The South African gold mining industry is dead – or is it?

Francois Joubert, 14 Nov. 2012

Tags: gold, mining industry

Gold mines in South Africa are becoming less productive, less competitive and deeper by the day. It’s getting harder and harder to mine each ounce of gold and the industry is definitely at the end of its boom.

I’m sure you’ve read comments like that before.

But today I’m here to tell you that even though this is true for some South African gold miners, it’s not true for all of them…

I saw the truth behind a new gold ‘boom’ with my own eyes

On the 19th of October, I went on a visit to a mine on the East Rand with my American colleague, Byron King.

We went to have a look at a gold mine that’s proving the rest wrong.
It’s just 300m deep, compared to other mines in the industry mining at up to 5km deep!

Its cost of production is less than $500/oz and, if my estimates are correct, that could drop significantly in the next 18 months. That’s compared to some of our gold giants, which produce an ounce of gold well in excess of $800/oz…

And while most South African gold mines have horrible safety records, this one even beats the Australian industry benchmark with its lost time injury frequency rate (LTIFR). LTIFR measure the amount of time a mining company loses after an injury due to a safety related incident.

In Australia, the benchmark is to have a LTIFR of one, meaning one injury per 1 million hours worked. Large South African gold miners have roughly 4-5 injuries per million hours worked. This company, because it’s mine is shallower and safer than the deep mines only has 0.5 injuries per 1 million hours worked!

That also contributes to lower costs and higher production.

But how can this mine be so far ahead of the rest in South Africa’s declining gold industry?

It discovered a gold field the rest of the world forgot about…

It’s simple really – back in the 70s and 80s all the mining companies rushed out of the east rand into the west. Mining higher-grade areas at a low cost. That left the East Rand devoid of new mines, and for 28 years, no new gold mine was built in the area.

But then a team of geologists and mining engineers ‘re-discovered’ a shallow, high grade gold reef in the east rand. A reef most others had forgotten about in their haste to develop four and five kilometre deep mine shafts…

The ‘forgotten’ reef carries 16g/t of gold!

It left this company with the opportunity to develop a new mine that’s shallower than any other gold mine in South Africa, and its operating cost is as low as you can ask for!

And according to management, this isn’t an anomaly…

From a mielie field to a mine in less than four years!

Management believes there’s opportunity to develop more mines like this in the East Rand as the reef its mining still lies untouched… And now that it has a successful working template, it knows how to continue implementing it across the board.

Considering management took this mine from a mielie field in the middle of nowhere, to its first tonne of gold production in four years, and profitable in four and a half years, I’m very positive about the outlook for this company!

So before you believe anyone telling you that the South African gold mining industry is dead think again.

Look for profits where no one else looks

I told delegates at the recent FSP Invest Symposium: “There is a wealth of companies doing things differently, looking for profits in different places – they’ll make it big. The big old ones that are slow to adapt, still looking to do things the traditional way won’t make you money.”

And the South African gold industry is a perfect example of this – Goldfields, AngloGold and Harmony haven’t gone anywhere in the last five years. Yes, these gold miners are probably on a slow road to their own end. But there are innovative companies, like this one I visited, that’ll make it big as they look for gold in places the big miners have already forgotten about.

I’m working on a report about this exciting gold miner and the opportunities it has for investors and will be sharing it with Resource and Scarcity report readers in their December newsletter. Click here to find out how you can become one of them.

If you’re looking for more immediate profits, Red Hot Penny Shares members just received a hot tip on a small gold miner that’s entering a golden age as it doubles its gold production and introduces new projects to increase its profits.

Whatever you do, remember, at the current high gold price there are still good opportunities in the South African gold sector. It’s far from dead. You just need to know where to look.

Here’s to unleashing real value

Francois Joubert

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