Considering all the developments
that have taken place in South Africa in recent years, it is unsurprising to
find the country's mining industry in decline. Miners are being forced to
search for minerals at ever greater depths owing to the depletion of more
easily extracted deposits, while growing labour
unrest and decaying infrastructure adds to the difficulties facing mining
companies in the country. According to the latest South Africa Survey
published yesterday, South Africa’s appeal to mining investors has
“declined dramatically since 2006”.
published by the South African Institute of Race Relations, confirms what has long been
predicted by informed observers, and should not come as a surprise to
investors. According to this survey, which comprises 79 countries, in 2010
South Africa was in 67th position in the list of investors’ favourite countries – a significant drop from the
37th position it held in 2006. The majority of investors surveyed were
especially concerned about legal and regulatory uncertainty. Recent years
have seen many lawsuits concerning land ownership, and the populist verdicts
delivered by the judiciary have scared away many foreign investors.
Costs have also been increasing
across the whole South African mining sector. For many companies there,
production is only profitable at a gold price of $1,600 per troy ounce, as
increases in exploration costs pile pressure onto companies. While in recent
years gold and diamonds were still mined at lesser depths or at open pit
mines, today the search for minerals is often performed at a depth of
thousands of metres. This requires highly-expensive
equipment, which also contributes to increasing production costs. South
African gold production will remain profitable as long as the gold price
stays at or above its current price level of $1,665 per troy ounce.
Nevertheless, the profit margin will be smaller than in previous years.
Extended strike activities among
miners and continuous power outages have also been weighing on inverstors' mood. Nationwide strike activities reached
their peak last summer, with miners demanding increases in wages, improved
health care and improvements in working conditions. Furthermore, mining
companies were greatly damaged by continuous power outages, as production had
to halt for extended periods and some workers were trapped at great depths.
According to experts, this
situation – which has been deteriorating over recent months –
could affect the supply situation at the global commodity markets. South
Africa produces gold, diamonds, palladium, and 75% of the world’s
platinum. If these legal and infrastructure problems persist, the prices of
these metals could be forced higher.