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SA miners need tech upgrade to revive its status as king of gold

Mar 24 2017 08:53
Kevin Crowley, Bloomberg

A mine worker stirs molten gold in a furnace before casting. T ransfer pricing and profit shifting by multinationals inside and outside SA compromises empowerment partners, workers, communities and the country’s economy (Simon Dawson / Bloomberg / Getty Images)

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Johannesburg - During his early years as a miner in South Africa, Joas Mahanuque spent six hours a day on his knees drilling for Impala Platinum. The dust-filled tunnels a kilometre underground were too low for him to stand, and temperatures reached 40 degrees Celsius.

Today, he has essentially the same job 2.5km beneath the surface for Gold Fields. But unlike most of the precious-metals miners in the country, Mahanuque sits comfortably atop a new seven-tonne vehicle, using a joystick to control an eight-foot drill as ventilated air blows behind him.

“It’s not hard,” the 37-year-old said while taking a break under the bright tunnel lights of South Deep, the country’s only fully mechanized underground gold mine. “You just sit and operate and make money.”

If only it was that easy for the rest of the once dominant South African gold industry. After more than a century as the world’s top producer, the country has slipped to number seven over the past decade. Mines are deep, labour intensive and are being developed with mostly drill-and-blast methods little changed since the 1950s, which means costs have soared and output has dropped.

But even after all those years of digging, South Africa still has the third-largest gold reserves. So, companies like Gold Fields are investing in new technologies to make extracting the ore more profitable. The opportunity is vast. South Deep has 37.3 million ounces of reserves in the ground, which means it is capable of producing 500 000 a year for at least six decades.

“South Africa is endowed with an unbelievable mineral resource,” said Neal Froneman, the chief executive officer of Sibanye Gold, the biggest producer of South African gold. “If we don’t have this shift to a new way of thinking about technology, we are going to sterilise resources. The industry will be dead by 2033 if we don’t change.”

The problem is that cutting costs and reviving output has been difficult. An estimated 80% of the industry’s output still comes from workers using hand drills in narrow tunnels rather than the bulk mining techniques employed elsewhere. South Africa unearthed just 140 metric tonnes of gold last year, down 58% from 2004.

Even at South Deep, Gold Fields endured a decade of accidents and technical mistakes. The company spent R33bn to acquire the operation and then to figure out the right method of mining the ore effectively. Gold Fields’ market value is about R37.1bn. Even with the new machines it added, like the drill operated by Mahanuque, full production is still another five years away.

Yet the potential is immense. South Africa has about 6 000 tonnes of reserves, trailing only Australia and Russia, according to the US Geological Survey. Some 1 000 tonnes could be easily mined if the industry can use technology to cut by half the ratio of gold it can produce profitably from every tonne of waste rock, according to the Chamber of Mines. That’s worth an additional $40bn at current prices.

The geology of South African deposits makes a quick fix challenging. Gold is found mostly in narrow reefs that dip at 30-degree angles in hard-to-break rock as far as 4km below the surface, where seismic events are common. Workers can travel up to four hours a day through tunnels to work sites, where they drill holes in seams often just 30cm wide using hand drills. They use explosives to break the rock.

Cheap labour

The apartheid system provided cheap labour and minimal safety standards for decades, so companies had little incentive to invest in technology. Even after vast safety improvements since then, a worker is killed every 12 days on average in South Africa’s gold mines.

“People come from overseas and think we’re pretty antiquated,” said Alastair MacFarlane, a lecturer at the University Witwatersrand, Johannesburg, and a non-executive director of Impala Platinum. “We haven’t made huge strides in the way we do things in 100 years.”

With costs rising 8% a year, mainly due to labour and electricity, and gold hovering around $1 250 an ounce for the last four years, South Africa’s gold producers are being forced to examine more efficient ways of extracting the precious metal.

South Deep is able to use more heavy machinery because its ore seams are more than 100 metres wide. That’s not the case in the thin deposits more common in South Africa, where it would be more difficult to use bulk-mining methods that require sifting through more waste rock to get the gold.

Technology flop

Lonmin, the world’s third-largest platinum producer, tried to retrofit its mines with modern technology in the mid-2000s and failed.

“You can’t take a narrow ore body and expect to fully mechanise,” said Martin Prinsloo, chief financial officer at Royal Bafokeng Platinum. “You need to have the right solution for the right ore body.”

The industry will need to develop technology to fit its mines rather than using machines developed for elsewhere in the world, according to MacFarlane, who’s working as a consultant with the Chamber of Mines to push modernization.

Sibanye is testing small robots that can drill in tunnels less than 1.2 metres high and experimenting with ways to break rock without explosives, Froneman said. Blasting creates smoke and dust that takes hours to clear, reducing working time, and can add to seismic events at depth.

AngloGold Ashanti is using reef-boring technology that extracts gold from earthen portions of old mined left intact as stability pillars, which are replaced immediately with a support structure.

“We’ve made inroads in terms of shaft pillar mining, without using explosives,” AngloGold CEO Srinivasan Venkatakrishnan said. “But it can never replace conventional mining fully. It can only partially offset the rate of decline.”

Safer mines

Companies also want to make sure workers spend proportionately more time working and less travelling by extending shifts and potentially giving more days off.

Another upside of technology is it’s generally safer. Employees can work a few metres away from the rock face, where rockfalls are more likely. Accidents and subsequent government-mandated safety stoppages meant AngloGold and Sibanye weren’t able to extract about $112m of bullion in the first half of 2016.

To survive, South African producers will need to incorporate more technologies and new techniques.

“Hand-held rock drilling down 3 000 to 3 500 metres, up against the rock face, I can’t see that’s going to be sustainable beyond five to 10 years,” Gold Fields CEO Nick Holland said. “It’s not exactly what the millennials want to do.”

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