HomeGoldCapex in gold mining will drop till 2011

Capex in gold mining will drop till 2011

Gold “’ capex
dropping till at
least next year
Cape Town, South Africa — MININGREVIEW.COM — 15 June 2010 – Over the last decade, capital expenditure in South Africa’s gold mining industry rose sharply, as mining companies “’ buoyed by rising gold prices and strong balance sheets “’ have invested in developing mineral reserves in their current mining operations, and in upgrading mining infrastructure and equipment purchases. This has been important in sustaining existing mining operations, delivering growth and securing the future of South Africa’s gold mining industry.

Revealing this here, analyst Wonder Nyanjowa of growth partnership company Frost & Sullivan Metals & Mining, said capital expenditure in the industry had reached a record peak of R11.54 billion in 2008, but that the growth trend had started to reverse in 2009. “This will continue into 2011 as most miners have suspended expansion projects and closed marginal mines to preserve cash,” he explains.

New analysis from Frost & Sullivan finds that capital expenditure in South Africa’s gold mining industry will start growing again once credit becomes available to mining companies and suspended expansion projects are resuscitated. The firm South African Rand is, however, likely to affect mining operations, as companies are receiving less revenue in Rand terms per each unit of the US dollar received.

“Capital expenditure is likely to remain low during 2010 and 2011, due to the strength of the Rand and declining gold production,” Nyanjowa notes. “This will reduce the profitability of the industry and depress miners’ ability to invest in infrastructure upgrades and equipment purchases.”

South Africa’s near-surface gold deposits have been exhausted, leaving behind only deep underground deposits. While it is still feasible to extract this ore, given the technological breakthroughs and level of the gold price, literally no new gold mines have been opened in South Africa in the last forty years.

“Capital expenditure in the South African gold mining industry is therefore expected to remain focused on extending the life of existing mining operations,” Nyanjowa states. "The significant upside potential for the gold price in the short and medium terms will bolster the capability of mining companies to expand the size and scope of their current mines,” he adds.