South African Gold Production: How Long the Dominant Factor?

Introduction It is estimated that nearly 40% of all the gold ever mined in free world countries has been produced by South African operations. There is concern that this immense productive capacity will soon decline. Such a decline could reduce world gold supply and lessen the ability of market economy countries (MEC) to exert the major influence upon the world gold market. This paper addresses three general issues concerning South African gold production: • How much gold remains to be recovered from the demonstrated resources of the 44 evaluated South African mines; • How long can production at current levels continue; and • What will be its cost. Table 1 provides production data on the world's 10 largest producers for the years 1971, 1981, and 1983. As shown, South African gold production declined significantly from 1971 through 1981. As of 1981, annual South African gold production had dropped by more than 311 t (10 million oz) in 10 years. Despite this, its mines still produced 656 t (21 million oz) that year, about half the world total. From 1981 through 1983, this trend was reversed. Annual South African gold production increased by more than 21.8 t (700,000 oz). The trend reversal was also evident in the US, Canada, and Australia. This illustrates the general, inverse relationship between gold price and gold production. In South Africa especially, as gold prices increased substantially during the 1970s, the average grade of ore mined (pay limit) was lowered as new, lower grade areas and materials were exploited. Gold production declined in volume. But gold revenues increased, and the lives of the operations were extended. The 1981-83 period was one of declining (US dollar-based, average annual) gold prices that resulted in increasing South African production as average ore grades were raised. South Africa currently accounts for 50% of world production (Fig. 1). Figure 2 illustrates South Africa's contribution to total MEC production in 1971 and 1983. Although South Africa's relative share of production has declined, it still represents the single most important source of new gold supply. In 1983, it supplied more than 65% of total MEC production. South Africa currently produces more than twice as much gold as the Soviet Union (ranked second in world production), and 11 times more gold than the US (ranked fourth in world production). Barring major discoveries, South African gold production is expected to peak in 1987 and begin to decline again throughout the 1990s. The rate of decline is ex-