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Johannesburg - The 15% improvement in the dollar gold price during the December quarter would mask another difficult operating period for SA's gold mines, analysts in Johannesburg said. The gold price averaged $778/oz in the three months.
However, should the gold price continue to improve and reach an average of $950 to $1 000/oz, there is a possibility South African gold producers could pay dividends. "The profit margins at $950/oz are 50% pre-capex and 30% post-capex," said Nick Goodwin, a gold analyst at South African stockbroker T-Sec.
"Historically, the dividend yield has been about 1.5%. But now it's closer to 8% potentially," he said. Gold shares, hit by production shortfalls and safety fears, have not reflected the potential, he said.
The JSE gold index is almost unmoved since the beginning of November at about 2 450 points.
Cost controls
But cost control would continue to dog the operations. "The costs are continuing to move," said Liston Meintjies, chief investment officer for Metropolitan Asset Managers.
One of the problems is that health and safety concerns following the high number of underground fatalities last year in SA's mines have interrupted production. That's because mines have now tended to shut down whole operating areas while the country's minerals and energy department conducts an investigation. SA mines will also be subject to a safety audit.
Harmony Gold would continue to improve its operating profit performance under the now permanent CEO Graham Briggs. Questions were bound to be asked, however, about further disposals and the future of the company's mining projects in Papua New Guinea.
Investors would be interested in plans by Gold Fields, the country's second-largest gold producer, to kick its South Deep optimisation programme into action. Gold Fields bought the massive South Deep resource from Barrick Gold and Western Areas in 2006 and said it was seeking to improve its operations and expand it.
Given the soaring gold price, AngloGold Ashanti would attract questions about the continued viability of its hedge book, which sees it record a much lower average gold price than companies that sell all their production into the spot market.
Power crisis
Local gold production is liable to fall in future owing to plans by Eskom to reduce power supply. Mines will be able to use 90% of power capacity from the end of this week in terms of an agreement with the mines, the SA government, and Eskom. But Goodwin said most mines would probably scale back production.
Annual global gold production is about 4 000 tonnes of which SA contributed 250 tonnes. "A 10% reduction in this amount would not really move the gold price," he said.
- Fin24