South Africa's three largest gold mining companies--Gold Fields, AngloGold Ashanti Ltd. (AU) and Harmony Gold Mining Co. Ltd. (HMY)--have increased their profitability due to rising gold prices. But the need to dig deeper in South Africa to find gold coupled with rising energy and labor costs has crimped the profitability of more marginal mines in South Africa.
On Thursday, the three mining companies jointly tabled a wage increase proposal to their workers that was met with mixed reaction partly because the workers may not have been properly told the full scope of the offer. The mining companies gave the workers until Monday to consider the wage proposal in full before rendering a verdict.
Gold Fields said Friday that the illegal strikes have already negatively affected its operations. The company estimated that it may have lost about 35,000 troy ounces of gold production due to illegal strikes during the third quarter ended Sept. 30 after it shut down its KDC West and Beatrix mines. Company spokesman Willie Jacobsz said KDC and Beatrix account for more than half of the company's South African gold production capacity.
"The ongoing unlawful strike action in South Africa is of concern and will, even if resolved in the near term, increase the likelihood of major restructuring in the South African gold mining industry, including at Gold Fields," the company said in a statement.
Mr. Jacobsz reaffirmed that any restructuring would most likely involve shutting down mines and shafts that are considered high cost and therefore marginal. Gold Fields employs about 40,000 workers in South Africa, of which more than half are on strike, he said.
"The probability of closures is very high," Mr. Jacobsz noted. "There are [Gold Fields] shafts that were very marginal prior to the strike. Those are the ones that are at risk in particular" of being closed, he added.
The company said Friday that it expects to report on Nov. 26 that third- quarter gold output dropped about 6% from the previous quarter to 810,000 ounces with its international operations accounting for 424,000 ounces and its South African operations accounting for 386,000 ounces.
Gold Fields' South African operations are forecast to produce nearly 12% less gold in the third quarter compared to the previous quarter due to the illegal strikes and another 30,000 ounces of lost production stemming from a fire at the YaRona Shaft at the KDC mine.
Gold Fields' international gold production is forecast to drop by 1,000 ounces in third quarter compared to the previous quarter following a two-week closure of its heap leach facilities in Tarkwa Gold mine in Ghana.
Gold Field's shares closed Friday down 1.2% at ZAR106.64 a share resulting in a market capitalization of ZAR79 billion, or $9 billion.
Write to Alex MacDonald at alex.macdonald@dowjones.com
