ARTICLES

Post Script - Mining

25 October 2018 By PDSNET

On 12 October 2018, we published an article on mining in South Africa. One of our clients very kindly corrected some of our mistakes in that article and added more value. He has agreed that we publish his contribution. Historically the economies of countries first depended on easily exploited resources on land and sea and, as technology developed on, mined minerals. South Africa is no different and due to gold particularly at one stage, the country�s economy could be described as a one commodity economy. It should further be noted that thanks to Rhodes and others of his time, mining was based on cheap labour, and even until today it still is. With respect to gold in alluvial form, it was mined by our ancient ancestors across the globe as gold particles and nuggets was easily separated from other materials. Gold in hard rock presented a problem as the rock needed to be crushed and milled to liberate the gold before it was recovered by gravitational means. In the late 1800s, near surface gold was indeed very viable. The next hurdle to keep gold mining viable was the introduction of the cyanide process in the early 1900s. Gold mining prospered until the gold price was fixed at $35/oz and higher and higher grades needed to be mined, as costs increased and mining got deeper. When the two-tier gold price was introduced in the early seventies, and gold rallied to over $800/oz, large volumes of marginal ore became profitable. Heap leaching of sulphide ores had no impact on the profitability of deep level mining as it only contributed marginally to the bottom line of mines. Mainly used to treat old mine dumps. Where does this take the Witwatersrand type gold mines? Existing mines will soon exhaust its accessible payable ore reserves as costs increase and the gold price is locked at current levels. I do not foresee any investment in new South African gold mines irrespective of technological advances or favourable legislation. Do remember that, according to the theory, gold was deposited by rivers flowing into a lake. In such deposits, the heavier material will be deposited first as the rate of flow carrying the material slows down. With reference to platinum, with the marginal average grades of the ore and the low platinum price only near surface, mines will survive. Yes, indeed South Africa can expect investment in other mined minerals, but mining is unlikely to ever again make a significant impact on the economy or alleviate the current high unemployment levels. Reasons:

1. The capital cost required to sink and establish a deep level mine will be capital intensive and it will take years before it comes into production.
2. The average grades will need to be very high to offer the mines life to generate an acceptable return on investment.
3. Narrow highly fractured narrow ore bodies have always been extremely labour intensive and despite the best efforts of the industry will always be.
4. The operating cost of such mines can be prohibitively high as the cost of hoisting, refrigeration, pumping, processing is power (electricity) hungry.
5. Current legislation and political demands will be the last nail in the coffin.
6. Based on the fact that at its height, South Africa produced 75% of the worlds newly mined gold and now a fraction of that tells the story in a nutshell.

I do note you have extensive references in the article. I do however suggest you read Jade Davenport�s book Digging Deep to get a good understanding of the history of mining in South Africa. Written by Nap Mayer

DISCLAIMER

All information and data contained within the PDSnet Articles is for informational purposes only. PDSnet makes no representations as to the accuracy, completeness, suitability, or validity, of any information, and shall not be liable for any errors, omissions, or any losses, injuries, or damages arising from its display or use. Information in the PDSnet Articles are based on the author’s opinion and experience and should not be considered professional financial investment advice. The ideas and strategies should never be used without first assessing your own personal and financial situation, or without consulting a financial professional. Thoughts and opinions will also change from time to time as more information is accumulated. PDSnet reserves the right to delete any comment or opinion for any reason.

Share this article:

PDSNET ARTICLES

Exponential Growth

The  S&P 500 index is important because all the stock markets around the world tend to follow it. If the S&P is in a bull trend then London, Tokyo and the JSE will also be in a bull trend – and vice versa.

The S&P500 index began 68 years ago on 4 th March 1957 with an initial value of 43,73. It took nearly

The US Jobs Market

International investors who trade on Wall Street are generally negative about any good news from the economy because it tends to make the monetary policy committee (MPC) more hawkish and less likely to reduce interest rates. The opposite is also true. But there comes a point where bad news is so bad that investors begin to fear that the US economy is heading

Jackson Hole

Once a year in late August central bankers and academics congregate in Jackson Hole to discuss the state of the economy and consider the way forward. Traditionally, the Chair of the Federal Reserve Bank (“the Fed”) addresses the meeting and gives direction to its thinking on monetary policy in the US. This year, the comments of Jerome Powell resulted in the

Choppies

Choppies is a supermarket chain which operates in Botswana, Namibia and Zambia. It is listed both on the Johannesburg Stock Exchange (JSE) and on the Botswana Stock Exchange (BSE). Notably, the company has resisted the temptation to re-enter the highly competitive and cut-throat retail market in South Africa, having exited that market in 2020 due to sustained losses. Despite

Gold Resistance

All investments throughout the world can be ranked on a scale from high risk to low risk. As a general rule, in the world of investment, risk and return rise together. In other words, as the risks in an investment increase, so does the return necessary to attract investors.

At the one end of the scale there are very low risk investments

Sibanye takes off

We have been writing about Neal Froneman and Sibanye for years now. Beginning in 2013, Froneman assembled the Sibanye group over a period of 7 years, buying up mining operations both in South Africa and America at bargain prices. Initially he bought precious metals producers, but more recently he has been diversifying into base metals like zinc and lithium which

The 16 Year Bull Trend

Since the Second World War, the stock markets of the world, including the JSE, have always tended to follow the New York Stock Exchange (NYSE) - and the NYSE is best measured by the S&P500 index (S&P) of its 500 largest companies.

For this reason, we believe it is important for private investors to constantly

CA Sales Revisited

Retailing in Africa is difficult with many of our leading retailers having attempted to open stores in countries to the North of us without notable success. These countries are often unstable and volatile politically. Getting adequate stock to branches has proved problematic and expensive.

It is not surprising therefore that a company has been

Bluetel

Bluetel (BLU) is a company involved in pinless top-ups, prepaid electricity, ticketing and universal vouchers. As such it is a company with substantial repeat business from existing customers. This type of business model is attractive to investors because it implies minimal working capital and strong cash flows.

Bluetel’s purchase

The Debtors' Book

A BIT OF HISTORY

Many years ago, in 1982 when I started this business (which became “PDSnet”), I ran advertisements in both the Rand Daily Mail (RDM) and in the Star – which were the two most widely read newspapers in Johannesburg at the time. At that time, we were a very small business and had no credit rating at all. Despite this the RDM immediately