Gold smelting at South Deep, one of South Africa’s largest gold mines, occurs weekly. ©Johanna Chisholm

Driving down the dusty highway that connects Johannesburg to one of the world’s deepest and largest gold mines in the country, you cannot help but feel something, or someone is watching you. The tailings, rolling hills that are forged from the waste of mining for gold, shoulder the road like stubborn giants in an otherwise empty horizon.

“They’re supposed to be covered with grass, but, as you can see that’s not the case,” said Sven Lunsche, gesturing in the direction of the hills. Lunsche is Gold Field’s Vice President of Corporate Affairs at a mine called South Deep; the second largest gold mine in the world. “They’re here forever, but the gold deposits that are leftover in those hills aren’t worth the work.”

The tailings lifespan can be seen as an imperfect metaphor of what the current South African gold mining industry can look forward to: once an essential part to the economy, but now requiring so much work to turn a profit, the economic viability no longer seems to be worth the effort.

South Africa has a problem. They’re gold mining industry has long fallen from its hallowed status of being the backbone of the modern economy. Gold mining stocks plunged to record lows in the past two years, employment has seen a 75 percent drop since 1990 (now, only 120,000 people are directly employed by the industry) and it’s contribution to GDP has fallen from 3.8 percent to less than half, 1.7 percent, in just 10 years.

There has been a slight recovery period, due to a weakening rand from political instability, but not enough to solve some of the longer-term problems plaguing the industry. That is, the rising cost of labor, the cost of treating dirtier and less accessible ore, and the declining interest of foreign investors to support the industry.

Gold sector employment, at its peak in 1987, used to account for 67 percent of the entire mining work force. Presently, it only accounts for 30 percent of the entire mining industry. The lowered value of the commodity, in addition to the increased mechanization of mines has lowered the number of workers in the industry.

“At South Deep, we currently employ 3,500 workers,” said Lunsche. South Deep is the only mine in South Africa which is fully mechanized, but because of that they also have to pay their workers more.

“Because of their specialized skills, operating heavier equipment under harsher conditions, we’ve had to increase their [pay],” Lunsche said, riding the elevator shaft down to one of South Deep’s lowest points; the equivalent of 33 football fields into the center of the earth. Nine years ago, the average annual salary for a mineworker was R87, 009 ($6294 USD), and today’s salary is R181, 661 ($13142 USD).

The pay raise comes from the fact that the mines, which have historically had some of the harshest conditions, are requiring their workers to go into narrower crevices that only human dexterity can access.

“South Deep currently employs between 3000-3500 people,” said Lunsche, which is a considerable amount more than what other mining countries employ. Gold Fields, the company that owns South Deep, also has similar operations in Australia that comparatively only employ 500 people.

Putting further stress on the mining industry’s labor costs is the constant threat of labor disputes. Back in 2012, the industry hit a breaking point with the Marikana incident in which 44 strikers were killed by private security. The Chamber of Mines estimates that approximately 1.1 billion USD was lost in sales after the strike.

Another factor contributing to the rising cost of labor is the increasing demand for occupational health benefits, something the gold mines have strategically avoided paying for the past century. Professor Jock McColloch, a researcher at RMIT University in Australia, has spent the better part of his career studying gold mining. He’s published several books examining the industry closely, including, “South Africa’s Gold Mines and the Politics of Silicosis”, and believes that they have long been cheating the system so as to avoid paying their dues and increase their profits at the country’s expense.

“I think in the case of South Africa, the lifeline of the mines was cheap black labor,” said McColloch through a Skype interview. He was describing the current class action litigation, in which gold miners are suing 32 of the largest gold companies in the world for contracting occupational diseases, such as silicosis, while on the job.

“The money comes effectively out of tax payers, because you know for every person who gets sick, their medical care is paid by from the public purse,” said McColloch through a Skype interview.

The mine companies have skirted the issue of paying workers their fair due, forcing the taxpayers of South Africa to cover the health costs of the sick miners.

Should the current class action pass, an outcome the lawyer spearheading the litigation, Richard Spoor, believes to be “more than likely”, then a precedent will be set; the gold companies will have to not only cover future employees occupational health costs, but also return back pay to the ones they’ve cheated for the past century.

“If they couldn’t afford to do this in the 1980s, at their prime, I don’t think they’ll be able to do it now,” said McColloch.

Factors like this litigation, plus the political instability in the country, are just some of the risks that are forcing foreign investors to take pause. But for all its drawbacks, the gold industry does have a proven track record of being an attractor for foreign investment. Alan Fine, the gold companies representative from the Chamber of Mines, explained through a phone interview that gold still accounts for most of South Africa’s export revenue.

“And we also account for 400,000 indirect employment,” said Fine through a Skype interview. While this may not seem like a lot, each person who works in the mine supplies a salary for an average of 11 other people.

“The gold companies recognize that something does need to change, that’s why we’re looking towards modernization,” said Fine, addressing the negative trends of the past decade. “We are too pivotal a role in the lives of so many poor South Africans to just pull out.”

Leaving South Deep, driving back down the same dusty road towards Johannesburg, Lunsche also reflected on the future of the South African gold mining industry.

“The future of South Africa’s mines needs to be through mechanization,” he said.

If this is the case, the industry can anticipate hemorrhaging large initial fees at the cost of transitioning to mechanization. South Deep took ten years to turn a profit after an initial investment of $3 billion. This past August, they finally turned a profit of $3 million. Last year, they claimed $23 million in losses.

Lunsche also mentioned that, while South Deep currently employs 3,500 miners, that number is expected to drop by half as they become more efficient at being mechanized. As more mines across the country go this way, you can confidently predict more labor disputes as workers are laid off in the path of mechanization.

Mechanization requires initial capital, and with fewer foreign investors wanting to sink their investments in a country with both political and labor instability, it is unlikely that mechanization will resolve the bleak future that the gold mining industry can look forward to.

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