By Chris Flood and Tom Burgis
Published: January 15 2009 19:16 | Last updated: January 15 2009 19:16
Gold production in South Africa in 2008 sank to its lowest level since the Boer War, pushing the country into third place in the league of global producers behind China and the US.
The country’s gold output dropped by an estimated 14 per cent, the sharpest decline since 1901.
South Africa gold production sank to a provisional 232 tonnes, down 38 tonnes on 2007, amid severe power supply limitations, an industry-wide skills shortage and an overhaul of mine safety procedures, according to GFMS, the precious metals consultancy, which released its Gold Survey 2008 yesterday.
China extended its lead as the world’s largest gold producer, with output up 3 per cent to 288 tonnes while output in the US dropped 2 per cent to 234 tonnes. China only secured the top spot from South Africa a year ago.
Graham Briggs, chief executive of Harmony, the world’s ninth biggest producer and one of South Africa’s three gold majors, said he saw little prospect of a sharp revival in the country’s gold production – although there could be small increases in the short term from existing sites and new small mines.
“To build a deep mine these days needs massive capital. That is not likely to happen in the future,” said Mr Briggs.
GFMS said the fall in South African output contributed to a substantial drop in global mine production which sank 3.6 per cent to 2,385 tonnes, its lowest level since 1995.
However, miners saw big increases in their cash costs, with the global average surpassing $500 an ounce for the first time in the third quarter of 2008, up 22 per cent on the same period of 2007.
GFMS said gold prices could be expected to reach a fresh all-time high above $1,000 an ounce in the first half of 2009, as investors focused on the possible return of inflation and the threat to the dollar caused by aggressive interest rate cuts and massive government spending.
“I’m sure a strong rally is going to emerge,” said Philip Klapwijk, executive chairman of GFMS.
GFMS warned that the massive fiscal commit-ments made by the US government could alarm foreign investors and cause official inflows into the Treasury debt market to weaken, undercutting support for the dollar.
“As investors start to focus on the likely consequences of this ‘quantitative easing’ policy, gold will almost certainly benefit handsomely, especially as some of the alternatives to US government debt and the dollar, such as the euro and yen, face their own issues,” said Mr Klapwijk.
GFMS said that strong investor demand had been “masked” by heavy selling by hedge funds which required cash to cover losses elsewhere, meet margin calls and pay for redemptions.
Mr Klapwijk added: “If it hadn’t been for this fund selling, we’d be easily back over $1,000 by now.”
Gold was trading on Thursday at $805 an ounce.
Selling by central banks dropped sharply in 2008, down 42 per cent from 2007 to 279 tonnes, the lowest annual total since 1996.
GFMS said it expected central banks to sell 127 tonnes of gold in the first half of 2009, down 23 per cent on the same period a year ago.