As China gains ground in gold production, analysts say it is unlikely that South African will ever regain the top spot among international gold producing nations.
Author: James Macharia
Posted: Wednesday , 23 Jan 2008

JOHANNESBURG (Reuters) - South Africa surrendered its crown as the world's biggest gold producer last year to China, marking a changing of the guard and confirming analysts' concerns about the country's dwindling ore grades.
Analysts say it is unlikely that South Africa will again become top gold miner, a position it has held since 1905, but doubt that its record output peak of 1,000 tonnes in a single-year in 1970 can ever be exceeded.
"We have had declining production," Daniel Sacks, resources sector head at Investec Asset Management, said. "We are having to go much deeper to mine gold in this country, and the grades are getting lower as compared to China, which has newer ore bodies."
Official data show the average gold ore in South Africa averages 4 grams of gold per tonne, and output has declined for five straight years.
With lower ore grades come rising costs as companies dig even deeper in a country that has the world's deepest mines.
"We have a mature mining industry and costs have been rising as companies dig further underground," said David Davis, an analyst at Credit Suisse Standard Securities.
The London-based GFMS precious metals authority said gold production fell 8 percent in South Africa last year, while China's output shot up 12 percent from the year-ago to just over a 10th of the world's supply.
South Africa was edged off its perch with an estimated 2007 output of 272 tonnes, just short of the 276 tonnes of the yellow metal produced by the new number one, China, said GFMS.
World gold output also dropped 1 percent to 2,444 tonnes.
Accident-related mine closures was a big headache for the sector in South Africa last year, and were partly to blame for the sharper-than-expected decline in output, knocking almost a tonne of output off the country's total yearly production. "Everybody has been expecting that China will overhaul South Africa. This was hastened by the safety stoppages," said Frans Barker, a senior official at the Chamber of Mines (Com), which represents big mining companies.
Stung by a spate of deaths at mines, the government shut mines whenever fatalities occurred, curbing output for days.
The industry also suffered a one-day industry-wide strike meant to force companies to focus on safety.
"It will be very difficult for us to reclaim that title, or in other words increase our output significantly owing to many issues, not least the current power problems," Barker said.
"China is also a moving target, and is increasing its output sharply, but I believe we will forever hold the record of producing the most gold in any given year."
South African utility Eskom, which has of late been grappling with a power shortage that has affected mine output, says the woes may persist for around five years, placing a big question mark on expansions in the sector.
The South African gold rush started in earnest in the late 1800s, and the new township of Johannesburg began to fill with settlers, not far from the fabulously rich mines.
Many of the Kimberley diamond millionaires moved to new headquarters in Johannesburg, which quickly became the largest city in southern Africa, and led to the founding of miners such as AngloGold Ashanti and Gold Fields.
Driving China's output higher last year was increased high-grade output by the hundreds of smaller small-scale mines responsible for much of the country's output. Their size gives them the flexibility to go after higher grade ores when prices jump, as they did last year, analysts said.
"Mines in China have reacted better to the gold price," Davies said. Spot gold traded at $871.80/872.50.
Further, gold producers based outside of China have been setting up shop in that resource-hungry country, including Gold Fields, which has a joint venture with Australia's junior miner, Sino Gold Mining Ltd..
"I don't see (South Africa's) gold output increasing, unless we see a massive change in price, maybe above 50 percent from current price, and open up mothballed operations," Sacks said.
"Short of that we should aim for flat output."
(Reporting by James Macharia; editing by Chris Johnson)