Coal – the exception
to the rule
 
Cape Town, South Africa — MININGREVIEW.COM — 19 January 2009 – South African mining companies will have to place greater emphasis on efficiencies and cost containment this year as the effects of the economic downturn continue to be felt on the commodities market.

Reaching this conclusion in its analysis of African metals and mining markets, growth partnership company Frost & Sullivan predicted that high-cost marginal operations would be dropped as mines looked to preserve cash and ensure profitability.

“Resource prices are likely to pick up at the tail end of second quarter once the global economic slowdown starts lifting, but not by the substantial margins that would spur increased production,” notes the company’s metals and mining analyst Wonder Nyanjowa. “Production output –   particularly for gold and platinum – will continue declining. We expect gold production to fall from the 240 tonnes produced in 2008 to around 229 tonnes this year,” he added.

Nyanjowa said that the gold price, which ended 2008 at $865/oz, was expected to continue rising slowly and might again break the US$1 000/oz level in the course of this year. Gold’s status as a safe-haven had protected it from the significant falls in prices seen in some other resources.

Nyanjowa went on to say that platinum’s price, however, was closely tied to developments in the global automotive industry, which was the single largest source of demand for the precious metal. The prolonged delay by the leading three United States automakers in accessing bail-out funds; the one month long closure of Chrysler; and declining new vehicle sales across Europe and America, would continue to depress sentiment in the platinum industry, he explained.

“Issues around electricity, safety, skills and labour activism will deliver further production cuts in the platinum sector this year,” Nyanjowa believes. “Production dropped from 5.2 million oz in 2007 to 5.1 million oz in 2008, and we expect it to decline further to about 4.9 million ounces in 2009.”

Overall, the mining industry can expect job losses to be widespread as companies restructure their operations in view of weaker demand and lower resource prices,” Nyanjowa concluded. “Only the coal industry may be spared, as Eskom provides a ready market for all domestic produce and electricity generation expansion remains a top priority.”