Prime Meridians – Here’s The Worst Mining Nation On The Planet

This week in Pierce Points:

Glencore outbid China on coal. The major miner stepped in with an 11-hour offer on Rio Tinto’s Australia mines

India’s new taxes spurred gold buying. Buyers are snapping up bullion ahead of the July 1 imposition of a 3% sales duty.   

A Libya deal torpedoed the oil price. The country will restart 160,000 b/d of output, just as OPEC is trying to cut. 

South Africa, Argentina changed mining rules. Permitting and taxes improved in one, while mining stocks collapsed in the other

Here’s The Worst Mining Nation On The Planet

Further to the last item above, things are looking ever-tougher for the South African mining sector.

As I’ve discussed in the past, the fall of South Africa over the last decade has been phenomenal. With the nation going from world’s top gold producer, to now barely breaking the top 10.

Anecdotally, it’s well known that miners here are hurting. With myriad stories reporting on the financial hardships faced by producers, employees and government.

Those declining mining finances are driving the government to seek a bigger share of profits — through moves like this week’s steep revisions to fiscal terms across the country.

But some intriguing data released this week shows that’s a fool’s game. The real problem is: South Africa’s sector simply isn’t making any money. And the government’s strategy of trying to take more of a shrinking pie could well accelerate a major collapse of industry here.

Here are the numbers — released as part of a study by S&P Global Market Intelligence, detailing productivity of the world’s largest gold mining nations.

The study authors first looked at traditional measures of mining productivity. Measuring tonnes of ore mined per man hour worked at mines in 30 countries globally — a metric often used to estimate which operations are getting the most bang for their labor buck.

The left-side chart shows overall productivity in terms of tonnes mined — while the right side breaks it down by open-pit mines (blue lines) and underground operations (yellow). Showing a varied mix of global locales in the top five most-productive: USA, Brazil, Philippines, Australia and Turkey.

S&P ranks 30 of the world’s top gold mining countries by tonnes mined per man hour worked

The chart highlights South Africa’s big mining issues. With that country coming in fourth-last in terms of productivity. Most of the world’s other top gold-mining nations — Australia, USA, Canada and Peru — ranked in the top 10 for productivity.

The good news for South Africa is that it came in ahead of world’s top gold producer China. And not too far behind number-three producer Russia.

Or did it?

The S&P study points out that using a metric like tonnes mined per man hour doesn’t paint a full picture of productivity. Because not all tonnes are equal — an operation might mine fewer tonnes of more-valuable rock, and make higher profits than a mine that pumps out low-grade ore.

To correct for this value factor, S&P re-ran the numbers using gross revenues per man hour. And the changes are stunning.

As the chart below shows, when ranked by cash generated per man hour, the order of most-productive nations changes significantly. 

Top gold mining nations like Australia, USA and Canada still stand out. Actually coming in number 1 through 3 in terms of financial productivity. Number 6 producer Peru falls to middle of the pack. Number 3 nation Russia stays about the same. 

Ordering gold mining nations by financial productivity changes the picture significantly

But South Africa is the real shocker in this analysis. With the nation falling squarely to last place in global gold mining productivity. 

Not only last — but last by a long way. You can see at the bottom right in the chart above how South Africa’s financial productivity is less than half of second-last nation China. 

Overall, South Africa’s productivity is a whopping 90% lower than top gold nation Australia. By far the worst in the world — and now about to get even more worse, after this week’s additional financial burdens announced by the government. 

That’s an untenable situation. Watch over the coming months for potential major breakdowns in South Africa’s operations — mine closures, strikes, and violence are all distinct possibilities. All of which could lift prices for gold (and platinum — where South Africa accounts for 70% of global production), but will be very serious for in-country operators. 

Here’s to dead last,

Dave Forest

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