What a difference a year can make. Last June it was doom and gloom for SA gold mines as they battled to cope with a gold price that had declined to about R80 000/kg after peaking in 2002 at record levels around R110 000/kg.

By mid-May this year the price was above R130 000/kg, after breaking the record in January and carrying on up. SA gold mine executives have been talking about what the higher gold prices mean for new projects. At the least, a number of mines will have their lives extended. AngloGold Ashanti CEO Bobby Godsell said in May his group was dusting off expansion plans at various mines which would extend operations to depths of 4 000 m-5 000 m. These projects are viable at gold prices above R120 000/kg. The critical issue is that such prices must be sustainable.

Confidence is needed that higher prices will be sustained despite swings.

Godsell in May said he believed the rand gold price had moved into "new price territory" at about R120 000/kg based on an exchange rate of R6/US$1. That is a fundamentally stronger base than the 2002 peak of about R110 000/kg, reached on the back of the sharp decline in the value of the rand to R141. It was the rand's recovery from those levels that hammered gold mines until late last year. That changed from about November last year, when the dollar gold price broke through the $500 level and then set a string of 25-year records as it went above $700/oz by early May.

Commentators believe the price will beat its record $850/oz, set in 1980. Among them is the authoritative UK consultancy GFMS, whose 2006 review of the gold market predicted "hefty gains" in price over the next two years and that "the 1980 high could be taken out".

A number of factors are driving the price and none is expected to go away soon. The supply of gold is expected to decline because major gold producers are battling to replace what they mine from reserves. This is because exploration required to find and prove up deposits has dropped off over the past 20 years, when mines had to concentrate on survival in the face of depressed prices.

Demand is soaring because of increased investment interest. That is driven by rising concern among international investors over geopolitical issues - such as the Iran nuclear situation - and worries over the global economic implications of the state of the debt-burdened US economy.

Chief among these are that the US dollar could weaken further. That could cause a resurgence of inflation - which is good for gold - and it could also cause a shift by countries holding large amounts of dollar assets into alternative investments, one of which is highly likely to be gold.

Against that background there have been a number of key developments among the main SA gold companies, setting the stage for what could be an explosive year or two.

Gold Fields was finally set free in January when Norilsk Nickel sold its 20% stake to a number of institutions, realising a profit of about $1bn.

In April, Anglo American dropped its outright control of AngloGold Ashanti through a sale of shares coupled with a $495m issue of stock by AngloGold Ashanti. The effect was to lower Anglo American's stake in AngloGold Ashanti to 41% from 51%.

No sooner had this all taken place than there was an outbreak of speculation over moves by AngloGold Ashanti to merge with Gold Fields. Both Godsell and Gold Fields CEO Ian Cockerill said there was nothing formal taking place, but neither would rule out a deal.

At the same time Harmony put the cat among the pigeons through its purchase of a 29% stake in Western Areas, which owns 50% of the South Deep mine. The other 50% is owned by US miner Barrick, following its takeover of Placer Dome in January.

Both AngloGold Ashanti and Gold Fields have publicly stated their interest in South Deep and both have much deeper pockets than Harmony if it comes to a bidding war.

That left analysts puzzling over Harmony CEO Bernard Swanepoel's "end game" strategy, because owning an effectively passive 15% stake in South Deep is not going to help him solve Harmony's pressing problem of the need for greater exposure to higher quality mines.

Swanepoel initially said the move bought Harmony "a seat at the table" when it came to developments on South Deep's future, but he then followed up with a more specific proposal - that Harmony sell its Target mine to Western Areas.

The operational justification is that both Target and South Deep are highly mechanised operations, mining wide ore body gold deposits. This makes them very different to the traditional labour-intensive SA mine. But any such deal would also give Harmony effective control of Western Areas, so upping Harmony's influence on South Deep.

In May Swanepoel raised the possibility of splitting Harmony into two companies - the quality mines in a vehicle dubbed "qualco" and the marginal mines in a company dubbed "leverageco" (which analysts prefer to call "crapco").

The rising gold price and greater investor interest in the gold sector made such a split feasible, whereas it could not have been done previously because nobody would have been prepared to risk exposure to "crapco".

The past year was also notable for the rise - and subsequent temporary fall - of Simmer & Jack (Simmers) which specifically targeted the kind of assets that would fall into a "crapco" when it bought DRDGold's North West division, which had been put into provisional liquidation.

It was a perfectly timed move and the Simmers share price rocketed - until management fell out with its BEE partners and got involved in a corporate brawl for reasons that, to an outsider, make no business or commercial sense.

As JP Morgan analyst Steve Shepherd has pointed out, even the energy crisis is working in favour of SA mines compared with their foreign counterparts. The reason is that the predominantly deep-level SA mines are labour intensive, and energy costs are a much lower proportion of total working costs than on foreign mines, which are predominantly open-pit operations using fleets of diesel-guzzling trucks and other machinery.

According to Adam Fleming, former chairman of Harmony and now chairman of high-flying gold exploration share Wits Gold, gold majors like Newmont and Barrick will eventually have to increase their involvement in SA.

He believes they will not be able to find enough gold elsewhere and will have to return to the "mother of all gold deposits", which they have avoided until now because of the great depth of most of SA's remaining gold. If that happens, gold will find its twilight years extended, to the benefit of the country.