Over the last decade, capital expenditure (CAPEX) in South Africa's gold mining industry rose sharply, as mining companies – buoyed by rising gold prices and strong balance sheets – have invested in developing mineral reserves in their current mining operations, and upgrading mining infrastructure and equipment purchases. This has been important in sustaining the existing mining operations, delivering growth and securing the future of South Africa's gold mining industry.
"CAPEX in the industry reached a record peak of R11.54 billion in 2008," notes Frost & Sullivan Mining Analyst Wonder Nyanjowa. "However, the growth trend started to reverse in 2009. This will continue into 2011 as most miners have suspended expansion projects and closed marginal mines to preserve cash."
New analysis from Frost & Sullivan, Expenditure Analysis of the South African Gold Mining Industry, finds that CAPEX in South Africa's gold mining industry will start growing again once credit becomes available to mining companies and suspended expansion projects are resuscitated. The firm South African Rand is however likely to affect mining operations, as companies are receiving less revenue in Rand terms per each unit of the US dollar received.
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"CAPEX is likely to remain low during 2010 and 2011, due to the strength of the Rand and declining gold production," Nyanjowa notes. "This will reduce the profitability of the industry and depress miners' ability to invest in infrastructure upgrades and equipment purchases."
South Africa's near-surface gold deposits have been exhausted, leaving behind only deep underground deposits. While it is still feasible to extract this ore, given the technological breakthroughs and level of the gold price, no new gold mines have been opened in South Africa in the last forty years.
"CAPEX in the South African gold mining industry is therefore expected to remain focused on extending the life of existing mining operations," Nyanjowa states. "The significant upside potential for the gold price in the short and medium terms will bolster the capability of mining companies to expand the size and scope of their current mines."
Expenditure Analysis of the South African Gold Mining Industry is part of the Chemicals & Materials Growth Partnership Services programme, which also includes research in the following markets: South Africa's Gold Mining Industry, South Africa's Coal Mining Industry, South Africa's Platinum Group Metals Mining Industry, and Diamond Mining Industry in Central and Southern Africa. All research services included in subscriptions provide detailed market opportunities and industry trends that have been evaluated following extensive interviews with market participants.
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Expenditure Analysis of the South African Gold Mining Industry / M4D0