Gold Reaches Record High In South African Rand Terms

Gold is far away from a new record high in U.S. dollar terms, but a weakening rand has made for a record in South African terms.

The rand gold price hit its peak on Friday despite the international price falling back under $1500/oz at the weekend. The rand price was boosted by a strengthening dollar, taking the exchange rate to over R7/$ yesterday.

Gold’s previous peak in local currency terms was in 2009 when an exchange rate of worse than R10/$1 translated an international gold price of $994/oz into R321357/kg.

Despite that record, welcomed by South African gold producers and the stock market, some local investors remain wary.

Closed South African Gold Mines Leaking Water Into Johannesburg Supply

Johannesburg grew around some rich gold mines, but there's some new trouble from those old mines. Because the water pumps have long been turned off, the mines have been filling up with water. That water, mixed with mine residure, has become acidic and is starting to contaminate the city's water supply.

Acid mine drainage has plagued derelict mines globally for decades, but most of that damage has been in remote areas. The problem for Johannesburg is that the city has been built on top of its gold mines....

For more than a decade Mariette Liefferink from South Africa's Federation for Sustainable Development has campaigned for better environmental regulation.

When almost three years ago the last major pump removing water from the mines was switched off, she knew what was likely to happen.

Water would build up in the mines, it would mix with residue, turn toxic and then eventually start leaking. Slowly at first but leakage problems left unchecked would grow more costly and that's what's happening now.

Acidic water from the mines is already leaking into the city's groundwater and flowing into dams and rivers.

Given that Johannesburg is a major city, there'll almost certainly be a clean-up drive. There's little hope that the old mining companies will foot the bill, as the mines have been abandoned to the government. Said government has sent out an official to give the line that it's a highly complex problem because of the mines' abandoned status.

Despite Recent Increase, South African Output Down Last Year

As South Africa's mines get older, the closer they come to outright exhaustion. Despite a blip-up earlier this year, total output from South African mines fell by 6.4% last year.

The Chamber of Mines said Monday that production fell 6.4 percent in 2010. They blamed a 7.6 percent decrease in the average grade mined, leading to a lower yield of some 0.11 ounces (3.04 grams) for every ton of ore.

It may seem hard to believe now, but South Africa produced 70% of world gold output as recently as the 1970s. Presently, it's in fourth place.

South African Production Jumps

Thanks to record-setting gold prices, gold production in South Africa has risen the most in 30 years. The mation is only the fourth-largest gold producer worldwide, but its previous status as the #1 nation keeps its production closely watched.

Miners in the country produced 15.1 percent more gold during the month than they did a year earlier, according to a monthly report from Statistics South Africa today. That’s the biggest monthly increase according to Bloomberg data which goes back to the start of 1981.

South African gold production in January was skewed by exceptionally low output a year earlier, Martin Kohler, deputy director of statistics at the national directorate of mineral economics, said by phone from Pretoria today. He wasn’t immediately able to comment further.

Production of all metals in South Africa was up 4.3% from a year earlier.


Demand last year did rise faster than supply, but supply worldwide is still increasing. The cure now for high gold prices isn't likely to be high prices, given the primacy of demand increases, but the high-price effect is there. Once demand stops rising, supply increases will no longer have their effects smothered. Because gold is primarily an asset, even a large increase in supply doesn't change the total stock available to trade by all that much. The supply increase that's to be feared is present holders rushing to market with already-mined gold - suppliers that used to be demanders.

South African Producers Going Deeper

Thanks to its unique geology, South African has some very deep mines. AngloGold Ashanti has a mine, the Mponeng, that extends for four full kilometres down into the earth. That's two and a half miles into the Earth's crust. Since gold deposits are becoming harder to find in the area, Ashanti is planning to go even deeper underground.

Deep mining isn't easy, nor pleasant. The deeper a mine goes, the more at risk it is from underground earthquakes, rock bursts, gas discharges and flooding. And for workers, conditions themselves get progressively more uncomfortable from heat and cramped spaces. [That heat, increasing as you go deeper underground, is what makes geothermal power viable - DMR.]

South Africa is at the forefront of deep mining. Agnico-Eagle Mines Ltd.'s LaRonde mine in northwestern Quebec, one of the deepest mines outside South Africa, operates at about 7,260 feet below the surface. Before closing in 2002, Homestake Gold Mine in South Dakota was considered the deepest mine in the Western Hemisphere at about 8,045 feet. Nowhere else do mines go so deep as in South Africa, and lessons learned there from attempts to extend the life spans of mines will be applicable globally, not just for gold but for extracting other minerals underground....

It'll take about five years to go down that far, but doing so will boost the life of Mponeng by about thirty years. Ashanti's competitor, GoldFields, is making strides in automated mining. They doing so will save miners' lives.