Grades falling at South African mines

The average grade of gold ore mined in South African mines has dropped steadily for the past 20 years to a low of 0.14 oz. gold per ton, down more than half from the average of 0.38 oz. gold per ton in 1968. However, the average grade mined is expected to remain relatively static in the short term according to a recent study by broker J.B. Were & Son.

“The industry is going through trying times but gold mining is a long term business, and it is doubtful there will be wholesale shutdowns of the mines based on short term price flucutations,” says the broker.

Despite a slow decline in output, South Africa continues to be the largest producer of gold in the world, although its share has fallen from 70% in 1970 to about 37% in 1989.

Increasing costs and falling grades in South Africa have been putting the squeeze on many of it’s gold mines which are on average much older and deeper than competing mines in Canada and the United States. Exploration has also been toned down in the wake of slumping bullion prices earlier this year.

It has been estimated that the development of a new mine at depths of 3,000 metres would require average in situ grades of at least 0.47 oz. gold per ton. This is a very tall order as the richest mine in South Africa is currently producing at 0.35 oz. gold per ton.

At a gold price of US$350 per oz., nearly 20 South African mines are unprofitable or unable to cover current capital spending rates, according to projections by the South African Chamber of Mines.

“Many of the mines in operation are old and do not have the flexibility of mining higher-grade areas in times of a profit squeeze,” says broker J.B. Were & Son.

For comparison, some of the lowest cost mines in Canada, such as the David Bell mine in northern Ontario’s Hemlo camp, can pull an ounce of gold out of the ground for as little as US$109 per oz.

Elsewhere in Canada, the new Eskay Creek gold deposit in northwestern British Columbia’s Golden Triangle is characterized by gold grades up to several ounces per ton.

South Africa is the world’s biggest bullion producer followed by the Soviet Union, the USA, Australia and Canada. But its output fell to 328 tons in the first half of the year, slightly lower than the 330 tons produced in the first half of 1989. Some industry observers feel South Africa’s output figures could fall even faster if ore grades decline further in the future.