The front page of the Wall Street Journal this week (25 August) carried a story about South Africa leading the world – in illegal gold digging. To quote the report “Dangerous Economy Thrives in South Africa’s Abandoned Gold Mines” by Devon Maylie:
“After years of watching its dominance over the gold industry shrink dramatically, South Africa has emerged as the world capital of illegal gold digging. In staggering numbers—easily into the tens of thousands—desperate former miners and gang members have created a subterranean subculture of abandoned mine-shaft wanderers. Armed with a few crude tools, they dig into blasted or cement-sealed mines, comb through tunnels, and spend days chiseling away at bedrock.
“Once the world’s biggest gold producer, South Africa accounted for 80% of the global supplies as recently as 1970. Today, that figure is less than 1%, in large part because China and other countries have sharply picked up their own production, forcing mine closures here that created an opening for freelancers. Today, some 4,400 abandoned mines dot the countryside, almost four times the number in operation, according to South Africa’s Council for Geoscience. And while there are still about 150,000 formally employed gold miners in South Africa, ‘we’re very close to the point where there will be more illegal miners than legal miners,’ says Anthony Turton, a South African mining consultant.”
The Journal continued:
“… taken together, the output of these swelling ranks are having a noticeable affect on the bottom-line of the country’s sagging mining industry and tax revenues. South Africa’s Chamber of Mines, a body that represents mining companies, estimates that the country loses about 5% of its potential annual mineral output to illegal mining activities, equivalent to around $2 billion. In 2010, the most recent year available, the government estimated losing $500 million in tax and export revenue from gold illegally mined and sold in the black market, compared with about $2 billion it raises annually in corporate taxes from all mining companies.”
A few caveats are perhaps in order here. In 2012 the the Chamber of Mines reported gold production of 167 metric tonnes, or 5.8% of world production that year, well down on output and share of global production in 2003, as illustrated below:
The member companies of the Chamber did much better in extracting gold bearing ore from their mines than in extracting gold as the second table shows. The tonnes of gold-bearing rock they milled actually increased in recent years. What has declined precipitously is the average amount of gold contained in each tonne of ore raised to the surface. Each tonne of rock extracted, expensively and dangerously, from the bowels of the earth now contain a miniscule average 2.9 grams per metric tonne. The loss of SA’s share in global mine production has much more to do with declining grades (from 4.56 grams per tonne in 2003) than it has to do with increased output elsewhere. Global gold output has increased by approximately 230 tones since 2003, while production from all SA mines fell by 208.6 tonnes over the same period. In other words, production outside SA has increased by a little more than SA production has declined.
An important further point worth making is that annual production of gold is a very small proportion of the gold ever produced. Almost all of this has survived and is held as a store of wealth. Therefore, as is surely apparent, the price of gold is little affected by current output – legal or illegal. The legitimate mines may lose potential output to thieves and the SA government is not able to collect income from illegal or informal miners, while the price is unaffected by illegal mining activity – equivalent to 5% to 10% of the legal production. Furthermore, if the gold has been extracted illegally from shafts that have been permanently abandoned, such output is incremental, not lost. The gold would have stayed in the ground and not helped produce any income at all. The costs of mining this otherwise abandoned gold is borne entirely by the workers themselves, including the risks of losing their lives to rock falls and their gold to gangsters preying on them.
Incidentally, the gold produced in SA in 2012 earned R73bn, well up from the R32.9bn realised in 2003 thanks to the higher rand gold price. 5% – 10% of this attributed to illegal gold miners is significantly more than the R2bn worth of illegal mining revenues reported by the WSJ and does not take account of other mining sales that altogether totaled R363.8bn in 2012. Such illegal mining activity, currently largely unrecorded, could add significantly to the SA GDP were it to be included in the national income accounts.
Yet while the recorded output of gold has declined and the numbers employed in gold mining has fallen from 198 465 employees in 2003 to 142 201 in 2012, average earnings of these workers have improved significantly over the same period. Total gold mining earnings amounted to R22.24bn in 2012 or R156 386 per employee, compared to approximately R63 900 earned by the average worker in 2003, or to R103 000 in 2012 (the equivalent when adjusted for CPI). In other words, the average employee in the gold mining industry, of whom there are now fewer, appears to be earning about 48% more in CPI adjusted terms in 2012 than they did in 2003.
These improved remuneration and employment trends are unlikely to be independent. The fewer surviving gold mine workers have become more productive, helped no doubt by more and better equipment per worker, judged by the volume of ore extracted rather than the gold produced. The industry would not have survived otherwise than by providing fewer jobs in exchange for what have become better paid and more productive workers. Operating margins for the Chamber member mines have improved rather than deteriorated over the years, as we show below, despite lower grades of gold mining ore.
The safety record of the industry, judged by fatality rates, has also improved as we show below. Thus the industry has provided better and safer jobs, but for regrettably fewer workers.
As the WSJ makes only too clear, the willingness of the illegal miners to undertake the hazardous and poorly remunerated work they engage in has much to do with the lack of alternative employment opportunities. To quote the article again:
”’If I could find a proper job, I would leave this,’” says Albert Khoza, 27, who says he started illegal prospecting eight years ago because he couldn’t find work and was desperate to send money to his family. On this day, outside an old mine about 60 miles from where Mr. Matjila mines, he has been handling mercury with his bare hands. His eyes are bloodshot and infected, as he stokes the fire with plastic containers”.
Or, as the other illegal miner interviewed, Mr. Matjila, is reported to have said: “’We’re not criminals, I don’t want to be doing this. But I need to make some money.’ Then he stood up to walk down the road to the hardware store to check on prices of new supplies. ‘We have to make a plan to find another hammer,’ he says.
The challenge to the SA economy is to resolve the inevitable trade-offs between better jobs for some workers and the very poor alternatives then open to those who are unable to gain access to what is described as ”decent jobs”. The formal SA labour market has not been allowed to match the supply of and demand for labour at anything like market-clearing employment benefits. And so we have the insiders, those with formal employment and willing to launch strike action to further improve their conditions of employment; and the outsiders who find it so difficult to gain entry to formal employment, of whom the illegal miners represent a numerically important group, as numerous, so we are told, as those formally employed in gold mining.
The solution to the general lack of formal employment opportunities appears as far away as ever. Strike action not only leads to higher real wages and reduced employment opportunities, but still greater incentives to substitute reliable machinery for more expensive and unreliable labour that makes continuous production very difficult to achieve. The unpredictable impact of strikes on production is perhaps as much an incentive to reduce complements of relatively unskilled workers as are higher real costs of their employment.
To encourage employment in the gold mining industry and everywhere else, it would be very helpful if workers were willing to share in the risks of production, as the illegal miners appear willing to do: that is to accept less by way of guaranteed pay and more by way of rewards linked to performance and profits. In other words, for workers to become, to a greater degree, owners of the enterprises they engage with. If pay went up and down with the gold price, the gold mining industry would surely be willing to bear the risks of hiring more workers.
My first step was making a great big giant cadnaelr and taping it to the wall above my iMac. Because I forget everything, and I can’t keep track of time. Somehow since I started freelancing full time my productivity went down the drain, because I no longer have a tight time frame to make it work. Turns out I needed the structure and the pressure of juggling several jobs at once. I just procrastinate otherwise. So, cadnaelr to write down everything in is my first step. Step number two writing a daily schedule. It’s List Time!
Along reading this post, getting closer to the end, without a mention of the strikes almost gave me this sense of people are once again not taking everything that factors in into account. I must admit the impact of the strikes are often down-played and rejected as a common issue. This is not the only common contributor to the fall in SA gold production.
Firstly, in my opinion, strikes should not be a right and be inexcusable. There is nothing dignifying to protesting for higher wages if you do not deliver and/or do not even have a proper degree to justify your pay, this obviously does not apply to all.
Secondly- the problems otherwise faced by the mines ,such as fires and floods due to various reasons, are a massive contributor to losses of not only production but also profit.
The mine can not alone handle all these without implementing action to prevent and eliminate in their own freedom to do so and at this stage external parties play a unnecessary, unwanted role.