South African mine strikes cited in gold output drop

From the South African Chamber of Mines’ Newsletter

While tons of ore milled by primary gold mines, members of the Chamber, remained constant at 107.6 million tons in 1987, gold production fell by some 37 tons, from 606 tons in 1986 to 569 tons last year.

That the industry did not continue the expansion — in terms of ore throughput — that has characterised the past 11 years was due primarily to the effects of the strike instigated by the National Union of Mineworkers in August, 1987. Some, but by no means all of the gold mines, members of the Chamber, were affected while others maintained full production.

Aside from the unchanged tonnage of ore milled the principal reason for decl ining output was the fall in the average grade mined, down to 5.28 grams per ton in 1987 compared to 5.63 grams per ton in 1986 — a fall of 6.2% almost exactly matching the percentage fall in gold output. This reduction in average grade reflects the greater amount of surface tonnage at lower grades milled to make up the shortfall caused by the strike as well as a tendency to reduce grades following the improvement of the rand gold price in 1987 to R904 per ounce.

Working costs per ton milled continue to rise sharply and last year’s increase of 19.6% compared to 1986 was well above the rate of inflation. This level of increase is an obvious cause for concern and the industry believes that the control of inflation is the most important economic issue facing the country.

The average dollar gold price improved by some 21.2% when compared to 1986; but the hardening of the rand vis-a-vis the dollar during the year, diminished the total effect of this increase and the mines received, on average, eight percent more rands for their gold in 1987 than in 1986.

While the rand price for an ounce of gold increased by eight percent, working revenues rose by only one percent as gold output declined. Despite an increase in working revenues, profits fell by 14.6% due to a substantial increase — 25.3% — in the working costs per kilogram of gold produced (because as grades fall more ore has to be processed to obtain a given quantity of gold).

Total profit then declined by 14.6% with dividends trimmed by 9.4% and the State’s share of profits and taxation down by 20.5% when compared to 1986. The industry continues its commitment to the future with capital expenditure in 1987 of R2.3 billion, some three percent more than the previous year.