Mineral Sales Miss their Stride as Gold Loses its Footing

Talking Points:

• Gold production has declined 87% since 1980
• Mineral Production in totality fell by 4.7% (y/y) and 5.4% (m/m)
• 1H Chart: USDZAR is Retracing in a Channel

Looking beyond mineral resources may be the key to sustainable growth as South Africa progresses forward. Research compiled by Statistics South Africa underscores the scarcity of the nation’s mineral resources, principally gold, and once again reports a production deficit in the first month of 2015.

In the Environmental Economic Accounts Compendium released by SSA, research shows that gold will likely be depleted as a resource within 33 years. This direction movement has become evident as represented in the mining production index. First published in 1980, the index has declined from 359.0 to 48.4. Using 2010 as the base year (index=100) gold production has declined by 87%, sending South Africa down from one to six in terms of output rankings.

With the question now begged, how important is gold to South Africa’s economic growth, attention can be turned to the remaining production data. As a whole, the output deficit increased in January; production was down by 4.7% (y/y) and 5.4% (m/m). Weighted, gold was the primary factor contributing -4.3 percentage points. The Platinum Group Metals (PGMs) followed in close pursuit subtracting an additional 2.3 percentage points.

Positively correlated to production, mineral sales fell by 3.6% (y/y) in December. The greatest influencers: iron ore (-6.6 pp) and non-metallic minerals (-3.3 pp). Month-over-month sales increased 1.0%, rebounding from a -4.4% change between November and December 2014.

USD/ZAR 1 Hour Chart

Chart Created by Walker England Using MarketScope2.0