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Glorious gold in the heart of South Africa

The total number of people employed in the gold mining industry in South Africa is around 120,000. While the Witwatersrand Basin remains the world's biggest gold resource, South Africa's gold industry only makes up 5% of global supply. Pressures in the SA gold mining industry continue to grow, as the costs of production and unfavourable exchange rates erode profitability for South African mining companies. However, over the past 10 years, South Africa's Gross Domestic Product (GDP) has been marked by a decreasing contribution of gold revenues. In fact, since 2012 alone, sales of gold have plunged by 40%. Gold remains an important industry in the country, despite plunging employment numbers since the heyday in the 1980s.
Glorious gold in the heart of South Africa
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A big part of the problem for the gold industry is falling revenues, rising costs (wages and mining/production), and other factors. In sub-Saharan Africa, each person employed in the gold sector is responsible for up to 10 dependents. Therefore, there is a strong need for protecting and preserving South Africa’s gold industry. Granted, the Witwatersrand Basin has produced an estimated 2 billion ounces of gold over the years, and capital investment in gold mining infrastructure has risen to R9.4bn. However, the rising costs remain a concern for the sector, with employee wages and salaries amounting to R23.4bn in 2014, with the average miner’s payment of R13,435 (2012 figures).

Investors are eyeing the commodities markets for opportunities in gold, given its status as a safe-haven asset. A wide range of market analysis tools is available to crawl the markets for lucrative trading opportunities given the current economic climate. The recent suicide bombing in Manchester, UK has brought instability to the financial markets. Gold is currently trading at $1,259.67 per ounce (May 23, 2017). The six-month performance of gold reflects an appreciation of 4.10%, but gold’s lacklustre performance over the past 30-day period is down 1.18%. Gold plunged to $1,214.30 per ounce on 9 May, but has since appreciated sharply. A big part of the reason why gold is resurgent is dollar weakness. The DXY is trading at 97.05, down 1.16% over five days. For the year to date, the US dollar index is down 5.20%. Every time the USD depreciates, gold tends to prosper.

According to a Saxon Trade commodities trading expert, "There are some concerns about the Fed raising interest rates on Wednesday, June 14, 2017. If the Fed increases the federal funds rate, we could see a slight depreciation in the USD. This will invariably weaken gold demand."

SA mining industry under pressure: Sibanye Gold gets a shellacking

Glorious gold in the heart of South Africa
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Sibanye Gold (SBGL) made headlines recently when the gold mining company issued additional shares. The announcement sent the stock price plummeting 32%. The terms of the rights for Sibanye Gold resulted in a rather steep stock drop. The company’s share price droppedsharply on the New York Stock Exchange. Consider that the May 17 closing price of the stock was 60% higher. This major South African mining producer is desperate to pay down its $2.6bn loan for acquiring Stillwater Mining in 2016. Shareholder value has been drastically reduced with this financial move, but Sibanye Gold was hardly ever a top contender for best South African gold mining company.

Many SA mines are now operating as marginal cost suppliers. In other words, profits are extremely limited and mass production is essential to keep operations running. The company’s palladium and platinum mining activities are generating profits of just 8% – hardly an encouraging sign for investors. On Wednesday, 17 May, SPGL stock dropped from $5.74 per share to $5.43 per share the next day. The stock price then surged towards the $5.85 level, before retreating somewhat this week. Despite weaknesses, this company has generated a year to date return of 22.47%, and the company’s market capitalisation is $1.356bn. The deal to purchase Stillwater Mining is the biggest by a South African mining corporation in 16 years.

31 May 2017 17:18