Spotlight on the South African Market
Chapter 1 - Introduction
- South African gold production ranks 13th globally, it is also home to Africa’s only LBMA gold refinery.
- Chain of custody provenance and an emphasis on ESG extend across several global standards, including LBMA, the OECD, the RJC and the WGC.
- Despite the challenges of energy, economic and political security, there are growing opportunities to further enhance the country’s beneficiation.
In 2020, LBMA designated 12 International Bullion Centres (IBCs), that “operate important market infrastructure for bullion trading activities”. In recognition of the importance of South Africa as a designated IBC, LBMA has asked Metals Focus to prepare a Spotlight report laying out the structure of its precious metals industry, covering the private sector and government bodies, and assess some of the opportunities and challenges facing the country’s gold market.
To provide context, it is worth summarising some of the headline figures for South African gold supply and demand in 2022. In terms of the former, the country’s mine supply ranks 13th globally at 93t. This places it fourth largest in Africa, but in terms of large-scale industrial mining in the region it only sits behind Ghana. Much of this gold is refined by Africa’s only LBMA gold refiner, which is based in South Africa. While recycling is more difficult to gauge, Metals Focus estimate this could have reached 10t in South Africa last year, in response to rising local prices and increased levels of distress selling.
Turning to demand, most significant and high profile is the country’s gold bullion coin programme. Up until 2022 this was based on the 22-carat Krugerrand, with a separate 24-carat bullion coin launched last year. First issued in 1967, the Krugerrand has achieved notable success overseas, especially in the all-important German market where it is arguably the best known retail gold investment product. In 2022, an estimated 30t of gold were used in the fabrication of official gold bullion coins in South Africa.
In sharp contrast, other areas of South African gold demand are modest. For example, gold jewellery fabrication appears to be less than 2t per annum (defined by Metals Focus as the first transformation of gold, excluding the assembly of semi-finished pieces).
Returning to supply, the mining of gold in South Africa is dominated by three companies, Harmony, Sibanye-Stillwater and Gold Fields, which together accounted for 76% of South Africa’s total output in 2022. In contrast to many other gold producers in Africa, South Africa’s artisanal and small-scale mining (ASM) is modest. While this is extremely difficult to quantify precisely, Metals Focus’ assessment is that this is around 9t per annum, much of which is illegally mined.
In terms of the challenges the country faces, this is most apparent in terms of the economic and social problems in South Africa. To quote just a few headline figures, overall unemployment stands at around 33%, with the figure for the 15-25 age group a sobering 64%. The economic challenges extend to some parts of the infrastructure, most notably Eskom, the national electricity power utility. Energy rationing, or load shedding, is not a recent phenomenon, but the extent of this so far in 2023 has been unprecedented. This, however, has presented an opportunity, as a growing number of mining houses and refiners install photovoltaic units to help reduce their reliance on the state electricity provider. This also enhances the ESG profile of South Africa’s precious metals industry, given that most of Eskom’s electricity is generated from coal-fired power stations. In fact, this adds to an already robust ESG profile, given the industry’s contribution to local communities. For example, the mining sector alone last year directly employed almost 94,000 people. There are also steps to develop a skilled workforce in other areas of the precious metals sector, including the country’s jewellery industry.
Corporate responsibility also extends to traceability and chain of custody, which ties back into LBMA’s IBCs. Once again, these are long established principals across the South African supply chain. For example, aside from implementing LBMA’s Responsible Gold Guidance since it was first issued, there is adherence to requirements set out by the Responsible Jewellery Council, OECD, and the World Gold Council, among others.
Even though gold jewellery fabrication is extremely small in South Africa, the growing appetite for responsibly sourced products will increasingly resonate overseas. The US in particular, represents an exciting prospect, and especially in the context of the African Growth and Opportunity Act, which allows for duty free access in the US for South African products that meet certain value-added criteria. This also ties into beneficiation, which is gaining more attention locally. One example of this is the expected redraft of the Precious Metals Act, that the South African Diamond and Precious Metals Regulator is currently undertaking, which it hopes will bolster beneficiation in South Africa.
In many respects, the US is one high profile example of an untapped market and while this strategy has the support of the Jewellery Council of South Africa, it is also true that some infrastructure, such as Special Economic Zones are yet to be fully exploited. There is also the challenge of being able to fund these opportunities, not least following news that the Financial Action Task Force has recently grey-listed South Africa, which may weigh on inward investment.
Despite these challenges, it is worth remembering that South Africa already boasts a long standing and highly regarded refining and mining industry, much of which dates back over 100 years. Furthermore, in 2022, its bullion coin programme ranked fifth globally; over the past 13 years it has struck almost 470t of gold coins. Over and above this, the country is a key supplier of investment gold bars to overseas markets. Finally, as touched on above, numerous steps are already underway to further develop beneficiation within South Africa.
Acknowledgements
Metals Focus would like thank the Rand Refinery, Metal Concentrators, SA Precious Metals and the Jewellery Council of South Africa for their support and invaluable feedback for this Spotlight. We would also like to extend a special thank-you to the South African Diamond and Precious Metals Regulator.