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The truth, nothing but the truth

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For more than a century, South Africa was the world’s top producer of gold — the undisputed champion of the global gold industry. Much of the country was built on gold mines, including its biggest city, Johannesburg.

But in 2007, for the first time, it lost its leading position. And this year, South Africans are witnessing a humiliating slide in the country’s gold status. A new survey suggests that South Africa has tumbled to an unexpectedly low rank of fifth place in the list of gold producers. The top world producer now is China, followed by Australia, the United States and Russia, according to a report by the precious metals consultancy GFMS.

South Africa still has the world’s largest gold reserves. But the complexity of doing business here — including frequent labor unrest, electricity shortages, black empowerment rules, uncertainties of land tenure, shabby infrastructure and rising costs — has damaged the country’s ability to export gold onto the world market.

The survey by GFMS concluded that South Africa has the highest cash costs per ounce of gold, among all the major gold-producing nations, and it had also experienced the most rapid escalation of its costs.

The decline of South African gold production has triggered an outpouring of angst here. Some observers are blaming the firebrand youth leader, Julius Malema, for his persistent campaign for the nationalization of South Africa’s mining sector — a campaign that has frightened some foreign investors, especially when the ruling African National Congress agreed to consider the nationalization idea. Others blame the government for union-friendly labour laws and affirmative action policies that require a black ownership stake in most companies.

Regardless of the exact reasons, South Africa’s mining stocks are now trading at bigger and bigger discounts, compared to their competitors in North America and West Africa.

The decline of gold has sparked much agonized debate here. When the Canada-based Fraser Institute released its latest survey of the attractiveness of mining regions around the world, there were front-page articles in the South African media, headlining the fact that South Africa had slipped to 67th among the 79 jurisdictions in the survey.

Just two years ago, South Africa ranked 49th out of the 71 surveyed places. This year it has tumbled to the point that it is just barely ahead of Zimbabwe in the list of attractive mining destinations.

South Africa’s mining minister, Susan Shabangu, admitted last year that the Fraser survey had a “profound influence” on investment decisions. She vowed to improve South Africa’s ranking in the survey, so that it could reach the top quartile of the rankings by 2014. Instead it got worse.


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