Peak Gold? South Africa Mines Could Be Out of Gold in 39 Years

South Africa may run out of gold within four decades, according to the Environmental Economic Accounts Compendium published by African Statistics Day.

Analysts say that at current production levels, South Africa has only 39 years of accessible gold reserves remaining. This is significant considering South Africa ranks as the number five gold producing country in the world, and could be another sign the world is approaching, or has reached “peak gold.”

Peak gold is the point where the amount of gold mined out of the earth will begin to shrink every year, rather than increase, as it has done pretty consistently since the 1970s. During the Denver Gold Forum last September, the World Gold Council chairman said he thinks the world may have already reached that point. And he’s not the only one. Franco-Nevada chairman Pierre Lassonde also expects a significant dip in gold production in the coming years. During an interview with the  German financial newspaper Finanz und Wirtschaft last fall, Lassonde said we’re seeing a significant slowdown in the number of large deposits being discovered.

The big question is how will the industry replace the massive gold mines that have produced large amounts of the yellow metal over the last 130 years or so?

The situation is particularly acute in South Africa.

As a Business Insider article pointed out, large goldfields such as South Africa’s Witwatersrand Basin are nearing the end of their life cycles. More than 40% of all the gold mined in human history came from the Witwatersrand Basin. But annual gold output in South Africa has plummetted. In 1970, South African mines produced 1,000 tons of gold. Since then, production has steadily dropped. The country only produced 167.1 tons in 2016. That represents an 83% drop from the 1970 peak.

The fact they have already dug out most of the easy to reach gold represents one of the biggest challenges facing South African miners. As mining analyst Kobus Neil told MoneyWeb, the deeper the mines go, the further the miner has to travel, which comes with additional costs and safety concerns.

As you dig deeper into the ground, you need a higher gold price to make those resources economical, if there isn’t a favorable gold price, those resources can’t be mined economically.”

Even with gold prices rising, mining companies are having a difficult time coving the higher cost of mining the harder to reach, lower quality deposits of gold left in the earth.

“We continue to try and manage costs in order to ensure the sustainability of the operations. Given the above-inflation increases in wages (approximately 50% of operating costs) and electricity prices (approximately 20% of operating costs), this has been a challenge,” Senior vice president at Sibanye-Stillwater James Wellsted told MoneyWeb.

When we look at the future of gold, it’s easy to get caught up in the latest geopolitical turmoil or the most recent policy pronouncement by the Federal Reserve. Of course, it’s important to keep abreast of the latest developments in the news cycle. But investors should never lose sight of the most basic fundamentals – supply and demand. The gold industry may well be entering a long-term — and possibly irreversible — period of less available gold. As mining companies find it more difficult to pull gold out of the earth, it will mean less gold for refiners to produce for the consumer market. Remember, gold gets its value from its scarcity.

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