Mining strikes a symptom of how costly and difficult production isBloomberg has just reported
that AngloGold Ashanti Ltd. and Gold Fields Ltd., the third- and fourth-largest producers of gold
, may have their ratings cut to junk by Standard & Poor's as strikes halted about half of South Africa's output. What's going on in South Africa has significant repercussions for gold
investors, according to Tony Daltorio in a new analysis
at Resource Investor: So what are the implications for investors?
Obviously, the first one is that what is occurring in South Africa is terrible for the companies trying to conduct mining business there.
South Africa, for example, accounts for about a third of AngloGold Ashanti's gold output. Speaking to the South African media, its CEO Mark Cutifani said the South African gold mining industry was on a "knife edge."
It seems as if the traditional labor dispute resolution mechanisms are breaking down in the country. Some have even said that conditions facing mining firms in South Africa are the worst since the end of apartheid in 1994.
David Davis, an analyst at SBG Securities, told the Financial Times that the gold mining industry [in South Africa] was "fast reaching an impasse." He went on to say the rash of illegal strikes "will likely engulf the industry."
The South Africa gold-mining companies are damned if they do and damned if they don't with regard to workers' demands. If they don't give in, mines are shut down due to strike action. If they do give in, many mines will be closed because they will simply no longer be profitable.
Bottom line here for investors is that gold production from South Africa, the fifth-largest producer, will likely be sharply curtailed for many years to come, perhaps permanently. This supply disruption will only add to the already bullish climate for gold thanks to monetary easing around the globe by central banks.Read Article