Fatshimetrie is a phenomenon that has captured the attention of economic observers in 2024. With an increase of more than 30% during the year, the price of gold has repeatedly reached all-time highs, propelled by global economic uncertainty that is driving demand for the precious metal.
Despite this price surge, the mining sector in South Africa is struggling to fully capitalize on these gains due to deep-rooted structural challenges, such as unreliable electricity supply and rising operational costs.
According to Bianca Botes, director at Citadel Global, although the price of gold has been increasing since 2018, 2024 has reached record highs.
“Gold prices have increased by 33% year-on-year to repeatedly reach record levels during 2024,” Botes told the Mail & Guardian.
“Gold demand is significant in that it tells us about the global economic landscape, as well as demand from central banks,” she added.
Gold is considered a safe haven asset that holds its value over time, and investors and central banks around the world turn to it in times of economic uncertainty, which translates into higher prices.
“A series of events have driven the price of gold higher this year, from seeking refuge from geopolitical tensions and economic uncertainty, to anticipation of rate cuts by the Fed [US Federal Reserve], and other central banks, to central banks building up their gold reserves.”
The recent price surge has also increased demand for Krugerrands, according to FNB.
In a statement released in June, the bank said it had facilitated the delivery of more than 2,200 Krugerrand gold coins to its trading platforms over the past year as more consumers seek to diversify their investment portfolios.
“Krugerrands are highly liquid in the South African market, making them a preferred choice among seasoned investors and collectors, and they are considered legal tender in South Africa, but their true value lies in their gold content,” said Sebastian Pillay, head of investment sharing at FNB Wealth and Investment.
South Africa ranks 12th in the world for gold production according to the World Gold Council.
Botes said the country has much to gain from the price surge in terms of trade, but she added that the full capitalisation of the benefits was hampered by structural issues in the mining sector.
The Minerals Council of South Africa said that although gold production in South Africa is slowing, it is benefiting from the recent price surge..
“Higher gold prices have allowed South African gold producers to maintain production levels by mining marginal deposits for longer. As a result, South African gold production has increased slightly by 0.2% to around 96.6 tonnes in 2023,” Allan Seccombe, the council’s head of communications, told the M&G.
He said gold production in the country had been falling by 5.8% per year since 1994.
South Africa has gone from producing 580 tonnes of gold per year in 1994 to less than 97 tonnes in 2023.
Unreliable electricity supplies, illegal mining, theft and other crimes, and rising supply costs are all significant constraints on production.
“The effects of electricity supply constraints are reflected in gold export and local sales volumes, which declined by 1.9% and 17.1% respectively, as smelters were unable to keep up with refining gold ore for the local and export market.”
“Despite the decline in volumes, and given the high gold price, total gold sales in rand terms increased by 18.8% year-on-year in 2023, with sales up 49.3% compared to pre-pandemic levels,” Seccombe added.
Seccombe said electricity prices for large industrial users and manufacturers, which include mining companies, had increased more than six times since 2007, leading to cost pressures at marginal gold mines and shortening their lifecycles.
Low employment in the gold mining sector is also affecting production, he said, adding that jobs in the sector had fallen from 392,000 in 1994 to less than 94,000 in 2023.
“The mines have become deeper and the working areas are further away from the pits, which means employees have to travel longer to and from the sites, which translates into less time drilling and removing rock. This translates into lower production.”
Johannesburg’s Witwatersrand gold basin is the country’s largest gold resource, and there are 44 active gold mines in Gauteng alone, according to the City of Johannesburg, but prospects for new mines are few.
“There are no new gold mines in South Africa, with companies focusing on existing operations to extend the life of mines by digging deeper or exploiting resources further from pit infrastructure,” Seccombe said.
If the country were to improve its terms of trade, it could benefit from better export earnings, which would translate into higher profits for mining companies, which in turn could contribute to job creation and economic growth, Botes said..
The gold situation in South Africa is a complex mix of challenges and opportunities, with the potential to transform the country’s mining industry if the obstacles are overcome and the benefits fully exploited.