more volatile.

This precise volatility is currently manifesting itself in a highly damaging manner to the economy. Last year saw gold prices fall across the world, causing a severe dip in revenues for the gold mining industry. Big Four professional services firm PwC reported late last year that the price of gold in South Africa had fallen by as much as 15%.

The dive in prices took down with it the market capitalisation of gold by a staggering 52%, or R114 billion in absolute terms, which is the entire value of the profits for the industry in the previous year.

South Africa is the most costly country for gold mining

Countries across the world suffered from the dip in gold prices, but the effects were especially detrimental to the South African economy, due to the significantly high costs of mining in the country. These costs are further on the rise, according to a latest survey conducted by GFMS, a research and consulting firm specialising in precious metals and a wholly owned subsidiary of global information agency Thomson Reuters.

The GFMS team consists of experienced specialists in the metals market, who generate quarterly data and analysis for those interested in the mining industry. According to their latest analysis, the all-in sustaining cost of mining increased by $58 per ounce last year, and has maintained its high levels since. 

As a result, the all-in sustaining costs for South Africa stand at $1,184 per ounce, as compared to $884 per ounce in the rest of the world. The costliness of mining in South Africa is accentuated when the costs are compared to the second most expensive region, i.e. South America, which stands below the global average at $866 per ounce.

The report attributes the increase in costs to the success of the labour unions in the country to drive up wages, which significantly impacts the mining industry due to its highly labour-intensive nature. The wages rose above the inflation rate, which was further compounded by a strengthening of the Rand by 14%. To make matters worse, overall output declined, sending costs through the roof.

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