Wage hikes, pricey power hurt gold profits

Lihle Z Mtshali

Lihle Z Mtshali

South Africa's three major gold mining companies blamed wage hikes and higher power tariffs for their poor September quarterly results released yesterday.

DRDGold and RandGold both recorded lower profits compared to the June quarter, while AngloGold, the world's second largest gold producer, recorded a loss.

The miners all cited high operating costs for their bad performances.

Following wage negotiations, wages increased 9percent. Labour accounts for 50percent of operating costs in mining

When gold prices go up it becomes more economic to mine, provided that gold miners can keep their operating costs down.

"The continued rise of the gold price should have, in theory, allowed the miners to explore more gold, assuming they are able to lower their costs," said a precious metals analyst.

"We haven't seen higher volumes and, by extension, bigger margins coming out of the gold mines because production costs have been going up along with the rising gold price."

Gold hit a 28-year record high yesterday after the dollar recorded its worst performance in years. Gold is denominated in the US currency and a weaker dollar means cheaper gold for holders of other currencies.

"Globally jewellery demand has come down as the price of gold has risen, but as we near the wedding season in India around January, we could see demand peaking again and the price of gold going up," he said.