Record Gold to Lift SA Gold Miners' Profits

Source: Reuters (2/4/11)

"Producers recover from dwindling grades and mine stoppages."

Africa's top three gold producers are expected to report strong earnings for the December quarter, boosted by higher output and a rise in the bullion price, a Reuters survey showed on Friday.

The price of gold in the three months averaged a record $1 367/oz, up $141/oz or 12% on the previous quarter.

South African gold producers, including AngloGold Ashanti, Gold Fields and Harmony Gold, sell their gold in dollars and pay their costs in rand.

"The better gold price should, in most cases, combine with increased production to deliver higher average earnings quarter-on-quarter," RBC Capital Markets analyst Leon Esterhuizen said in a research note.

The average rand gold price improved 5% to R302 800 per kg. The rand has risen nearly 24% since the start of 2009.

Expectations for gold's performance have risen sharply, with a survey of 65 leading analysts, traders and fund managers predicting gold will average $1 450/oz this year, well above its record high of $1 430,95/oz.

Power Worries

South Africa's gold production has been dwindling, and fell by 5.8% in 2009, pushing the country to the third spot after China and Australia.

The country was the world's largest gold producer for most of the last century up until 2006, but output has been hit by dwindling grades and stoppages of mines and shafts for safety-related reasons as companies mine ever deeper.

Some South African gold mines reach depths of around 3.8 km.

Analysts and companies say rising power prices in Africa's biggest economy and the threat of power shortages in coming years may dampen future earnings.

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