Strong Rand to Hit SA Gold Miners' Profits

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"The benefits of higher gold production will be. . .offset by the stronger rand/dollar exchange rate and cash costs inflation."

Despite higher gold output and a stronger price for the metal, Africa's top three gold producers are expected to see a big drop in earnings and cash flow for their quarters to June, because of the stronger rand.

South African gold miners sell their gold in dollars, and receive their earnings in rand, which gained in that quarter on increasing global demand for risk and expected capital inflows.

"The rand will be the main issue, it was much stronger in the June quarter and dented earnings," said Stephen Roelofse, a Cape-Town based gold analyst at Metropolitan Asset Managers.

JP Morgan analysts Allan Cooke and Steve Shepherd said the gold price in the June quarter rose 2% to $922 an ounce, while the average rand/dollar exchange rate for the quarter strengthened 15% to 8.44 rand per dollar.

This led to a 14% decline in the rand gold price to 250,000 rand per kg, Cooke and Shepherd said in a research note.

"The benefits of higher gold production will be more than offset by the stronger rand/dollar exchange rate and cash costs inflation," Cooke and Shepherd said.

For the September quarter and beyond, analysts were concerned about rising costs, especially after a wage agreement was reached on Tuesday between gold firms and unions, granting workers increases of between 9% and 10.5%.

"The wage increases will add pressure on costs, and could lead to possible job cuts at some companies," Roelofse said.

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