SOUTH Africa's gold industry is becoming increasingly insignificant with every passing year and new players such as Mexico and Ghana are moving up the ranks as the new "cities of gold".
Less than six years ago, South Africa was still the world's No 1 producer of the yellow metal. But maturing ore bodies paired with increasing costs and a complex labour environment have contributed to the country's slide to fifth position.
GFMS precious metals research director William Tankard said currently South Africa produced around 7% of the world's gold, compared with 30 years ago when the percentage was about 65%.
According to the latest data from Stats SA, South Africa's gold production decreased 5% over the past year.
US-based Exploration Insights director Brent Cook said South Africa's deposits were narrow, deep and labour intensive. "Costs are going up and the management company culture around these operations is old and tired," he said.
"I feel there are better places to spend my time researching investment opportunities. These are, for the most part, tired old mines of a bygone era. I expect that gold mining in South Africa will decrease in coming years because it is becoming increasingly difficult to mine those ore bodies at deeper depths, higher costs and among social unrest," Cook said.
Great Basin Gold last week announced that it had plans to sell its Burnstone mine, one of only two new greenfields gold mines started in South Africa since the '80s, and the company's only South African asset.
"The current SA mining industry is concerning to us," said Great Basin Gold CEO Lou van Vuuren.
Recent illegal and wildcat strikes on South Africa's platinum and gold mines have led to the deaths of more than 50 people and cost the economy close to R4.5-billion in lost gold and platinum production.
While strikes on the platinum mines came to a halt this week after workers received wage increases of up to 22%, the strike at Gold Fields's KDC West operation was still in progress.
But Tankard said that even if South Africa's entire gold sector went on strike it would not significantly affect gold prices beyond sentiment, seeing that the country's output is set to further taper off in coming years.
Excessive wage increases as seen on the platinum mines this week could be fatal for South Africa's gold industry, which is already the highest-cost producer among major gold-producing regions.
To produce a single ounce of gold in South Africa on average costs $958/oz, compared with Australia at $864/oz, North America at $665/oz and Latin America where one ounce can be produced for $563, according to data from GFMS Thomson Reuters.
Challenges facing the SA gold industry have allowed countries such as Mexico, where an ounce of gold can be produced for just $325, to make their way up the list of top gold producers.
It is expected that Mexico will produce more than 100 tons a year by 2017, as new projects ramp up to full production. Data from the Mexican Chamber of Mines showed that the country's production grew by 22% in the past year to 88.6 tons, making it the fastest growing country in terms of gold production.
Meanwhile, gold production in Ghana, Africa's second-largest producer, is set to increase as much as 8%, from 3.6million ounces last year to 3.9million ounces this year, according to the Ghana Minerals Commission.
Gold prices have risen 11% during the past year, currently trading at over $1770/oz, prompting gold companies to further invest in countries such as Ghana where gold mining is on the up.
Two of South Africa's biggest mining companies AngloGold Ashanti and Gold Fields own big operations in Ghana, including the Tarkwa and Obuasi mines.
But, despite its depleting gold reserves, South Africa is still ranked No 1 in terms of mineral wealth. The country sits on the largest platinum, magnesium and chromium reserves in the world, valued at $2.5-trillion.
* This article was first published in Sunday Times: Business Times