Cowboys don't cry, according to former Springbok rugby player Moaner van Heerden and AngloGold Ashanti CEO Bobby Godsell - among others. Even so, SA gold executives may be forgiven for breaking down and weeping when they review the events of the past year and their situation now.
Last year their prayers had apparently been answered. Gold shifted into the kind of bull market last seen more than 20 years ago.
But SA gold producers have watched their profits and share prices decline as investors piled into the shares of North American gold competitors.
The culprit, of course, was the rand, which has been the world's strongest-performing currency against the US dollar over the past year.
In early January 2004 gold broke through the key US$400/oz level, rising 20% year on year. But the rand gold price received by gold mines was 6% down over the same period.
In early January last year gold sat at $352,40/oz and the rand was at R8,50, so the rand gold price amounted to R96 000/kg. In early January this year the gold price had reached $423/oz but the rand had strengthened to R6,65 so our gold mines received only R90 000/kg. By the beginning of March the situation was even worse, with the local gold price down to R84 500/kg with gold at $400/oz and the rand at R6,57.
So, while North American gold stocks such as Newmont and Barrick took off, rising by up to 70% year on year, SA gold companies' stock prices dropped by as much as 30%.
That's bad for gold investors but it's worse for the SA economy in general. At current rand gold prices, the industry has gone into survival mode and the spectre of retrenchments looms again.
Capital expansions are being put on hold, except those that are so far advanced it makes no financial sense to stop them. There are also a few projects that are still viable even at gold prices of around R83 000/kg.
The outcome is another drop in SA's overall gold production, which fell from 395 t in 2002 to 375,8 t last year as the mines shifted to processing higher-grade ore. The 2002 level of gold production had been marginally up on the 393 t of gold produced during 2001.
How to cope with the volatility of the currency has become a crucial issue for SA gold producers and the solution adapted by many is unfortunate for the country. It involves diversifying production into mining countries that have "dollarised" economies, meaning dollar revenues from the sale of gold are linked to dollar-related costs.
AngloGold suffered the least of the SA gold producers last year because it had the greatest operational exposure to dollarised mining countries. Its share price actually rose marginally (by 1,8% to R310,70) in the 12 months to early January, but that changed dramatically after the group announced a $900m convertible bond issue in mid-February.
AngloGold said it wanted the money to refinance existing debt facilities, but the market linked it - rightly or wrongly - to the financial demands of the merger with Ashanti Goldfields and knocked the AngloGold price down sharply to around R282.
This aside, it was a good year for AngloGold, which nailed down the takeover of the Ghanaian gold group and fended off a spirited counterbid from Randgold Resources, the London-listed gold arm of Randgold & Exploration.
The acquisition of Ashanti does a number of things for AngloGold, aside from the name change of the combined group to AngloGold Ashanti. It further diversifies the group away from SA and increases its exposure to US dollar-denominated revenues because Ashanti's main mines are in dollarised economies such as Ghana and Tanzania.
The deal also puts AngloGold back in contention with Newmont for the title of the world's largest gold producer. AngloGold lost this status when it was outbid by Newmont two years ago for control of Australian gold group Normandy.
Adding Ashanti's 1,55m oz of annual gold output to AngloGold's 5,6m oz brings the merged group up to a potential production level of 7,1m oz. The estimate for the year to December 2004 is 6,34m oz but that includes Ashanti's production with effect from May only.
Newmont is looking to hold its gold production this year at around 7m oz, but to push it up to about 7,7m oz in 2007 through organic growth. Much of that will come from its own greenfields projects in Ghana.
Though Randgold lost the corporate battle, it still did a lot to raise its investment image as a gold company that should be taken seriously. In February Randgold announced it would go ahead with the development of its Loulo gold mine in Mali at a cost of $80m. The open-pit operation is scheduled to start production in July 2005 and gold output is expected to average 200 000 oz/year over six years.
The other major SA gold groups are also keen on diversification and are investing accordingly.
This year Gold Fields will invest $159m (about R1bn) on expanding production from its Tarkwa mine in Ghana and A$125m (about R625m) on increasing production from its St Ives mine in Western Australia.
The Australian dollar has appreciated against the US currency too, but not to the same extent as the rand, and the St Ives project will reduce the mine's overall operating cost base.
Gold Fields' most exciting project at present has to be the group's first move into South America, where it has bought the Cerro Corona gold and base metal project in Peru. Cerro Corona has what is known as a "good address". It is close to and on the same geological formation as the highly successful Yanacoccha gold mine, owned by Newmont/Buenaventura. A feasibility study carried out on Cerro Corona showed it could produce 147 000 oz of gold and 65m lb of copper annually at gold production costs of $212/oz. That study was being redone early this year at the current higher gold prices.
Harmony has the greatest exposure to SA of any of the local gold groups. So far, it has left its capital expenditure plans untouched despite the low rand gold price. Much of the capex required on certain projects had already been spent by previous owners of the mines before Harmony took them over at bargain prices. And spending a bit more now to finish the job should bring high returns. But Harmony also has its eye on foreign developments, in particular two potentially rich new gold mines in Papua New Guinea, through listed Australian subsidiary Abelle.
Then there's Durban Roodepoort Deep (DRD), which has become increasingly dependent for survival on its Australian operations. The group's December quarter results revealed that its Australasian operations - the wholly owned Tolukuma mine in Papua New Guinea and the 20% stake in the Porgera joint venture - contributed 84% of cash operating profit, despite accounting for just 28,6% of total group gold production.
In March, DRD launched an offer to take over Emperor Mines, which runs a gold mine in Fiji. DRD also bid US$20m to buy the gold mining assets of another listed Australian company, Gympie Gold, which had gone into liquidation.
Back home, DRD has been controversial because of the intensity of the legal and personal battle between DRD chairman Mark Wellesley-Wood and ousted former chairman Roger Kebble.
Similarly, Afrikander Lease has seen a running battle between founder Peter Skeat and current CEO Neal Froneman. Froneman ousted Skeat shortly after Skeat was forced to bring him on board as CEO because of pressure from important shareholder Trinity Holdings, a Cape Town financial institution. Trinity CEO Quinton George threatened to call a special shareholders' meeting to vote Skeat out if he did not comply with Trinity's wishes.
Harmony continued with its consolidation of the Free State gold fields by finally buying Avmin's stake in Avgold, which controls the Target mine. That was part of the complex deal through which Patrice Motsepe's private holding company, African Rainbow Minerals & Exploration, acquired control of Avmin, which changed its name to African Rainbow Minerals.
All that's left in the Free State outside Harmony's control is the President Steyn mine - now owned by Canadian-listed Thistle Mining - and Beatrix, which is owned by Gold Fields. Thistle is one of the few small, independent gold mining companies left in SA, along with Bema Corp. Bema is a listed Canadian group which two years ago bought out the gold assets of Petra Mining, which had consolidated much of the Far East Rand gold field between Springs and Nigel. Neither Thistle nor Bema is listed in SA.
One of the few East Rand mines not consolidated by Petra is Sub Nigel; and this operation returned to life during 2003.
Founding chairman Les Holmes, still the largest shareholder, has raised funds to look at reopening the mothballed operations on the East Rand and to evaluate a shallow, low-grade orebody near Virginia in the Free State which Sub Nigel acquired from Gold Fields.
The share price has raced from a 12-month low of 20c to a high of 180c before pulling back to levels around 130c. However, a lot will depend on the rand. Holmes admits that restarting operations at Sub Nigel is simply not viable at gold prices below R90 000/kg.
