COMPARISON, ACTUAL SOUTH AFRICAN PRODUCTION TO PROJECTIONS OF 1986 AND 1994 STUDIES

This is the section where I compare the production projections from my old studies (one of them at least 25 years old) to actual South African production...always a potentially embarrassing proposition. The table below shows actual South African production versus the production projections for the study published in 1986 and for the study published in 1994. In each case, the study's production projections are estimates of production levels under two different constant U.S. $ gold price levels ($300/tr oz and $400/tr oz) required for “break-even” economics (0-pct DCFROR). The cost estimates for the 1986 study were made in average 1983 U.S. Dollars and S.A. rands and the cost estimates for the 1994 study were made in average 1991 U.S. Dollars and S.A. rands.

YEAR

ACTUAL PRODUCTION (MT)


1986 Study Projection for 0% DCFROR at $300/tr oz (1983 U.S.$), MT

1986 Study Projection for 0% DCFROR at $400/tr oz (1983 U.S. $), MT

1994 Study Projection for 0% DCFROR at $300/tr oz (1991 U.S. $),MT

1994 Study Projection for 0% DCFROR at $400/tr oz (1991 U.S.$),MT

1984

680


500

580



1985

678


500

580



1986

638


530

620



1987

602


530

610



1988

618


520

610



1989

606


520

610



1990

603


500

590



1991

599


500

590



1992

611


500

590

350

570

1993

618


500

590

350

570

1994

584


500

590

360

570

1995

522


500

590

360

570

1996

495


500

590

360

570

1997

493


500

590

360

570

1998

464


500

590

360

540

1999

449


500

560

360

540

2000

428


500

560

360

540

2001

394


490

550

360

540

2002

395


480

540

360

540

2003

375


470

540

360

540

2004

342


470

530

360

540

2005

297


460

530

360

540

2006

275


460

530

360

540

2007

255


460

530

360

540

2008

220


460

530

360

540






The $300 and $400/tr oz projections of the 1986 study should be viewed in the context of an actual annual average gold price range of $271-$872/tr oz, averaging $403/tr oz and, more importantly, a constant 1983 $ annual average gold price ranging from $152-$403/tr oz, averaging only $262/tr oz.

The $300 and $400/tr oz projections of the 1991 study should be viewed in the context of an actual annual average gold price range of $271-$872/tr oz, averaging $410/tr oz and, more importantly, a constant 1991 $ annual average gold price ranging from $208-$552, averaging only $321/tr oz.

The reader will notice that the 1994 study's annual production projection for breakeven economics at $300/tr oz was lower (at 360 mtpy) than in the 1986 study (460-500 mtpy). I attribute this to a “curve shift” to a higher cost structure in the SA gold mining industry during the 1980's, resulting in more output being in the $300-$400/tr oz range. Interestingly, there is no shift in the amount below $400/tr oz.

In the table, actual production for 1984 (680 mt) through 1994 (584 mt) closely matches the projected output for $0-$400/tr oz “breakeven” economics in both studies (during this time period the annual average price of gold averages $377/tr oz). The industry's “rationalization program”, begun in 1992/1993, results in an orderly, but steep, decline from 1994 (584 mt) through 2001 (394 mt). This 2001 actual production level is way below the 1986 study's projected production level (490 mt) but still slightly above the 1994 study's production projection level (360 mt) for breakeven economics at $0-$300/tr oz, basically a “worst case” scenario.

Actual production for 2003-2008 has continued to plunge below those “worst case” levels, even though the gold price has risen dramatically during this time. Reasons for this will be discussed later in this presentation. For now, I will just note that this shows the heavy damage that the long period of ridiculously low gold prices has done to the South African gold mining industry. In 2003-2008 fully 40-46 pct of the ore tonnage milled in South Africa has been the low-cost but very low grade surface mineable material which shows an industry in full “survival mode”.

*****************************************************

This is a good point to discuss a major factor that explains much of the decrease in South African production since 1994. In the South African gold mining industry there are two major types of economic gold material. First, and most important, is the high-grade (at least 4.0 grams gold/mt ore or more) underground mineable ore. The other is the low-grade (mostly less than 1.0 grams gold/mt ore) surface mineable material in old dumps and tailings material. The higher grade underground ore is much more expensive to mine and mill, however it will generally produce , on average, at least 12 times more gold per metric ton of ore treated. In the study published in 1986 nearly all of the ore capacity analyzed was underground ore for treatment; in the study published in 1994 only 16 pct of the analyzed ore capacity was surface ore. In my studies, it would have been impossible to analyze all of the potential percentage mixes of underground/surface ore possible. As will be shown in more detail later, by 2008 nearly half of the ore treated in South Africa was low grade (.48 g/mt), low-cost surface ore.

******************************************************

I must mention one last point. Not shown in the table is comparison to the years beyond 2008. In both studies, this period was the one in which the industry showed major declines solely related to exhaustion of the analyzed resources (not due to political/economic factors such as Central Bank sales and price suppression). The study published in 1986 (work actually done in 1983) did not have annual production declining radically until the years 2008-2013 (from 460 mt down to 249 mt under the $0-$300/tr oz price scenario). The study published in 1994 (work done mostly in 1992) did not have annual production declining radically until the years 2010-2020 (from 350 mt to 240 mt under the $0-$300/tr oz price scenario). Obviously, the actions of the Central Banks have sped up the decline significantly. The fact that now (2009) we are close to the years when those declines were supposed to begin due solely to reserve/resource exhaustion leads me to believe that there may not ever be another radical, significantly large increase to South African gold production...even with sustained high gold prices in constant $ terms.

Home Page Prev. Next