Gold is a driver for South Africa and unlocking new reserves is key

South Africa’s mining industry faces challenges from over the border as well as under the ground.

The stakes for South Africa’s mining industry and wider economy are high.

Around half a million men are employed in the sector, many of whom are migrants who repatriate money to villages way beyond the borders of South Africa.

Each year the country exports gems and precious metals to the value of US$14.6 billion, according to Statistics South Africa. China accounts for nearly half this, followed by Germany and Japan. Another $10bn or so are realised from non-precious metals such as iron ore, manganese and vanadium.

Since diamonds were first discovered in the 1860s, followed by gold a decade later, the country has continued to produce precious metals and gems. It has produced more than two billion ounces of gold – about half of all bullion above ground.

The country’s chamber of mines estimates another two billion still remain. But to access this will require mining to greater depths. Already the country has eight of the 10 deepest mines in the world.

The deepest is Mponeng Gold Mine, south-west of the city of Johannesburg. The city, incidentally, is often called “Egoli” by locals – City of Gold. Mponeng is about four kilometres deep, and has more tunnels than the New York subway.

Mponeng is planning on accessing even deeper gold deposits. Deposits of an estimated 140 tonnes have been discovered almost five kilometres down and a long term plan is being put into place to access it.

This depth comes at a price. South African gold mines now have the highest total cash costs in the world and are operating at 37 per cent above the average global total cash costs, according to the Johannesburg mining consultancy Minxcon Group.

Labour accounts for more than half the costs, with some of the larger mines having more than 30,000 employees at a single operation. In 2015 gold producers in Australia, Canada, China and elsewhere had an average cost per ounce of about $680, while South African gold costs around $1,000 for each ounce recovered. As gold sold for an average of $1,160 that year, many South African mines found themselves barely surviving.

Minxcom warns that should the price consolidate at around the $1,100 per ounce level, the majority of local mines will be operating at a loss. Currently gold is trading at about $1,150.

As part of their long-term strategy, some South African resource investors are heading north. Countries such as Ghana, Guinea, Mali and Tanzania all offer good prospects for gold production. Altogether at least 20 African countries produce at least one tonne per annum, says Minxcom.

South Africa, the grand old lady of gold mining, faces challenges from over the border as well as under the ground.

Follow The National's Business section on Twitter