Download - Gold In South Africa

GOLD IN
SOUTH
AFRICA
MINING
REFINING
FABRICATION
TRADE

Photograph courtesy: Rand Refinery Limited

CONTENTS
CHAPTER 1
GOLD IN SOUTH AFRICA: INTRODUCTION AND OVERVIEW
1
MINING | REFINING | FABRICATION | TRADE
GOLD IN
SOUTH AFRICA
CHAPTER 2
RESERVES TO DORÉ: THE GOLD MINING INDUSTRY
CHAPTER 3
DORÉ TO SEMI-FINISHED PRODUCT: REFINING AND RECYCLING
CHAPTER 4
FINAL PRODUCT: JEWELLERY
CHAPTER 5
FINAL PRODUCT: COINS, INDUSTRIAL END USES AND INVESTMENT
CHAPTER 6
TRANSFORMING THE INDUSTRY: LEGISLATIVE, FISCAL AND
FINANCIAL CONTEXT
CHAPTER 7
TRADE
APPENDICES
APPENDIX 1:
APPENDIX 2:
INTERVIEW LIST
THE SOUTH AFRICAN ECONOMY IN AN
INTERNATIONAL CONTEXT
2
3
4
5
6
7
APPENDIX 3:
TRAINING AND SKILLS TRANSFER
APPENDIX 4:
THE INTERNATIONAL GOLD MARKET
RESEARCH DIRECTORY: FACT SHEETS ON MAJOR INDUSTRY PARTICIPANTS
8
GLOSSARY OF TERMS AND ACRONYMS
GOLD IN SOUTH AFRICA 1

Gold in South Africa was funded by AngloGold Ashanti Limited, the World Gold
Council, the Department of Trade and Industry and the Industrial Development
Corporation of South Africa Limited and researched by Virtual Metals Research &
Consulting Limited.
The publication is protected by international copyright law. All rights are reserved.
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any part of this publication is a violation of copyright law. Violators may be subject
to legal proceedings and liable for substantial monetary damages per infringement
as well as costs and legal fees.
While the funders and researcher have made all reasonable efforts to ensure that
information in this review is accurate at the time of publication, there may be
inadvertent errors and omissions and a lack of accuracy or correctness. They make
no representation or warranty, express or implied, as to the accuracy or
completeness of the review. The review is not and cannot be construed as an offer
to sell, buy or trade any securities, equities, commodities or related derivative
products, and the review in no way offers investment advice.
The funders and researcher and their employees and office bearers therefore accept
no liability for any direct, special, indirect or consequential losses or damages, or
any other losses or damages of whatever kind resulting from whatever action or
cause through the use of any information obtained directly or indirectly from the
separate or joint sections contained in this review. The funders and researcher also
have no obligation to inform recipients or readers if, in the future, they revise their
opinions or modify or correct information contained in the review.
Gold in South Africa was published in January 2006.
Virtual Metals Research and Consulting Limited comprises a uniquely skilled team,
with a collective 60 years’ experience in the precious metals markets. Clients
include world-class mining companies, for whom Virtual Metals specialises in
proprietary research covering gold, silver and the platinum group metals, refiners,
bullion banks, equity brokers, trading houses and other institutions. Virtual Metals’
particular strengths include macro-economic analysis, the generation of supply and
demand scenarios, costs analysis, derivative research and price forecasting.
Project management: Lebone Resources
Design and layout: Russell and Associates

FOREWORD BY THE FUNDERS
The objective of the funders in commissioning the research described in this
document, Gold in South Africa, was to create a source of reference for the industry
on the gold business in South Africa in its entirety. The scope of the research was
ambitious; it aimed to cover the gold value chain from mining and refining through
to the use of gold in jewellery, bars, coins and other applications, encompassing all
aspects of the business of gold. This is the first time that a project of this scope
and nature has been attempted in the South African context.
The research relied on primary sources of information where possible, engaging
with a broad spectrum of participants throughout the value chain to understand
how the gold business in South Africa operates and to gather data on the individual
businesses which make up this industry. Existing data sources were analysed as well
as the legislative, social and economic framework in which the industry operates in
South Africa.
It is the hope of the funders that this review will prove a worthwhile source of
reference to all those engaged in the gold industry in South Africa and that it will
be a tool for both South African and overseas investors to identify and define
opportunities for initiating or expanding business ventures in gold.
The funders of this research would like to thank both those involved in its
compilation and those who contributed to and supported the research by sharing
information and insights during the course of the project.
Mandisi Mpahlwa (MP)
Minister of Trade and Industry
Department of Trade and Industry
Kelvin Williams
Executive Director
AngloGold Ashanti Limited
Geoffrey Qhena
President/Chief Executive Officer
Industrial Development Corporation of South Africa Limited
James Burton
Chief Executive Officer
World Gold Council
GOLD IN SOUTH AFRICA

2 GOLD IN SOUTH AFRICA

CHAPTER 1
GOLD IN SOUTH AFRICA:
INTRODUCTION AND OVERVIEW
CHAPTER 1
Contents:
1.1 INTRODUCTION AND METHODOLOGY 4
1.2 OVERVIEW OF RESEARCH FINDINGS 5
1.2.1 Reserves to doré: the gold mining industry (Chapter 2) 7
1.2.2 Doré to semi-finished product:
refining and recycling (Chapter 3) 9
1.2.3 Final product: jewellery (Chapter 4) 10
1.2.4 Final product: coins, industrial end uses
and investment (Chapter 5) 10
1.2.5 Transforming the industry: legislative, fiscal and
financial context (Chapter 6) 11
1.2.6 Trade (Chapter 7) 12
1.3 OPPORTUNITIES AND CHALLENGES IN THE
SOUTH AFRICAN GOLD BUSINESS 14
1.3.1 Opportunities 14
1.3.2 Challenges 16
1
Photographs: Courtesy of Gold Fields Limited
GOLD IN SOUTH AFRICA 3

CHAPTER 1
GOLD IN SOUTH AFRICA: INTRODUCTION AND OVERVIEW
Research and analysis were conducted into the
production, processing and use of gold in
South Africa...
1.1 INTRODUCTION AND METHODOLOGY
In developing this review of the South African gold industry, research and analysis
were conducted into the production, processing and use of gold in South Africa –
literally the business of gold in its entirety within the country. One-on-one
interviews were conducted with sectoral market participants, and with associated
governmental and commercial organisations. A list of entities interviewed appears
in Appendix 1.
The research directory included at the end of this review gives further details of the
major industry participants and many of the companies interviewed in the course
of compiling this review. Data on the smaller companies was in some cases either
unavailable or uneven, and the focus of the research directory is therefore on the
larger industry participants where data was more readily available.
The research also entailed analysis of statistics that provide a context for this
information, for example, trade data, employment equity plans, retail jewellery
databases, South African Police Services data covering gold licences and jewellery
permits and information relating to black economic empowerment (BEE).
Wherever possible, data has been verified by cross-checking various sources.
However, there are areas where data is not available or not verifiable, for example
regarding gold production stolen from the mines, finished gold jewellery smuggled
into the country to avoid import duties, or jewellery stolen locally. In these
instances, reference is made to anecdotal evidence gleaned from industry
discussions. The numbers have, however, been excluded from the statistics. There
are also instances where the only statistics available are deemed to be unreliable.
The report highlights these instances and explains how this data is treated.
All volumes of gold are in metric tons (t) unless otherwise stated.
All references to $ or Dollar relate to the US Dollar.
4 GOLD IN SOUTH AFRICA

1.2 OVERVIEW OF RESEARCH FINDINGS
Key participants in the gold industry in South Africa are shown in the following
table, along with the chapter in which they are referenced or described.
Participants in the gold industry in South Africa
Chapter
Mining Large primary gold mining companies 2
By-product gold mining companies 2
Small-scale miners 2
Informal miners 2
Industry representatives 2
Trade unions 2
Refining Primary refiners 3
Recyclers 3
Jewellery manufacturing Large manufacturers 4
Medium sized manufacturers 4
Small manufacturers 4
Micro manufacturers 4
Jewellery retailing Retail chains 4
Discount stores 4
Dedicated local retailers 4
Dedicated tourist retailers 4
Single outlet retailers 4
Industry representatives 4
Trade publications 4
Coins, Mints 5
electronics and Component fabricators 5
dental alloys Dental laboratories 5
Government Department of Trade and Industry 6
and officials Department of Minerals and Energy 2
South African Revenue Services 6
South African Reserve Bank 6
Mintek 2
Industrial Development Corporation 6
Mining Qualifications Authority Appendix 3
Other JSE Limited 5
Banks 5
Training and Universities of technology Appendix 3
skills transfer Universities Appendix 3
Private and government initiatives Appendix 3
CHAPTER 1
GOLD IN SOUTH AFRICA: INTRODUCTION AND OVERVIEW
GOLD IN SOUTH AFRICA 5

CHAPTER 1
GOLD IN SOUTH AFRICA: INTRODUCTION AND OVERVIEW
In 2004, South Africa produced 342t of fine gold,
contributing 14% to global primary output...
The following table summarises the main statistical findings pertaining to the gold
value chain:
The South African gold value chain in fine gold and metric tons – 2004
Sector/Topic & chapter Description t %
Gold production South African gold production from:
Chapter 2 Primary gold producers 312.1 91.4
By-product producers 7.2 2.2
Small-scale gold producers 22.7 6.4
Total 342.0 100.0
Refining
Gold to refining from:
and recycling South African mine output 328.9 73.8
Chapter 3 Other mine output (Non-RSA) 100.5 22.6
Dump retreatment (RSA) 13.1 2.9
Recycling 2.8 0.7
Total 445.3 100.0
Gold fabrication
Gold from refining to:
Chapters 4 and 5 Bars 1 432.7 97.2
Jewellery manufacture 9.6 2.2
Coins 2 2.9 0.7
Dental alloys 0.0 0.0
Electronics 0.0 0.0
Total 445.3 100.0
Gold jewellery Jewellery imports 1.3
Chapter 4 Jewellery exports 5.1
Domestic sales (includes imports) 5.9
Domestic sales (locally manufactured) 4.6
Gold coin fabrication Krugerrand bullion 2.3 79.8
Chapter 5 Krugerrand proofs 0.2 6.0
Proteas 0.2 6.6
Naturas 0.2 6.3
R1 0.0 0.5
R2 0.0 0.8
Medallions 0.0 0.1
Total 2.9 100.0
Trade flows of gold Exports from South Africa 3
Chapter 7 Bars 421.0
Coins 0.7
Jewellery 5.1
Total 426.8
Imports to South Africa 3
Bars 0.0
Coins 0.3
Jewellery 1.3
Total 1.6
All figures are rounded to one decimal.
1 Gold bars are made up as follows: 46% - 400oz bars, 51% - kilobars, 3% - other small bars including 100g
bars and tola bars (small bars primarily sold in the Indian market).
2 Actual sales of coins were 3.4t, the difference being drawn from inventory.
3 As calculated from official import/export data. Difficulties associated with the interpertation of this data
are discussed more fully in Chapter 7.
6 GOLD IN SOUTH AFRICA

CHAPTER 1
GOLD IN SOUTH AFRICA: INTRODUCTION AND OVERVIEW
Numbers employed in the South African gold value chain – 2004
Sector Number of individuals employed %
Gold production 187,039 96.6
Refining and recycling 532 0.3
Jewellery manufacturing 2,680 1.4
Jewellery retailing 2,800 1.4
Coin fabrication 82 0.0
Other 4 500 0.3
Total employed in the South African gold business 193,633 100.0
Close on 200,000 people employed in the gold
business in South Africa...
4 The category ‘other’ represents estimates of total employees in various gold-related spheres of
activity, including for example dental laboratories, electronic hardware manufacturing, the Gold of Africa
Museum and those directly involved with the ABSA’s Exchange Traded Fund.
Key data and findings from the research are outlined below, ordered according to
the chapters in which they appear.
1.2.1 Reserves to doré: the gold mining industry (Chapter 2)
The discovery of the Witwatersrand Goldfields in 1886 led to the development of
South Africa’s world-class gold mining industry which has dominated the world’s
gold mining scene for 120 years. In fact, the Witwatersrand Goldfields will probably
remain the greatest goldfield ever discovered, surpassing all others by several orders
of magnitude. Since records of production were first collected in 1884 until 2004
the South African gold mining sector has produced 50,055t of gold which accounts
for some 33% of all the gold estimated above surface. The total remaining South
African gold ore resources are estimated to be some 40,000t, of which about 8,000
to 10,000t are economically recoverable depending on the Rand gold price and cost
scenarios applied.
The Witwatersrand Basin
South Africa
Scale
Central Rand Group
West Rand Group
Granite Basement
Gold Fields
GOLD IN SOUTH AFRICA 7

CHAPTER 1
GOLD IN SOUTH AFRICA: INTRODUCTION AND OVERVIEW
South Africa dominated the global gold mining industry for much of the past
120 years, rising to peak production of 1,000t (67% of global mine supply) in 1970.
Today, the industry is in a mature, declining phase with production having declined
to 342t in 2004. While South Africa is still the largest gold producer in the world,
the closure of older mines and shafts could see the country lose this position over
the next five years.
Global gold production – 2004
Country
t
South Africa 342
USA 260
Australia 253
China 220
Peru 173
Russia 159
Canada 129
Indonesia 100
Uzbekistan 90
Papua New Guinea 71
Ghana 60
Tanzania 48
Mali 40
Chile 39
Brazil 34
Colombia 30
Argentina 27
Mexico 24
Kazakhstan 22
Kyrgyzstan 22
Data source: Raw Materials Group, March 2005
Three of the six largest international gold mining companies in the world are South
African. The South African gold mining industry can be divided into four sub-sectors:
• large, publicly-listed gold mining companies;
• companies producing gold as a by-product of other metal mining (mainly
Platinum Group Metals (PGM) producers);
• tailings retreatment operations (operated either by large listed companies or by
small-scale miners); and
• junior or small-scale miners
There is also very limited, informal gold mining undertaken.
The five large publicly listed companies – AngloGold Ashanti, Gold Fields, Harmony,
DRDGOLD and Western Areas – dominate South African gold production, and were
responsible for 312.1t (91%) of the country’s production in 2004.
Historically, the gold mining sector in South Africa has been a large employer,
although employment has declined substantially in recent years. As at June 2004,
the gold mining sector employed 187,039 people, and was the mining industry’s
largest employer, accounting for 41% of all employment in mining.
By comparison, the USA and Australian gold mining sectors employ approximately
14,300 and 6,300 people respectively, a function particularly of the type of mining
in those countries in comparison with South Africa. (In both of these countries,
mining tends to employ high levels of mechanisation.) Consequently, productivity
levels for South Africa are significantly lower than those in the USA and Australia; it
is calculated that South Africa produces 55oz fine gold per employee, in comparison
with 1,220oz per employee in the USA and 1,342oz per employee in Australia.
8 GOLD IN SOUTH AFRICA

1.2.2 Doré to semi-finished product: refining and recycling (Chapter 3)
In terms of both value and volume, gold refining in South Africa is concentrated in
the hands of its two primary refiners; Rand Refinery and Musuku Beneficiation
Systems. In 2004, the primary refiners and the recyclers treated 445t of gold, of
which all but approximately 2t was treated by the two primary refiners.
Primary refiners: Until very recently, Rand Refinery was the only South African
operation to be accredited by the London Bullion Market Association (LBMA). Rand
Refinery is also one of only five refineries in the world to have been appointed by
the LBMA as a Good Delivery Referee, responsible for the testing of samples from
Good Delivery refiners in support of the LBMA’s Good Delivery system. Established
in 1921, Rand Refinery has a long history. As well as processing feed from the South
African operations of its shareholders, which it receives mainly in the form of doré,
Rand Refinery treats mine output from non-South African mines in Ghana, Mali,
Tanzania, Namibia and Argentina.
Musuku Beneficiation Systems was established in 1997 by Harmony Gold Mining,
Mintek and BAE Systems, and is currently wholly-owned by Harmony. Musuku
processes feed from all of Harmony’s South African gold operations. 98% of this
feed is in the form of cathode slime. Musuku secured LBMA accreditation in
September 2005.
Recyclers: In addition to the primary refiners, there are at least another seven
known but very small recyclers operating in South Africa.
CHAPTER 1
GOLD IN SOUTH AFRICA: INTRODUCTION AND OVERVIEW
Global gold refining capacity utilisation in 2004 was estimated at 55%, indicative
of an industry in a state of over-capacity. Africa’s gold refining capacity utilisation
(of which South Africa represents 98%) was 61%.
Global refinery utilisation was estimated at 55%
in 2004...
In 2004, 432.7t, or 97.2% of refining output, was in the form of bars for export.
Kilobars of 99.5% and 99.99% purity accounted for 221.6t, or 51.2% of these sales
and 99.5% London Good Delivery Bars accounted for a further 193.7t, or 44.8%.
The balance of bar production was sold in the form of small bars, mainly of 100g.
Analysis of South African gold bar sales – 2004
t %
400oz bars:
99.99 London Good Delivery 4.5 1.05
99.5 London Good Delivery 193.7 44.77
Sub-total 198.2 45.81
Kilobars:
99.99 83.6 19.32
99.5 138.0 31.90
Sub-total 221.6 51.22
500g bars 99.5 0.3 0.08
100g bars 99.9 12.0 2.77
10 Tola bars 0.5 0.12
Sub-total 12.8 2.97
Total 432.7 100.00
Data Source: Rand Refinery Limited and Musuku Beneficiation Systems
Another 9.6t, or 2.2% of refining output was sold to the local gold jewellery
manufacturing sector, mainly in the form of semi-fabricated product such as
granules, plate and wire. The balance went into coins, electronics and dental alloys.
In 2004, the gold refining sector employed 532 people, or 0.3% of total employees
in the South African gold value chain.
The gold refining sector employed 532 people
in 2004...
GOLD IN SOUTH AFRICA 9

CHAPTER 1
GOLD IN SOUTH AFRICA: INTRODUCTION AND OVERVIEW
South African jewellery manufacturers used 9.64t of
fine gold in 2004...
Jewellery manufacturers are classified into four
categories of business: micro, small, medium and
large. Only three of the manufacturers can be
classified as large manufacturers (annual gold usage
in excess of 750kg) and these account for 66.8% of
gold usage...
1.2.3 Final product: jewellery (Chapter 4)
Jewellery manufacturing is the largest category of gold fabrication in South Africa,
as it is worldwide. South African jewellery manufacturers used an identifiable 9.64t
of fine gold in 2004, and exported 5.07t of fine gold in finished jewellery, primarily
to the USA and Europe. Official jewellery imports amounted to 1.28t. Local
jewellery sales are therefore estimated at 5.85t, of which 4.57t is manufactured
locally.
Jewellery manufacturers were classified into four categories of business, based on
size of manufacturing throughput. Data on a sample of 34 businesses, including
manufacturers from all four categories, was analysed. These businesses accounted
for 8.4t of fine gold consumption in 2004, or 88% of the total.
Classification of manufacturers
Micro Manufacturers using 20kg or less per annum
Small Manufacturers using more than 20kg but less than 50kg per annum
Medium Manufacturers using more than 50kg but less than 750kg per annum
Large Manufacturers using in excess of 750kg per annum
While there are a large number of jewellery manufacturing businesses in operation,
only three of these businesses can be classified as large manufacturers (annual gold
usage in excess of 750kg) and these three manufacturers account for 6.5t or 66.8%
of the gold usage in the South African manufacturing industry. The top 10
manufacturers account for 7.9t or 82% of total fine gold usage.
Jewellery manufacturing in South Africa is heavily concentrated in Johannesburg
and Cape Town. Businesses are privately-owned, in 90% of cases family-owned.
80% of fine gold used in jewellery is used to manufacture mass-produced products,
the remainder being used in cast or hand-made products.
The bulk of jewellery purchases in South Africa are of
9 carat gold...
The bulk of jewellery purchases in South Africa are of 9 carat jewellery, with 95% of
gold jewellery sold in this format. The balance is sold as 14 or 18 carat.
Mark-ups in jewellery manufacturing vary from approximately 5% in massproduced
chain to between 15 and 20% for basic mass-produced product, and up
to 40% for high caratage, hand-made or gem-set items.
Capacity utilisation is highly seasonal, peaking in the
period September to December as retailers increase
stock for Christmas sales...
Capacity utilisation is highly seasonal, peaking in the period September to
December as retailers increase stock for Christmas sales. Jewellery manufacturing
employs an estimated 2,800 individuals, or 1.4% of those employed in the total
value chain, although this number is difficult to verify on the basis of existing data.
Retail sales of all jewellery (including gold, silver, platinum and gem-set jewellery
and watches) totalled R2.4bn in 2003 (latest available data). In both value and
volume terms, the sector is characterised by a high level of consolidation, with four
companies accounting for an estimated 64% of jewellery sales at retail level. These
four companies own a total of 11 jewellery chains.
Retail mark-ups range from 20 to 50% for non-core products in discount stores to
250% for core products in South African jewellery retailers, and up to 350% for
specialist and fast-moving items.
After jewellery, coin fabrication is the second largest
category of physical gold usage...
1.2.4 Final product: coins, industrial end uses and investment (Chapter 5)
After jewellery manufacture, coin fabrication is the second largest category of
physical gold usage, and the only other end use to show significant offtake in South
Africa, accounting for 2.93t of gold consumption in 2004. Consumption of gold in
dental alloys accounted for only 0.04t of consumption per annum and electronics
for 0.01t. Consumption in these three categories remains small in relation to total
South African gold production, accounting for less than 1% of total production.
10 GOLD IN SOUTH AFRICA

CHAPTER 1
GOLD IN SOUTH AFRICA: INTRODUCTION AND OVERVIEW
The SA Mint produces several legal tender coins. The best known and most widely
sold is the 22 carat Krugerrand. It also produces 24 carat legal tender coins,
including the Natura, the Protea and R1 and R2 commemorative issue coins.
The best-known and most widely sold coin produced
by the SA Mint is the Krugerrand...
South African coin fabrication 2002 to 2004 – t
2002 2003 2004
Krugerrand bullion 0.76 1.81 2.34
Krugerrand proofs 0.22 0.19 0.18
Proteas 0.09 0.02 0.19
Naturas 0.18 0.15 0.18
R1 0.01 0.02 0.01
R2 0.03 0.02 0.03
Total 1.29 2.22 2.93
Data Source: SA Mint, Universal Mint and Gold Reef City Mint.
Proof Krugerrands (limited edition, high quality coins) are sold at a high margin
(42% in 2005). Bullion Krugerrands, the supply of which is not limited, sell at a
margin of 3 to 9%, depending on size. Approximately 50% of Krugerrands produced
in South Africa are exported, although the ratio of local sales to exports is heavily
affected by the gold price and the Rand/Dollar exchange rate. Margins on 24 carat
coins are approximately 30%.
There is little demand for gold for use in dental alloys in South Africa; its use is not
encouraged by medical insurance providers, only one of which subsidises its use.
The use of gold in the electronics industry is insignificant, with only five South
African companies involved in the manufacture of gold electronic components.
Since the introduction of a gold Exchange Traded Fund (ETF) by Absa in November
2005, South Africans have invested in just less than 3t of fine gold via this vehicle.
ETFs allow investors to trade shares representing gold, the value of which is fully
backed by physical gold, on stock exchanges as easily as any other exchange-listed
security. The South African ETF is the smallest of the four gold ETFs launched thus
far (the others being in Australia, the UK and the USA), reflecting the small size of
the potential market locally and the relatively short time for which it has traded. A
Krugerrand futures contract is available, but this is very thinly traded.
Proof Krugerrands (limited edition, high quality
coins) are sold at a high margin...
There is limited demand for gold in dental alloys...
Use of gold in electronics is insignificant...
Limited demand for gold Exchange Traded
Fund (ETF)...
1.2.5 Transforming the industry: legislative, fiscal and financial context (Chapter 6)
Chapter 6 reviews key legislation affecting the gold industry, as well as the fiscal
environment in which the industry operates, the financing methods available to the
mining, refining and jewellery sectors, and the role played by Government and
associated entities.
Policy governing mining and mineral extraction vests primarily in the Deparment of
Minerals and Energy.
Policy governing mining and mineral extraction vests
primarily in the Deparment of Minerals and Energy...
Legislation most relevant to the value chain includes:
• the Mining Rights Act of 1967 and its proposed amendments;
• the Mineral and Petroleum Resources Development Act of 2002 (MPRDA);
• the Broad-Based Socio-Economic Empowerment Charter for the Mining Industry
(The Mining Charter); and
• the Mineral and Petroleum Royalty Bill.
The Mining Rights Act of 1967 regulates the possession and trade of gold in
businesses making use of gold as a raw material. One of the distinguishing
features of the South African gold business, compared to other countries, is that
South Africans are effectively prohibited from owning gold other than in bullion
coins or jewellery 1 .
The Precious Metals Bill, currently in the process of parliamentary approval, will
reduce these restrictions to some extent, although it stops short of total
deregulation of the metal.
1
Bullion coins are gold coins usually 22 or 24 carat. All bullion coins currently minted in South Africa are legal tender.
GOLD IN SOUTH AFRICA 11

CHAPTER 1
GOLD IN SOUTH AFRICA: INTRODUCTION AND OVERVIEW
The MPRDA is based on the principle of state
custodianship of mineral resources...
The policies underpinning the MPRDA were developed in consultation with
government, the formal and informal industry sector, labour and associated
communities, in recognition of the fact that the country’s existing mineral policies
required review to overcome the historical exclusion of the majority of the
population. The MPRDA is based on the principle of state custodianship of mineral
resources and abolishes the previous regime of private mineral rights. Applications
for prospecting, exploration and mining rights must now be made to the state.
Transitional provisions in the act allow for the conversion of existing rights, referred
to as ‘old-order’ to ‘new-order’ prospecting and mining rights.
The Mining Charter is the framework for redressing the historical, social and
economic inequalities inherent in South Africa’s minerals industry. It provides for
companies in the mining idustry to set specific targets regarding human resource
development, employment equity, housing and community development,
procurement and ownership.
The Mineral and Petroleum Royalty Bill, scheduled to become effective in 2009, will
introduce a royalty payable to the state by mineral producers. The structure of the
proposed royalties (based on revenues rather than profits, with rates varying
according to sector) is the subject of continuing debate.
In the section of this chapter dealing with taxation, the impact of two categories of
taxation (corporate tax and Value-Added Tax or VAT) is analysed.
Mining income derived from gold is taxed on the
basis of a formula...
Billions
South Africa – exports
2004, top five countries, Rand
30
25
20
15
10
5
0
Data source: Department of Trade and Industry
Mining income derived from gold is taxed on the basis of a formula, with more
profitable mines paying tax at a higher rate. The effect of this is that each gold
mine’s tax rate is calculated separately and (with certain exceptions, discussed
more fully in the relevant section), ring-fenced to that mine.
VAT was introduced in 1991 and amended in 2004. VAT is levied on all goods and
services at a standard rate of 14% (except for specified exclusions). VAT payments
and refunds operate on a two-month cycle – a factor cited by jewellery
manufacturers, especially the smaller ones, as adding to cash-flow problems for
their businesses.
The chapter concludes by analysing the various financing methods in place, and the
role of the Department of Trade and Industry, the Industrial Development
Corporation and the South African Reserve Bank (SARB).
Insofar as project finance is concerned, mining and refining are capital-intensive
processes that require long lead times and substantial financing. Projects in these
areas are normally funded internally or by raising capital on the equity market.
The jewellery sector has historically been hampered by a lack of cost-competitive
facilities for financing the use of precious metals in the fabrication line. Issues
relating to loan costs, collateral requirements and insurance are explained, and the
new Gold Advance Scheme developed by AngloGold Ashanti, Gold Fields, BAE
Systems, Saab and Standard Bank is described. The objectives of the scheme are
essentially to reduce the cost of funding inventory for South African jewellery
manufacturers, to increase the volume and value of South African jewellery
manufacture and export, and to attract new investors and entrants to the jewellery
manufacturing sector.
1.2.6 Trade (Chapter 7)
Since 1994, the value of South Africa’s total exports has risen, on average, by 12%
per year from approximately R85bn in 1994 to approximately R270bn in 2004. The
contribution of mining to South African exports by value, however, has fallen from
50% in 1994 to 32% in 2004.
USA, UK and Japan are largest markets for SA
goods...
The USA, UK and Japan are the largest markets for South African goods and, in value
terms, represented 33% of the country’s total exports in 2004. Europe and Asia
account for 60% of the value of all South African exports.
12 GOLD IN SOUTH AFRICA

Exports of fine gold in bars, as calculated from official import/export data,
decreased from 452t in 1999 to 421t in 2004, a decrease of almost 7%. Exports of
fine gold coins and medallions also decreased, from 1.07t in 1999 to 0.72t in 2004,
a decrease of about 33%. In contrast, fine gold exports in the form of jewellery
have risen since 1999 at an average of 23% per annum, from a base of 1.81t in
1999 to 5.07t in 2004. During this period, the value of these exports rose from
approximately R110m in 1999 to R495m in 2004. In 2004, some 62% of jewellery
in exports was destined for the USA, and 11% for the UK market.
This increase in exports of gold jewellery has occurred despite a volatile Rand and
the recent strength of the local currency against the Dollar.
Since 1994, the value of total manufacturing and industrial sector imports by South
Africa has risen by an average of 15% per year from approximately R75bn in 1994
to approximately R300bn in 2004. Germany, the USA and China are the top three
exporters of goods to South Africa. Germany is the largest exporter to South Africa
accounting for 14.6% of the value of imports into the country in 2004. Asia and
Europe together account for 80% of the value of South African imports.
Imports of non-South African doré for refining at Rand Refinery are not recorded in
South African trade data. This is because ownership of the gold in the refining
pipeline does not pass to Rand Refinery, but remains with the mine from which the
doré originated.
Imports of fine gold jewellery into South Africa increased by 50% from 0.85t in
1999 to 1.28t in 2004. In value terms, this equates to R65m in 1999, increasing to
R150m in 2004. Together, Hong Kong and China accounted for one-third of these
imports, as this region capitalised on increased general trade with South Africa,
more competitive jewellery manufacturing charges and Rand strength. Imports of
fine gold coins decreased significantly from 2.68t in 1999 to 0.32t in 2004.
CHAPTER 1
GOLD IN SOUTH AFRICA: INTRODUCTION AND OVERVIEW
There is anecdotal evidence that the strength of the Rand has encouraged a high
level of smuggling of finished jewellery into South Africa, to avoid both the 20%
import tax and the 14% VAT. Since undeclared imports are not reflected in the
official trade statistics, official figures may understate the true levels of gold
jewellery entering the country, possibly by a significant margin.
It appears that the Rand strength has encouraged a
high level of smuggling of finished jewellery into
South Africa...
South Africa enjoys favoured nation status with the USA in terms of the African
Growth and Opportunity Act of 2000 (AGOA), which allows South African gold
jewellery fabricators to export their finished product to the USA free of import
duties. This provides South African jewellery manufacturers with a cost advantage
over their European and Far Eastern competitors, on whom a 6% duty is levied for
jewellery product exported to the USA.
Under the South African/European Trade Development and Co-operation Agreement
(TDCS), a free trade area between South Africa and the European Union is being
developed through the abolition of import and export tariffs between the two
trading partners. Import and export duties will be reduced from their maximum of
20% in 2003 to zero by 2012. The country will then be able to export local gold
jewellery duty-free into Europe. Thus over the next six years, the European market
will progressively be opened up to South African jewellery manufacturers at an
increasingly attractive fiscal rate.
Tourist arrivals in 2003 (latest available data) totalled 6.5 million, 69% of whom
were from Africa, and 20% from Europe. Many long-haul visitors (those from
Europe, North America and Asia in particular) arrive with the intention of buying a
piece of jewellery. The gold caratage associated with tourist purchases is higher
than that in the South African domestic jewellery market, with 18 carat
predominating especially in gem-set items.
GOLD IN SOUTH AFRICA 13

CHAPTER 1
GOLD IN SOUTH AFRICA: INTRODUCTION AND OVERVIEW
1.3 OPPORTUNITIES AND CHALLENGES IN THE SOUTH AFRICAN
GOLD BUSINESS
Gold mining industry in South Africa is essentially
mature...
The gold mining industry in South Africa is essentially mature and production
tonnage is showing a declining profile. There is increasing debate on how growth of
the downstream gold industry can be achieved, to add value to gold mined in South
Africa. The research identified a number of challenges and opportunities in respect
of the downstream gold industry in South Africa.
Opportunities
Challenges
AGOA
Inbound tourism: interest in jewellery
Refining capacity and refining track record
South African/European Trade Development and
Co-operation Agreement (exporters)
Emerging middle class among Historically
Disadvantaged South Africans (HDSAs)
Gold financing schemes
Closer co-operation between industry and government
Laws forbidding ownership of gold other than jewellery
and bullion coins
Current lack of access to cost-effective finance
and insurance for jewellery manufacturers
Start-up costs and cost of working capital associated
with gold jewellery manufacturing
Performance of the local currency
Quality imports at competitive prices based on
cheaper offshore labour and the strong Rand
Technical limitations and ageing equipment
Shortage of skills and concerns about training
Low productivity
Adverse effect of crime on jewellery sales
Lack of co-operation in the gold business, especially
in jewellery manufacturing
Local jewellery retail sales are a small and declining
proportion of all consumer goods purchased
External perceptions of local jewellery/quality issues
Lack of data
South Africa/European Trade Development and
Co-operation Agreement (local industry)
1.3.1 Opportunities
AGOA - The African Growth and Opportunity Act of 2000
AGOA provides South African exporters to the USA
with a 6% advantage over countries paying full duty
as import duties are waived...
Affected sector: Jewellery manufacturing targeting the export market
AGOA was ratified on 18 May 2000 and amended in 2002 and 2004. It provides
South African exporters to the USA with a 6% advantage over countries paying full
duty since import duties into the USA for South African exporters are waived.
The Act offers incentives for African countries to open their economies and build
free markets. These incentives are to encourage trade between African countries and
the USA by eliminating duties and introducing quotas in specified products.
In 2004, 62% of South African jewellery exports were destined for the United
States, partly as a consequence of AGOA.
14 GOLD IN SOUTH AFRICA

CHAPTER 1
GOLD IN SOUTH AFRICA: INTRODUCTION AND OVERVIEW
Inbound tourist interest in jewellery
Affected Sector: Jewellery manufacturing and retailing
Inbound tourists frequently visit the country with the intention of buying a piece of
quality jewellery, especially gem-set with diamonds or tanzanite. Gold jewellery
sales benefit indirectly as a result.
Inbound tourists intend buying jewellery...
Since 1994, inbound tourist arrivals have increased substantially.
Refining capacity and refining track record
Affected sector: Jewellery manufacturing and gold mining companies
The two primary refiners offer localised refining services and capacity to refine gold
competitively. Rand Refinery also offers secure warehousing. Both Rand Refinery
and Musuku Beneficiation Systems have London Bullion Market Association
accreditation and Rand Refinery serves as a referee in international quality control
for the LBMA.
In September 2004, Rand Refinery became the world’s first refinery to receive
Dubai Good Delivery accreditation.
The South African/European Trade Development and Co-operation Agreement
Affected sector: Jewellery manufacturing targeting the export market
The South African/European Trade Development and Co-operation Fund (TDCS)
provides for the creation of a free trade agreement between the European Union
and South Africa by no later than 31 December 2012. By this date, 90% of all trade
between the two partners will be free of customs duties.
The phase-down of import duties, from current levels of 20%, allowed for by TDCS
has important implications for the local jewellery industry as the European Union
will gradually be rendered a free trade zone in the way that the USA is under
AGOA. The reduction of tariffs applies to jewellery fabricated from gold, silver and
PGM. This means that locally produced precious metals jewellery will eventually
enjoy access to this market free of import duties. This represents a major
opportunity for exporters of South African-manufactured gold jewellery. However, it
also presents a threat for local manufacturers reliant on domestic sales. (See below.)
The emerging middle class among HDSAs
Affected sector: Jewellery manufacturing and retailing
In South Africa, a new middle class among the formerly disadvantaged is
developing. Jewellery manufacturers have noted this trend, reflected in the
increasing numbers of new accounts being opened with those jewellery retailers
offering credit facilities. In response to this trend, jewellery manufacturers are
adapting their product range to suit this new market segment.
A new middle class is developing in South Africa...
Closer co-operation between gold manufacturing industry and government
Affected sectors: Jewellery manufacturing and government
Continued and expanded government assistance by means of financial incentives
could improve the outlook for jewellery manufacturers.
Continued and expanded government assistance...
Government and the private sector could also work together on joint marketing
efforts targeting both local consumers and tourists.
GOLD IN SOUTH AFRICA 15

CHAPTER 1
GOLD IN SOUTH AFRICA: INTRODUCTION AND OVERVIEW
Gold financing schemes
Affordable loans would make the industry more
competitive...
Quotable quotes:
“The current focus on beneficiation is not right. We
are trying to force people into beneficiation in the
belief that this can be achieved by yet more
legislation. But by creating a decriminalised
environment of ownership of gold we will obtain
greater organic growth. We were born and bred in
an environment that criminalises ownership of
unwrought gold. Getting rid of that law will solve
the problem immediately.”
Office bearer, industry body
Affected sectors: Jewellery manufacturing and mining industry
Access to affordable gold loans and other financing incentives would render the
local jewellery manufacturers more competitive internationally and would facilitate
growth in the jewellery manufacturing sector in South Africa.
1.3.2 Challenges
Laws forbidding ownership of gold other than jewellery and bullion coins
Affected sectors: Jewellery manufacturing and investment
The Mining Rights Act of 1967 (and its subsequent amendments) restricts gold
ownership by South African citizens to finished jewellery and bullion coins 2 .
The regulatory system of recovery works licences and jewellery permits dictates the
way jewellery manufacturers run their businesses. The fact that citizens are limited
regarding ownership of physical gold products also restricts the local investment
market in gold.
Current proposed amendments to the Mining Rights Act, which would result in the
deregulation of ownership of minted bars 3 , would go some way towards liberalising
the South African gold market. However, proposed amendments still fall far short of
entirely liberalising the ownership of gold.
Lack of access to cost-effective finance and insurance for jewellery manufacturers
Lack of access to affordable finance is a
predominant reason for business failure, failure to
grow and a disincentive to invest...
Affected sector: Jewellery manufacturing especially small businesses
Interviews with the manufacturing sector (especially the medium and small
businesses, 4 ) highlight the lack of access to affordable finance as the predominant
reason for business failure, failure to grow an existing business, or as a primary
disincentive to entering the sector in the first place 5 .
Demonstrating the extent to which local manufacturers are disadvantaged, the
table overleaf indicates a comparison of the different jewellery financing
mechanisms currently in place in Dubai, Italy and South Africa. These figures are
estimates as loan agreements are invariably confidential and can vary between
different parties.
Quotable quotes:
“Of course I don’t have a balance sheet – I am a
one-man band trying to run a tiny business.”
Micro manufacturer
Small jewellery manufacturers have little or no
credit standing, insubstantial balance sheets,
insufficient personal loan guarantees...
The major difference between jewellery fabricators in Dubai (and in some cases in
Italy) and those in South Africa is that the former are able to borrow metal at a
cost close to the international gold lease rate against a letter of credit issued by a
local bank. South African jewellery manufacturers are required to post collateral as
local banks will not accept letters of credit. Furthermore, since they borrow Rands
and not metal, they are obliged to borrow the currency at prime money market
interest rates.
Problems relating to cash flow were also noted in the research, with the
manufacturers having to borrow funds at several percentage points above prime
rates to finance short-term cash requirements. In most financial respects, these
businesses are no different to those operating in other sectors, save for one that
sets the gold jewellery manufacturer apart and that is the high cost and volatile
nature of the jewellery manufacturer’s primary raw material.
With the exception of the large manufacturers, South African gold fabricators do
not yet have access to the metal financing structures enjoyed by their overseas
competitors. Currently, they buy their raw material outright using working capital or
they finance it at the local prime lending rate plus a risk premium. Again, collateral
is required as loan security, usually 120% of the value of the gold borrowed.
The disadvantage suffered by local manufacturers is the value of the raw material,
compounded by the fact that small jewellery manufacturers have little or no credit
2
See Chapter 6 for details of this Act and its billed amendments.
3
See Glossary of Terms for full definition of minted bars.
4
See Chapter 4 for the definition of the gold jewellery manufacturing categories used in this review.
5
See Chapter 6 for details on finance.
16 GOLD IN SOUTH AFRICA

standing, insubstantial balance sheets, insufficient personal loan guarantees and
represent high credit risks to commercial banks.
Gold jewellery finance – Cost of loans as of mid 2005
Dubai Italy South Africa
Loan Type gold gold Rand
Gold lease Gold lease Prime
Interest 2% 3% 10.5%
Risk premium 0.70% 0.70% 2%-3%
LOC (Note 1) Local Bank Local Bank None
Cost of LOC 1% 1% NA
Collateral (other than LOC) None None 120%
Total cost of loan 3.70% 4.75% 12.5%-13.5%
Insurance needed over metal on loan Yes Yes Yes
Data source: Vitual Metals
Note 1: Letter of Credit. Not all Italian manufacturers make use of letters of credit.
Those most affected by this situation are the small manufacturers. The larger
companies potentially qualify for gold financing schemes. In addition, large retailers
interviewed reported that, on placing an order with larger jewellery manufacturers,
they settle immediately for the cost of purchasing the associated fine gold. This
relieves the manufacturer of the related cash flow and financing issues. The small
jewellery manufacturers tend not to supply the large retailers, since they cannot
deliver finished product in the volumes required.
CHAPTER 1
GOLD IN SOUTH AFRICA: INTRODUCTION AND OVERVIEW
Manufacturers of all sizes face an additional cost. Those interviewed noted that
while they had insurance cover for third party liability and stock in transit, the
premiums associated with insuring jewellery inventories and metal in the
manufacturing pipeline are prohibitively expensive. Absence of insurance will
automatically disqualify a jewellery fabricator from participating in gold financing
schemes as sufficient insurance coverage is a pre-requisite.
Premiums associated with insuring jewellery,
inventories and metal in the manufacturing pipeline
are prohibitively expensive...
Start-up costs and the cost of working capital associated with gold jewellery
manufacturing
Affected sector: Jewellery manufacturing especially small businesses
Without access to metal-based funding (as described above), local jewellery
manufacturers have two options: they may either fund their businesses using their
own capital or borrow from commercial banks. The former is usually not an option
– a problem not unique to the gold jewellery industry but experienced by small
businesses in general. But the South African jewellery manufacturer is further
disadvantaged on a number of levels.
1. Interest rates in South Africa have remained high relative to other countries. The
chart on the right compares monetary interest rates in South Africa to the gold
lease rate, which forms the basis of the borrowing cost to many overseas
competitors of the South African jewellery manufacturers.
2. The high cost of start-up. Discussions with small manufacturers revealed that
even a small workshop, for example, with two jewellery benches, a small furnace
and equipped with basic tools and equipment, such as facilities for plating, can
cost up to R250,000. Chain-making machines, imported from Italy, cost
R150,000 each. Additionally, all spares and additional chain-making dies have to
be imported.
3. The nature of gold as a raw material. The very high value of the basic raw
material and the often volatile behaviour of the price of gold disadvantage the
jewellery fabricator more than other manufacturing sectors.
GOLD IN SOUTH AFRICA 17

CHAPTER 1
GOLD IN SOUTH AFRICA: INTRODUCTION AND OVERVIEW
Performance of the local currency
Affected sectors: Mining, jewellery manufacturing (especially small businesses)
The strength of the Rand during much of 2003 and 2004 against the Dollar, British
Pound and Euro, was cited not only as a barrier to market entry but also a threat to
the survival of the mining industry and to jewellery manufacturers in South Africa.
The performance of the Rand since 2000 is shown on the left.
With the Rand/Dollar exchange rate at R6/$, jewellery manufacturers in South
Africa reported that finished jewellery can be imported at a cost less than the
manufacturing cost incurred by local manufacturers for the same or very similar
product. This is so even after taking into account the 20% import duty into the
country and a clearance fee of 2% - 3%. Manufacturers also note that an unknown
volume of foreign-manufactured gold jewellery is being smuggled into the country
to avoid import duties and this has served to further disadvantage the local
manufacturers. The stronger the Rand against other currencies, the greater the
incentive to import finished jewellery legitimately, and, even more so, to bring these
goods into the country illegally.
The effect of the strong local currency has been
increasing pressure on the mark-ups earned by local
manufacturers...
In 2001, when the Rand weakened sharply against the Dollar to average R10.52/$
for the year, exports of gold jewellery from South Africa were robust 6 . Countries of
destination were the USA, the UK and other parts of Europe, Australia, Israel and
Panama. As the currency strengthened, reaching highs of R5.60 to the Dollar in
2004, these same manufacturers reported that their levels of exports were under
pressure and they were restructuring their business models in an attempt to
recapture local market share. The effect has been increasing pressure on the markups
earned by local manufacturers given the added competition for local business.
Throughout 2004, there is also evidence of:
• manufacturers importing finished gold jewellery from countries in the Far East,
Israel and Turkey, rather than fabricating similar gold jewellery themselves; and
• larger retailers importing finished gold jewellery rather than placing orders with
the local jewellery manufacturers.
Quality imports at competive prices based on cheaper offshore labour and the
strong Rand
South African manufacturers are unable to compete
with low labour costs associated with jewellery
manufacturing in China, Thailand and Turkey...
Affected sector: Jewellery manufacturing
South African manufacturers are unable to compete with low labour costs in
jewellery manufacturing in, for example, China, Thailand and Turkey. This is an area
of concern and a threat to local manufacturing capacity.
Italian jewellery still leads the field in terms of quality and finish. However, imports
from Turkey have gained ground and compete with quality products from other
countries. It was felt that goods from Far Eastern countries such as China were not
yet on a par with respect to finish. However, in the mass market, especially where
lightweight jewellery items were concerned, the decisive factor was price rather
than quality.
In environments such as China where there are no minimum wages or labour
unionisation the cost of labour is lower than in South Africa. It is, therefore, difficult
for local jewellery manufacturers to compete internationally.
6
See Chapter 7 for details on the growth of jewellery exports from South Africa.
18 GOLD IN SOUTH AFRICA

CHAPTER 1
GOLD IN SOUTH AFRICA: INTRODUCTION AND OVERVIEW
Technical limitations and ageing equipment
Affected sector: Jewellery manufacturing
The predominant jewellery manufacturing model is mass-production of either
machined jewellery (particularly chain), or cast and stamped jewellery, targeting
either the local market or direct export. Mass-produced jewellery represents 80% of
the tonnage of gold fabricated each year in South Africa.
Quotable quotes:
“In terms of costs, we are very uncompetitive.
Imports from the Far East are of poor quality and
are poorly finished but retailers don’t care as long
as it is cheap.”
Manufacturing jeweller
During interviews with major retailers, concerns were expressed that much of the
machinery being used by some small and medium jewellery manufacturers is
outdated. The ageing machinery also raised concerns about operating efficiencies.
However, new machinery is expensive and both hardware and spares need to be
imported. This again raised the issue of lack of access to funding.
Retailers also expressed concern that South African manufacturers were behind in
the latest developments and fabricating techniques, such as electro-forming, various
methods of gem-setting and the manufacture of hollow jewellery. These
technological issues detract from local manufacturers’ ability to compete
internationally.
Shortage of skills and concerns about training
Affected sector: jewellery manufacturing
Discussions revealed a mismatch between the training provided by the institutions
and the needs of jewellery manufacturers when they employ graduates.
Although students continue to graduate every year from the country’s universities
of technology after completing jewellery courses, a lack of the skills required by
jewellery manufacturers was cited by the fabricating sector as a major concern.
In parallel, was the manufacturers’ contention that existing training programmes
are turning out graduates insufficiently schooled to be able to take their place
productively at a jewellery bench without considerable additional training
and tuition.
The training institutions counter that jewellery manufacturers have unrealistically
high expectations of graduates. They suggested that the real reason behind the
reluctance on the part of jewellery manufacturers to acknowledge the training
courses was a financial one in that, by not acknowledging the qualifications, the
jewellers were not obliged to pay graduates appropriate salaries. While many
jewellery manufacturers denied this, others noted that there was an element of
truth in the concern raised.
The institutions also argue that the manufacturers failed to consider the structure
of the jewellery courses and that the industry fails to account for the lead times
involved in adjusting course content to address industry requirements.
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CHAPTER 1
GOLD IN SOUTH AFRICA: INTRODUCTION AND OVERVIEW
Quotable quotes:
“People would rather buy a DVD or CD player
which they can lock up at home than wear
jewellery on the street.”
Manufacturing jeweller
Quotable quotes:
“A good client of mine asked me to remove her
diamond from its setting and replace it with a cubic
zirconia. She put the diamond in the bank and now
wears the zirconia on the basis that if she loses it,
it’s no big deal.”
Manufacturing jeweller
350%
Relative pay and productivity in
manufactured goods
Compared with developing countries
Low productivity
Affected sector: All throughout the gold business
Of concern for the gold industry is South Africa’s levels of productivity relative to
its competitors, especially China, other parts of the Far East and India.
The chart on the left compares South African wages rates, productivity and unit
labour costs with those of a range of emerging economies, including Turkey,
Mauritius, Poland, Hungary, Hong Kong, Singapore, India, Mexico, Chile, Zimbabwe
ad Korea. Data later than 1998 is not available.
South African wages were over 300% higher than the average wage in other
developing countries in the period covered by this data. Productivity was also higher
but, at just over 200% of the developing country average, it was not enough to
offset the higher wages.
Furthermore, relative productivity has not improved. This was a recurring theme in
the jewellery manufacturing sector, especially among those running the large
mechanised jewellery fabricating operations. Not only do local companies have to
compete with established operations in Italy, they also have to deal with
competition from newly emerging companies in Turkey and the Far East.
The adverse effect of crime on jewellery sales
300%
250%
200%
150%
100%
50%
0%
Wage rates
Productivity
Unit labour costs
Data source: ‘Wage, productivity and export performance in
South Africa: A dynamic panel analysis’, Lawrence Edwards
and Stephen Golub.
Affected sector: Jewellery manufacturing and retailing
The high end of the jewellery product range, specifically those items with a
substantial proportion of gems (diamonds and fancy stones such as tanzanite), is
adversely affected by crime. Consumers no longer want to be seen wearing
expensive jewellery. In other sectors of the market, this does not appear to be a
problem, although it was felt that costume jewellery was gaining ground as
consumers are less concerned about costume jewellery being stolen.
Lack of co-operation in the gold business, especially jewellery manufacturing
Affected sector: Jewellery manufacturing
This research detected a lack of co-operation in the gold business in South Africa,
primarily on the part of the jewellery manufacturers, not only among themselves
but with other sectors of the gold industry and with government as well. To be
specific, jewellery manufacturers do not:
• contribute meaningfully to industry trade groups such as the Jewellery Council
of South Africa, in an attempt to collectively table and resolve issues affecting
their industry. While a limited number of jewellery manufacturers do make an
effort, by far the majority in terms of numbers, are not members of any
affiliated organisation nor do they participate in any organised industry
initiatives. Despite this, many were highly critical of the efforts of those who do
involve themselves in industry trade groups;
• co-operate among themselves and outsource jewellery manufacturing orders
(or the part completion of orders) to each other in an effort to become more
efficient and cost-effective;
20 GOLD IN SOUTH AFRICA

• address the issues of training and skills within the jewellery manufacturing
sector nor engage the training institutions in any meaningful debate. They also,
in general, do not make themselves available to assist with private sector
jewellery training initiatives;
• take up skills training grants, schemes and initiatives made available to them
by government to assist with in-house training. Two reasons for this emerged.
Firstly, there appeared to be a lack of awareness of the financial assistance
available to encourage training, but secondly there was a level of distrust
among the manufacturers with respect to perceived government involvement in
their businesses;
• work with government to find ways to grow their businesses, target export
markets, or explore ways to invest new capital. The opportunities made available
to the sector are discussed in detail in Chapter 6; and
• contribute towards BEE, skills transfers or support for black-owned businesses
through procurement.
Declining local jewellery retail sales as a percentage of purchases of all
consumer goods
CHAPTER 1
GOLD IN SOUTH AFRICA: INTRODUCTION AND OVERVIEW
Affected sectors: Jewellery manufacturing and retailing
Data published by STATS SA 7 and illustrated in the chart shows that jewellery sales
as a percentage of total retail sales have been falling steadily since 1996.
Jewellery sales as a percentage of total retail sales
have been falling steadily since 1996...
Between Rand Refinery and Musuku, supplies of fine gold to the local jewellery
manufacturers have reportedly remained broadly constant over the last five years.
Discussions with recyclers suggest that the volume of gold business with local
jewellery manufacturers has also been broadly unchanged and in some cases has
declined. Unless the illicit flows of gold to the industry (mainly in the form of
finished product smuggled into the country to avoid import taxes and VAT), have
been increasing sharply (something that cannot be verified), then this research
confirms that the local gold jewellery business has not grown in recent years, and
has lost market share to other consumer products.
In the five years from 1999 to 2004, exports of South African manufactured
jewellery have increased strongly, growing at an estimated average rate of 23% per
annum by volume. If supplies of fine gold to local jewellery fabricators have been
broadly unchanged and exports have risen, it follows that local sales of jewellery
have been falling.
Jewellery loses market share to other lifestyle
products...
Manufacturers and retailers interviewed commented that jewellery as a whole has
been losing market share to other lifestyle products, especially to electronic goods
and, more recently, to mobile telephones. The fact that a retail outlet such as
Woolworths recently discontinued its range of gold jewellery in keeping with its
self-service policy, but is still prepared to make an exception to this policy when it
comes to selling mobile telephones, is indicative of the strength of demand for
mobile communication at the expense of jewellery.
7
STATS SA has ceased to record monthly retail sales of all products including jewellery. Discussions with jewellery sector
participants highlighted concerns about the quality and quantity of the data and consequently the series’ reliability.
GOLD IN SOUTH AFRICA 21

CHAPTER 1
GOLD IN SOUTH AFRICA: INTRODUCTION AND OVERVIEW
South African jewellery is not recognisable as a
brand...
Despite all this, those large jewellery retailers that offer credit to their customers 8 ,
report increases in the number of jewellery accounts being opened, especially
during 2004. The emerging black middle class in South Africa was cited as a
contributing factor. However, the reduction in local interest rates seen since mid-
2003 has also helped to expand jewellery sales on credit.
As the South African Reserve Bank reduced interest rates from mid-2003, the
commercial banks responded by reducing their lending rates to households. The
lower cost of credit has resulted in households having more disposable income to
spend and these factors combined have encouraged consumers to open accounts
with retail jewellery stores.
Jewellery’s loss of market share to other lifestyle products is not a phenomenon
unique to South Africa. A similar trend has occurred in the USA. The hiatus in the
data series represents a change in definition and data collection on the part of the
US authorities but it nevertheless illustrates a similar trend.
External perceptions of local jewellery
Affected Sector: Jewellery Manufacturing and Retailing
In general, South African fabricated jewellery is not perceived, either locally or
internationally, in the same light as jewellery fabricated in other major centres such
as Italy and parts of the Far East.
While, in most instances, the quality and finish are on par, and product designs are
little different from machine-made jewellery elsewhere, the country has yet to
establish a reputation as a gold jewellery manufacturer.
South African jewellery is neither recognisable as a brand, nor is there any
standardised means of establishing the basic quality of the product.
While individual manufacturing jewellers will inscribe their own fabricated products
with a personalised symbol or initial and an identification of caratage, there is no
nation-wide centralised benchmarking of the origin and quality of South African
gold jewellery compared to product from other gold jewellery producing countries.
Lack of data
Research hampered by widespread lack of data...
Affected Sector: All
This research was hampered by a widespread lack of data related to the South
African gold business. With the exception of the mine supply figures in the formal
sector, data was found to be either unreliable or non-existent. Difficulties were also
encountered with official trade data. Data covering empowerment achievements,
individual company employment equity plans etc., was unobtainable, or where this
data was available, it was not in a form that could allow for direct comparison with
other companies or sectors. There were instances where companies made available
only empowerment targets and not achievements.
8
See later in this chapter for details of credit options offered to customers.
22 GOLD IN SOUTH AFRICA

STATS SA has ceased to collect and collate data relevant to retail jewellery sales in
South Africa, 2003 being the last year for which data is available. The absence of
this information will leave the gold business without any benchmark or indication
of whether or not the local jewellery industry is growing. Furthermore, it will not
allow the gold industry to measure the success or otherwise of any initiatives that
might be undertaken in an attempt to encourage growth in the local jewellery
industry.
South African/European Trade Development and Co-operation Agreement
Affected Sector: Jewellery manufacturing targeting the local market
While the South African/European Trade Development and Co-operation Agreement
provides an opportunity for South African jewellery manufacturers eventually to
export their finished product to Europe tax-free, the Agreement is a double-edged
sword. This is because, reciprocally, European jewellery manufacturers will be able
to export their finished jewellery product to South Africa, also eventually free of
import duties. Unless local jewellery manufacturers increase their productivity,
they may find it difficult to compete with the established European
jewellery manufacturers.
CHAPTER 1
GOLD IN SOUTH AFRICA: INTRODUCTION AND OVERVIEW
GOLD IN SOUTH AFRICA 23

24 GOLD IN SOUTH AFRICA

CHAPTER 2
RESERVES TO DORÉ: THE GOLD MINING INDUSTRY
CHAPTER 2
Contents:
2.1 INTRODUCTION 26
2.2 HISTORICAL CONTEXT 26
2.3 GLOBAL GOLD MINE PRODUCTION 27
2.4 STRUCTURE OF THE SOUTH AFRICAN GOLD MINING INDUSTRY 28
2.4.1 Large, publicly-listed gold mining companies 28
2.4.2 By-product and tailings retreatment gold production 31
2.4.3 Junior/small-scale gold mining companies 31
2.4.4 Informal gold mining 32
2.5 SOUTH AFRICAN GOLD COMPANIES IN A GLOBAL CONTEXT 32
2.6 ECONOMIC CONTRIBUTION OF GOLD MINING 33
2.7 COST OF PRODUCTION 34
2.8 EMPLOYMENT 35
2.9 TRANSFORMATION IN THE SOUTH AFRICAN MINING INDUSTRY 36
2.9.1 HDSA ownership 36
2.9.2 BEE through procurement 38
2.9.3 Employment equity 38
2.9.4 Women in mining 39
2.9.5 HDSA employment in mining 39
2.10 INDUSTRY BODIES AND INITIATIVES, GOVERNMENT
BODIES AND UNIONS 40
2.10.1 Industry bodies 40
2.10.2 Government bodies 42
2.10.3 Trade unions 43
2
Photograph: Courtesy of AngloGold Ashanti Limited
GOLD IN SOUTH AFRICA 25

CHAPTER 2
RESERVES TO DORÉ – THE GOLD MINING INDUSTRY
2.1 INTRODUCTION
The discovery of the Witwatersrand Goldfields in 1886 led to the development of
South Africa’s world-class gold mining industry, which has dominated the global
gold mining industry for 120 years. In fact, the Witwatersrand Goldfields will
probably remain the greatest goldfield ever discovered, surpassing all others by
several orders of magnitude 1 . From 1884 when records of production were first
collected, to 2004, the South African gold mining sector has produced 50,055t of
gold which accounts for some 33% of all the gold estimated above the world’s
surface. Total South African remaining gold ore resources are estimated to be some
40,000t, of which about 8,000 to 10,000t are economically recoverable depending
on the Rand gold price and cost scenarios applied.
The emergence of the gold mining sector in South Africa led to the rapid
development and industrialisation of the country and, ultimately, contributed to
South Africa being by far the most industrialised country in Sub-Saharan Africa.
Gold mining was a fundamental catalyst for the development of key infrastructure
(water, roads, electricity, rail, etc), as well as many manufacturing and service
industries. Soon after the discovery of the Witwatersrand Goldfields, Africa’s largest
stock market, now the JSE Limited, was started in 1887 specifically for funding the
mining sector. Many of South Africa’s large-scale parastatals (Eskom, Spoornet, Rand
Water) and world-class financial services companies and institutions owe their
existence to the gold and diamond mining sectors. The mining sector drove the
development of Johannesburg, the industrial heartland of South Africa, which was
known as as ‘Egoli’ or place of gold.
South Africa dominated the global gold mining industry for much of the past 120
years, rising to peak production of 1,000t (67% of global mine supply) in 1970.
Today, the industry is in a mature, declining phase with production having declined
to 342t in 2004. While South Africa is still the largest gold producer in the world,
the closure of older mines and shafts could see the country lose this position over
the next five years. Nonetheless, the gold mining sector continues to be a key driver
of economic growth and a large employer, accounting for just less than 2% of GDP,
10% of export earnings and 187,039 employees in 2004.
2.2 HISTORICAL CONTEXT
There is evidence that small-scale gold mining had been taking place in the country’s
greenstone belt areas some time before the emergence of the modern gold mining
industry, but little recorded history exists for the period prior to the 1830s. The more
recent history of gold mining in South Africa started with the mining in the
greenstone belts in Northern KwaZulu-Natal in 1836 and the development of mines
in the Murchison, Giyani and Pietersburg greenstone belts. In 1875 gold was
discovered on the farm Kromdraai, just north of present day Krugersdorp, and this led
to the first proclamation of gold in the Witwatersrand region. In 1883 the Pioneer
Reef was discovered in Barberton, and in 1886 the very rich Witwatersrand Main Reef
was discovered. This led to the influx of miners from around the world, the
establishment of many new companies and the commencement of the development
of the country’s large scale gold mining industry.
While many mining companies were formed in the latter part of the 1880s, South
Africa’s gold production was dominated in the early years by the following
companies:
Company/event
Established
Union Corporation 1886
Gold Fields of South Africa 1887
Johannesburg Consolidated Investment Company Ltd (JCI) 1889
Rand Mines 1893
General Mining and Finance Corporation 1895
Anglo American 1917
Anglo-Transvaal Consolidated Investment Company (Anglovaal) 1934
1
JRF Handley, Historic overview of the Witswatersrand Goldfields, Handley book page VII
26 GOLD IN SOUTH AFRICA

CHAPTER 2
RESERVES TO DORÉ – THE GOLD MINING INDUSTRY
These seven companies were the backbone of the South African gold mining industry
for most of the 20th century. However, for all the reasons referred to earlier –
declining output, mining at increasing depth and increasing costs, weak international
gold prices throughout the mid-1980s and mid-1990s, as well as increasing output
from other countries – a major restructuring of the industry became necessary.
Seven major mining houses were the backbone of
the South African gold mining industry for most of
the 20th century...
The industry, however, saw changes taking place throughout the 1990s, the most
recent of which are detailed below.
• AngloGold Ashanti Ltd, South Africa’s largest gold producer, was formed in April
2004 through the merger of AngloGold Limited and Ashanti Goldfields of Ghana.
AngloGold Limited was itself formed in June 1998 through a merger of the gold
operations, mineral rights and exploration activities of Anglo American
Corporation and the subsequent acquisition of a number of non-South African
mining assets. Some of the company’s South African mines have since been sold
to other producers.
• Also in 1998, South Africa’s second largest producer, Gold Fields Limited, was
formed as a result of the amalgamation of the gold assets of Gencor Limited
(formerly General Mining and Union Corporation) and Gold Fields of South
Africa Limited.
• Rand Mines was unbundled in 1992 when the mining interests were separated
out as Randgold & Exploration (Randgold). In 1994 Randgold became a pure gold
mining house with a portfolio of marginal gold mines. By 1997 this had been
rationalised into three South African mining companies (Durban Roodepoort
Deep (now DRDGOLD), Harmony Gold Mining and Crown Consolidated
Recoveries) and an offshore gold company, Randgold Resources, operating the
Syama mine in Mali.
• DRDGOLD Limited expanded in the late 1990s as a result of the acquisition of a
number of mines from other operating companies. In 2005, DRDGOLD closed its
North West operations following an eartquake.
• In 1995, Johannesburg Consolidated Investments was divided into a non-mining
group, (Johnnies Industrial Corp), a gold, ferrochrome and base metals group, (JCI
Ltd) and a PGM producer (Anglo Platinum). JCI’s primary remaining gold asset is
a 50% stake in Western Areas, in partnership with Placer Dome Inc.
• Harmony Gold Mining Company Ltd has grown since its unbundling from Rand
Mines, expanding from its single gold mine in the Free State by acquiring both
South African and overseas assets. Harmony acquired Elandsrand and Deelkraal
from the then AngloGold and, together with ARMgold, the then only BEE gold
company listed on the JSE, acquired Freegold from AngloGold. Subsequently,
Harmony merged with ARMgold. In 2003, following the merger between African
Rainbow Minerals (formerly a major shareholder in ARMgold, and now in
Harmony) and Avmin, Harmony acquired Avgold.
• Western Areas was established in 1959 and merged with South Deep in 1995.
In 1998, Placer Dome Inc took a 50% stake in South Deep, which it holds in
partnership with JCI Gold.
2.3 GLOBAL GOLD MINE PRODUCTION
South Africa remains the world’s largest gold producer, but the country’s output has
been in decline for more than three decades, a substantial decrease from the 1,000t
produced in 1970 which was equivalent to two-thirds of global supply at that time.
South Africa remains the world’s largest gold
producer...
In 2004, South African gold mining output fell by a further 9% to 342t compared
with 2003. This amounted to 14% of global production in 2004, Australia and the
USA each now producing around 10% of global supply, (although both countries
are also mature gold producers and production has fallen recently). However, other
countries have begun to expand their gold production, particularly China, Russia,
Indonesia, Uzbekistan, Peru, Papua New Guinea and Tanzania.
GOLD IN SOUTH AFRICA 27

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RESERVES TO DORÉ: THE GOLD MINING INDUSTRY
The following table lists the top 20 global gold producing countries in 2004.
Country
2004 (t)
South Africa 342
USA 260
Australia 253
China 220
Peru 173
Russia 159
Canada 129
Indonesia 100
Uzbekistan 90
Papua New Guinea 71
Ghana 60
Tanzania 48
Mali 40
Chile 39
Brazil 34
Colombia 30
Argentina 27
Mexico 24
Kazakhstan 22
Kyrgyzstan 22
Data source: Raw Materials Group, March 2005.
2.4 STRUCTURE OF THE SOUTH AFRICAN GOLD MINING INDUSTRY
Three of the six largest international gold mining companies in the world are
South African.
The South African gold mining industry can be divided into four sub-sectors:
• large, publicly-listed gold mining companies;
• companies producing gold as a by-product of other metal mining,
(mainly PGM producers);
• tailings retreatment operations (operated either by the large listed
companies or by small-scale companies); and
• junior or small-scale miners.
There is also very limited, informal gold mining undertaken within the country.
Collating production information is not a simple task. Data was sourced from the
Chamber of Mines of South Africa as far as possible, although not all companies are
members of the Chamber or provide it with data.
2.4.1 Large, publicly-listed gold mining companies
There are five large, publicly-listed gold mining companies in South Africa:
AngloGold Ashanti, Gold Fields, Harmony, DRDGOLD and Western Areas.
Five companies accounted for 91% of the fine gold
produced in South Africa in 2004...
These five companies accounted for 312t, or 91% of the fine gold produced in
South Africa in 2004. The following is a brief account of these producers. Further
details may be found in the Research Directory of this document. Information on
these companies’ South African ore reserves is contained in section 2.5 of this
chapter.
AngloGold Ashanti
AngloGold Ashanti is headquartered in Johannesburg and has operations in
10 countries around the globe. Its primary listing is on the JSE limited, although the
company is also listed on the New York, Australian, London and Ghanaian stock
exchanges as well as on Euronext Paris and Brussels.
28 GOLD IN SOUTH AFRICA

In 2004, AngloGold Ashanti produced 181.3t of fine gold, of which 95.8t (56%)
came from its South African operations. The company currently has seven operating
mines in South Africa in two regions. The Vaal River region, near Klerksdorp in North
West Province, comprises three mines – Great Noligwa, Kopanang, Tau Lekoa – and
the West Wits region, near Carletonville, comprises three mines – Mponeng, Savuka
and TauTona.
The four largest mines – Great Noligwa, TauTona, Kopanang and Mponeng –
contributed 80% of gold output. The company’s dump retreatment operation, Ergo,
was closed in March 2005, although a number of other surface assets are still being
processed. The Savuka mine is currently in closure mode. The Moab Khotsong mine
is currently under development and is expected to come into commercial
development in 2006.
As at the end of December 2004, the company was involved in the following
growth projects in South Africa: Mponeng shaft deepening (R1.2 billion, of which
R50 million was remaining), various projects at TauTona (R1.5 billion, of which
R1.2 billion was remaining), Moab Khotsong (R4.0 billion, of which R409 million was
remaining).
At the end of 2004, AngloGold Ashanti employed 65,400 people globally (including
contractors), 69.4% or 45,380 people in South Africa.
Gold Fields
Gold Fields is also headquartered in Johannesburg, South Africa, with operations in
South Africa, Ghana and Australia. and is listed on the JSE Limited (primary listing),
New York Stock Exchange, London Stock Exchange, Euronext in Paris and Brussels as
well as the SWX Swiss Exchange.
The company was the subject of a takeover bid by Harmony during 2004/2005,
which it successfully defended. Gold Fields’ own plans to merge with North
American gold producer IAMGOLD were thwarted as a consequence of the
Harmony takeover bid.
In 2004, the company produced 129t of gold, 68% or 88t from its South African
operations, Driefontein and Kloof, near Carletonville, and Beatrix, near Welkom in
the Free State. The two primary operations, Kloof and Driefontein, produced 78% of
the company’s South African gold output.
Planned capital expenditure (reported at the end of June 2005) amounted to
R280 million on the Driefontein Expansion project, R230 million at Kloof and
R250 million on the Beatrix north section project.
At the end of June 2005, the company employed some 43,942 people (excluding
contractors) across its operations, 94% or 41,500 people in South Africa.
CHAPTER 2
RESERVES TO DORÉ: THE GOLD MINING INDUSTRY
GOLD IN SOUTH AFRICA 29

CHAPTER 2
RESERVES TO DORÉ: THE GOLD MINING INDUSTRY
Harmony
Harmony’s headquarters are in Virginia in the Free State, although the company’s
corporate office is in Johannesburg. The company is listed on the JSE Limited, on the
New York, London and Berlin stock exchanges and on Euronext in Brussels and Paris.
The company has operations and projects in South Africa, Australia and Papua New
Guinea.
In 2004, the company produced 92t from its South African operations. However,
following significant restructuring, the company expects production to decline in
2005.
Harmony has structured its operations into Quality shafts, Leveraged shafts and
Growth shafts or projects and does not report production on a mine-by-mine basis.
Harmony is currently undertaking a R3.4 billion capital expenditure programme,
with five projects underway in South Africa - the Tshepong Expansion, Elandsrand
new mine, Doornkop South Reef projects and new mines at Masimong and Phakisa.
Harmony employed 53,588 people (including contractors) at the end of June 2005,
51,610 (96%) of whom were employed in South Africa.
DRDGOLD
Based in Johannesburg DRDGOLD is listed on the JSE Limited, the London,
Australian and Port Moresby stock exchanges and on Nasdaq in the USA. The
company has operations and interests in South Africa, Australia and Papua New
Guinea.
Following an earthquake at its North West operations in March 2005, the company
successfully applied for the provisional liquidation of the wholly-owned subsidiary
in which these assets are contained, thereby significantly reducing its South African
asset base. DRDGOLD subsidiary Crown Gold Recoveries is the country’s largest
dump retreatment operation.
In 2004, DRDGOLD produced 23.2t of gold from its South African operations. (10t
or 58% came from the now-closed North West operations). This includes 4.3t
attributable to Khumo Bathong Holdings (KBH), DRDGOLD’s BEE partner. In 2005,
agreement was reached with KBH that KBH would acquire an 11% stake in
DRDGOLD, with the option to acquire a further 15%, and that ERPM and Crown
Gold Recoveries would once again become subsidiaries of DRDGOLD. Prior to this,
KBH held a 40% stake in Crown Gold Recoveries and ERPM.
No significant new projects are currently being undertaken in South Africa.
The total number of people employed at DRDGOLD’s South African operations was
6,390 as at the end of June 2005.
30 GOLD IN SOUTH AFRICA

CHAPTER 2
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Western Areas
Western Areas has a 50% stake in the South Deep mine, together with joint
venture partner Placer Dome. In 2004, the South Deep mine produced 13.4t, of
which 6.7t were attributable to Western Areas.
As at 31 December 2004, Western Areas employed a total of 4,914 individuals.
The following table shows gold production attributable to large, publicly-listed
companies.
2004 (t)
Production
AngloGold Ashanti 95.8
Great Noligwa mine 24.7
TauTona mine 17.7
Kopanang mine 15.1
Mponeng mine 13.6
Tau Lekoa mine 9.1
Savuka mine 4.9
Surface operations 3.7
Ergo 6.9
Gold Fields 87.8
Driefontein mine 35.8
Kloof mine 32.9
Beatrix mine 19.1
Harmony 92.0
DRDGOLD* (includes 40% interest in ERPM and CGR by KBH) 23.2
South Deep mine (50% attributable to Western Areas
and 50% to Placer Dome) 13.4
Total 312.11
2.4.2 By-product and tailings retreatment gold production
In addition to gold mine production, 7.2t of fine gold was produced as a by-product,
mainly from PGM mines. The major PGM producers in South Africa are: Anglo
Platinum, Impala Platinum Holdings Limited, Lonmin Platinum and Aquarius
Platinum. These companies do not report separately on gold production.
The two major dump retreatment operations active in 2004 are accounted for
under AngloGold Ashanti (Ergo, now closed) and DRDGOLD (Crown Gold
Recoveries). Total dump retreatment production is estimated at 13.1t for 2004.
Other small-scale dump retreatment operations are accounted for under smallscale
producers.
2.4.3 Junior/small-scale gold mining companies
The National Small Business Act of 1996 defines each sector of the economy,
including mining, in terms of the number of employees, annual total turnover and
total gross net asset value. With respect to mining, junior or small and medium
companies would employ at least 200 people, have an annual turnover of R30
million and total gross net asset value of least R18 million.
In 2002, the Minerals & Energy Policy Centre 2 (MEPC), completed research into the
development of the junior mining sector in South Africa. 3 The report noted the
existence at that stage of 20 junior or small-scale mining companies, of which eight
were mining gold 4 .
2
The MEPC was established in 1994 to research the local economy and specifically issues pertaining to minerals and energy.
The Netherlands, through its Ministry of Co-operation and Development, provided seed funding. Other income is now
increasingly derived from commissioned research and services.
3
Mitchell, G.C., et al: Research Report 1 to the Interim Committee of Small and Junior Mining Companies on the Development
of a Junior Mining Sector in South Africa: Opportunities and Options, MEPC, 2002.
4
The others were involved with the mining of PGMs, diamonds, ferrous and non-ferrous metals as well as coal.
GOLD IN SOUTH AFRICA 31

CHAPTER 2
RESERVES TO DORÉ: THE GOLD MINING INDUSTRY
Small-scale gold producers and small-scale dump
retreatment operations contributed 22.7t of fine
gold in 2004...
Data from the major refineries and the Chamber of Mines indicates that small-scale
gold producers and small-scale dump retreatment operations contributed some
22.7t of fine gold in 2004. (This figure excludes Ergo and CGR.)
2.4.4 Informal gold mining
In addition to the formal mining sector, informal gold mining takes place in those
areas of the country where there are old mine workings or tailings dams, for
example in the vicinity of Nigel in Gauteng, and Barberton and Sabie in
Mpumalanga Province. This informal sector is distinct from the illegal operations in
which mine output is stolen from the formal mining sector either at the mines or
from the smelters.
Informal miners tend to be one-man operations working on abandoned mine sites
and dumps. As they are unregistered with any fiscal or regulatory authorities, the
numbers of informal miners and their gold output are impossible to estimate.
Discussions with the Department of Mineral and Energy indicate that these
informal miners are also transitory, moving frequently from one location to
another, making their existence and activities more difficult to trace.
According to the CSIR 5 , it was estimated that in 1998 there were at least 1,250
informal gold miners active in South Africa. Since then, no other figures have been
collated. Collectively, these miners are thought to produce less than 1t of gold
annually, much of which is believed to be traded mainly with their suppliers of
mercury based in Swaziland and Mozambique.
2.5 SOUTH AFRICAN GOLD COMPANIES IN A GLOBAL CONTEXT
A number of South African gold producers have become global players, having
extended their exploration activities and asset base beyond the borders of the
country. Of the world’s six largest gold producers three – AngloGold Ashanti, Gold
Fields and Harmony – are from South Africa.
Although it is estimated that close to 50,000t of gold have been mined in South
Africa since 1887 6 , South Africa’s gold resources still make up 40% of the world’s
known resources. It is also estimated by the US Geological Survey (USGS) that
South Africa has six times more gold resources than the USA and Australia 7 .
Ore reserves held by the major South African gold mining companies in South
Africa are estimated as follows:
Estimates of available (proved) ore reserves in South Africa of major South
African publicly listed mining companies as at 30 June 2005
Calculated on the 000t Grade Contained
basis of a gold price (g/t) gold
per kg (R/kg)
(kg)
AngloGold Ashanti
(South African) 94,764 30,900 5.21 160,800
DRDGOLD 88,960 55,341 2.07 114,344
Gold Fields Driefontein 92,000 30,100 7.90 237,800
Beatrix 92,000 14,400 5.50 79,200
Kloof 92,000 13,600 10.20 138,700
Harmony
Western Areas
South Africa
surface 92,000 26,000 0.45 12,000
South Africa
underground 92,000 55,400 6.49 360,000
Extended SV1
area 91,429 2,012 7.70 15,490
Phase 1 area 91,429 4,120 10.5 43,265
Data source: Chamber of Mines of South Africa and company annual reports/websites
32 GOLD IN SOUTH AFRICA
5
Council for Scientific and Industrial Research.
6
Source: Chamber of Mines.
7
This discussion of resources makes use of the definitions as quoted by US Geological Survey as follows: A reserve base is
defined as the in-situ demonstrated (measured plus indicated) resource from which reserves are estimated. The resource
base includes reserves that are currently economic (reserves), marginally economic (marginal reserves) and some that are
currently sub-economic (sub-economic reserves).

CHAPTER 2
RESERVES TO DORÉ: THE GOLD MINING INDUSTRY
2.6 ECONOMIC CONTRIBUTION OF GOLD MINING
The gold mining industry played a substantial role as a foundation industry in the
evolution of South African industry. The discovery of the rich Witwatersrand
Goldfield in 1886 led to a substantial influx of engineers, geologists, miners,
technicians, financial people, etc., that were attracted from all over the world to the
new opportunities presented by the gold rush. The need for housing, water, power,
explosives, equipment, communications, food and liquor, were initially met by
importing the products from overseas and then transporting the goods by wagon
from the coast. Within five years a railway line had been developed from Cape Town
and was followed by another line from KwaZulu-Natal. A year after the discovery of
the Witwatersrand Goldfields a telegraph service was operational. The material and
services requirements of the gold sector ultimately led to the establishment of
financial services and manufacturing companies. Roads, railway stations, electricity
services and water reticulation, all evolved on the back of large demands from the
mining sector. The requirements of the mining sector were increasingly met from
local sources and services and industry boomed. Over time the banks, stock market,
service providers and manufacturers were able to generate their own critical mass
and start providing goods and services to industries and consumers outside the
mining sector.
The gold mining sector has been the dominant foreign exchange earner for the
country over the past century. More recent numbers indicate that gold export
earnings in 1980 accounted for over 50% of South Africa’s merchandise exports in
that year. The decline in the Dollar gold price, combined with the fall in South
African gold production and the increasingly diversified structure of the economy
meant that by 2004 gold exports accounted for a smaller 10% share of total
merchandise exports. Similarly, the direct contribution to GDP of gold mining
peaked at 16.3% in 1980 and by 2004 was a smaller 2% of GDP.
Although the relative importance of gold mining has fallen over the last decade
with the performance of the gold price, gold mining still contributed just under 2%
directly to GDP in 2004. Taking into consideration the indirect contribution to the
economy and the multiplier effects, gold mining's total contribution to GDP is
closer to 4.4%. These multiplier effects include:
• backward linkages, which arise from the purchase of goods and services by
the gold mining industry, which stimulates industrial production and the
provision of services (e.g. gold mines consume 15% of all electricity
generated in South Africa);
• forward linkages, arising from the use of mineral products in other domestic
industries, such as jewellery fabrication and production of refined gold;
• social multipliers which arise from the role of mining in the development of
human resources and infrastructure such as schools, colleges, clinics, roads,
and housing;
• the primary incomes multiplier which arises from household expenditures of
primary incomes derived from mining (in 2004 R13.1 billion was paid to
employees in the form of salaries and wages);
• the employment multiplier, which arises from the employment created in
other industries as a result of gold mining. In 2004, the Chamber of Mines
estimates that in addition to the 187,039 people employed in gold mining
another 63,000 jobs were created in related industries linked to the gold
mining sector. This multiplier includes the benefits of the provision of
employment for workers from deep rural communities and the transfer of
funds back to these areas;
• the income terms-of-trade multiplier which arises from the positive impact
that gold export earnings have on the balance of payments, foreign reserves,
GOLD IN SOUTH AFRICA 33

CHAPTER 2
RESERVES TO DORÉ: THE GOLD MINING INDUSTRY
monetary policy and ultimately upon the general level of business activity in
the country. In 2004, gold export earnings of R29.5 billion accounted for 10%
of the country’s merchandise exports; and
• the capital formation multiplier which arises from mining’s influence in
attracting foreign capital to the country (via the JSE Limited or via direct
investment), and in domestic capital formation.
2.7 COST OF PRODUCTION
The cost of producing gold in South Africa varies between mining companies and
operations, as each operates with unique geological and metallurgical circumstances.
The Chamber of Mines collates information on the components of mining costs from
its members.
%
Company employees (including foodstuff) 58.36
Power and water 12.36
Stores and services (excluding foodstuff) 23.33
Other costs 5.96
Total cash costs 100.00
In terms of world ranking, an international gold cash cost curve comparison for the
years 2002 and 2004 is shown below and overleaf. The cost curve positions gold
mines on a cumulative production chart in a way that allows for direct comparisons
between operations. 9
South African gold producers feature in red and the two different graphs show the
deterioration in South Africa’s competitive position over the time period. The
movement of South African producers up the global cost curve and to the right,
between 2002 and 2004, illustrates particularly the impact of the strong Rand on
local costs relative to their international competitors.
8
The costs shown here are cash costs and exclude capital expenditure, amortisation and depreciation.
9
Source: Chamber of Mines, Virtual Metals, Raw Materials Group and USGS.
34 GOLD IN SOUTH AFRICA

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2.8 EMPLOYMENT
This section analyses the employment profile of the gold mining industry in
South Africa. As an initial starting point, industry data collected by the Chamber of
Mines was used. More details on particular mining companies can be found in the
Research Directory at the end of this review. Historically, the gold mining industry
has been a significant employer although employment levels have decreased
substantially in recent years.
As at June 2004, the gold mining industry was still the largest employer within
South Africa’s mining sector, with 41% of all employees, or 187,039 people. Over
the past 20 years, this number has fallen, with mine closures, restructuring and
mergers contributing to the decline in employment levels. In 1987, the industry
employed 537,000 people.
By far the greatest job losses in this industry have been among unskilled workers.
The fact that they have historically made up the greatest grouping within the total
work force has contributed to this, and when measured in percentage terms the
decline in the numbers of unskilled workers (between 1984 and 2003) at 73% was
larger than the 52% for skilled workers. The most recent data (for 2004) shows that
this trend has continued.
Historically, the gold mining industry has been a
significant employer, although employment levels
have decreased substantially in recent years...
187,039 people were employed in the gold mining
sector as at June 2004...
By far the greatest job losses in the industry have
been among unskilled workers...
Employment levels in the diamond and the PGM mining industries have been
increasing as both the diamond and PGM sectors have experienced expansion and
development over this period.
On an international basis, the South African gold mining industry employs
substantially more people than do other major gold mining countries. This is due, in
part, to the fact that the local industry is engaged in deep-level hard-rock
underground mining which by nature is labour intensive. By comparison, the gold
mines in Australia and North America are more commonly open pit and are suitable
for mechanisation.
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2.9 TRANSFORMATION IN THE SOUTH AFRICAN MINING INDUSTRY
The South African mining industry is regulated by a range of legislation and
regulations in respect of transformation and Black Economic Empowerment (BEE).
This legislation and the regulations are dealt with in Chapter 6. The following is a
brief description of the progress that has been made in the mining industry in
respect of transformation.
The MPRDA requires that mining companies
transform their ownership structure...
The Mineral and Petroleum Resources Development Act (MPRDA) requires that
mining companies transform their ownership structures or facilitate BEE such that
they can show 15% Historically Disadvantaged South African (HDSA) ownership
of equity in their companies or the equivalent attributable units of production to
HDSA owners within five years of enactment (that is, by 2009) and 26% within
10 years (that is, by 2014). It also requires that mining companies substantially and
materially increase the economic participation of HDSAs within the industry, from
employment to procurement.
In order to assess progress against BEE strategy in the gold industry, three distinct
areas of economic transformation need to be considered:
• HDSA ownership of existing and new enterprises;
• procurement of goods and services from HDSA entrepreneurs and
businesses; and
• delivery on employment equity plans.
2.9.1 HDSA ownership
Total mergers and acquisitions in the gold mining industry (including BEE
transactions) are recorded in the following table, which shows both the number of
transactions and their total value.
Gold mining - Total mergers and acquisitions
Number of transactions
Value R million
1999 19 16
2000 16 7,172
2001 13 6,853
2002 25 8,097
2003 43 38,341
2004 35 13,432
Total 151 73,910
Data source: Ernst & Young.
Of these transactions, the following levels of BEE transactions were identified, again
in total number of transactions and value.
Gold mining - BEE transactions
Number of transactions
Value R million
1999 n/a n/a
2000 0 0
2001 5 2,618
2002 6 403
2003 7 13,442
2004 8 695
Total 26 17,158
Data source: VM analysis of Ernst & Young data.
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This data shows that between 2000 and 2004 (inclusive), an average of 19.7% of
the total number of transactions in the South African gold mining industry were
associated with BEE, as was 23.2% of the total value. The annual breakdown of this
figure for the period is shown in the table below.
Between 2000 and 2004 (inclusive) an average of
19.7% of transactions in the South African mining
industry were associated with BEE...
BEE transactions as percentage of total M&A activity in gold mining
Number of transactions
Value R million
1999 n/a n/a
2000 0 0
2001 38.5 38.2
2002 24.0 5.0
2003 16.3 35.1
2004 22.9 5.2
Average (2000-2004) 19.7 23.2
Data source: VM analysis of Ernst & Young data.
Individual BEE transactions that can be identified during this period are listed below.
Black economic empowerment transactions in the gold mining sector
Acquirer Target Seller Value
2001 1 Rm
Komanani Mining Harmony Harmony 394
Komanani Mining Harmony Harmony 6
African Rainbow Assets AngloGold 10
Simane Security Harmony Harmony 8
Harmony/ARM 2 Free State mines AngloGold 2,200
of AngloGold
2002
Khumo Bathong Crown DRDGOLD 105
Khumo Bathong Crown Crown 68
Lwami Invest Afrikander Lease Undisclosed 120
Khumo Bathong 10% Elandskraal Hanson 105
Masakhisane Stone & Allied AngloGold na
BEE Stone & Allied Ind Stone & Allied AngloGold 5
2003
Metorex/ ETC Assets AVGOLD 255
Millennium Cons
African Vangueard Doornkop Harmony 250
Harmony African Rain Shareholders 4,900
Mvelaphanda SA Gold Assets Gold Fields 4,100
Kabusha mining Afrikander Lease Peter Skeat 127
Randgold & EX Viking Pony Prop Phikoloso mining 268
Anglovaal Harmony ARM 3,542
2004
Randgold & EX Luxinge Alluvial Koketso Anglo JV 24
Randgold & EX Dando Kwanza Masupatsela 28
Randgold & EX Somba Sul Quantum 25
African mining
Randgold & EX Mining Equip & Trans Benguela Log 28
Assets
Inkwenkwezi Gold Western Areas Anglo American 515
Randgold & EX Lunda Alluvial Undisclosed 57
Undisclosed Makonjwaan Simmer & Jack 3
mining
Data Source: Virtual Metals’ analysis of Ernst & Young data.
Note 1: prior to 2000 data on individual transactions is not available.
Note 2: Only ARM was a BEE company.
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The process of transfer of equity to HDSA
participants will inevitably take time to gather
pace...
The volume of the above transactions shows that progress has been made towards
HDSA ownership in the gold mining sector. It would, however, be misleading to use
this data to estimate the proportion of the gold mining sector which is now HDSA
owned, given the debt structures of the transactions that have been undertaken to
enable transfer of ownership to HDSA participants. It is also clear that, given the
capital-intensive nature of the gold mining sector, the process of transfer of equity
to HDSA participants will inevitably take time to gather pace.
2.9.2 BEE through procurement
Gold mining and refining companies largely source goods and services via a tender
process. Decisions on the awarding of tenders are usually based on price, quality of
goods, reliability of services and, additionally, the BEE status of the vendors.
Where data on individual companies’ BEE
procurement was available, it was not in a format
which made consolidation and comparison
possible...
Mining companies are required to identify current levels of BEE procurement in
terms of the Mining Charter. However, at the time of publication, this data was not
available in a consolidated form for the industry. Where data on individual
companies’ BEE procurement was available, it was not in a format which made
consolidation and comparison possible.
However, the following information reported by the primary gold producers offers
some indication of the aggregate volume of HDSA procurement which has been
achieved:
• AngloGold Ashanti reported that, in 2004, R711 million of total procurement
spend in South Africa was attributable to companies with at least 25% HDSA
ownership, and offers the following breakdown of this spend in 2004, and HDSA
procument targets for 2008:
Procurement category % HDSA % 2008
spend in 2004
Target
Site works 41 41
Consumables 39 99
Services 17 22
Capital 7 9
Total 22 48
• Gold Fields reported that the company is increasingly doing business with small
and medium-sized enterprises on a competitive basis. Procurement from such
companies (excluding capital expenditure) increased from 18% in the 2004
financial year to 25% in the 2005 financial year;
• Harmony reported that, for the 2005 financial year, HDSA spend increased
to 28% of procurement spend;
• DRDGold reported that procurement spend with HDSA suppliers rose to 12% by
the end of 2004; and
• Western Areas reported that 48% of its R368.3 million spend in 2004 was with
companies accredited by the South African Materials Preferential Procurement Forum
(SAMPPF) detailed as follows: 26%: BEE ownership 0 to 5%; 13%: BEE ownership
5 to 25%; 8%: BEE ownership 25 to 50%; 1%: BEE ownership above 50%.
2.9.3 Employment equity
The Employment Equity Act No 55, which prescribes employers’ responsibilities in
respect of employment equity, came into effect in 1998 and is described in Chapter
6. The Mining Charter also deals with employment equity, particularly relating to
the participation of HDSAs at board and management level, as well as women in
mining. While the legislation requires that employment equity information be made
publicly available, once again the format of reporting differs from company to
company. Information on the individual mining companies is made available in the
research directory at the end of this document.
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2.9.4 Women in mining
As can be expected in the mining industry, men far outnumber women in the South
African gold mining workforce. There is a legacy of legislative exclusion of women
from the South African mining industry, this restrictive legislation only having been
removed in the last decade. According to the Department of Mineral and Energy
(DME), in June 2004, there were only 3,739 full-time female employees, or 2% of
the total number of people employed in gold mining, and they were employed
mainly in administrative and technical roles as opposed to actual mining.
There is a legacy of legislative exclusion of women
from the South African mining industry...
An analysis of the published statistics contained in the individual companies’
employment equity plans bears out the predominance of men in the mining
industry. The following table gives a breakdown of the presence of women in the
various job categories, as reported by the mining companies.
Women in gold mining by job description Dec 2003-June 2004
Weighted averages
% of total
employees
Senior Management 6.4
Professional 8.1
Technical 7.6
Clerks 28.3
Craft related 6.2
Machine operators 1.7
Unskilled 2.1
Temporary 2.3
Data Source: Analysis of individual company data. Employment equity plans where available.
With the exception of clerical staff (at 28%), job categories in the local gold mining
industry have less than 10% of their payroll consisting of women.
2.9.5 HDSA employment in mining
The weighted average number of HDSA employees by job category for the gold
industry is tabulated below.
HDSA employees in gold mining by job description Dec 03-June 04
Weighted averages
% of total
employees
Senior management 14.2
Professional 12.3
Technical 36.3
Clerks 85.6
Craft related 55.2
Machine operators 98.1
Unskilled 99.5
Temporary 90.9
Data Source: Analysis of individual company data where available.
This analysis was undertaken on the basis of the available data. Only AngloGold
Ashanti included a job description to cover temporary workers employed by the
company, of which 91% were HDSA. The other mining companies appear to have
incorporated temporary employees in other categories of employment and
therefore the HDSA percentages may be overstated.
The South African gold mining industry is staffed
predominantly by black people...
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2.10 INDUSTRY BODIES AND INITIATIVES, GOVERNMENT BODIES AND UNIONS
2.10.1 Industry bodies
The Chamber of Mines of South Africa
The Chamber of Mines was formed on 7 December 1887 in Johannesburg and was
succeeded by the modern Chamber on 5 October 1889. Funded by its members, it
is a producers’ organisation, representing mine owners to government, labour and
others. Its key mandate is to promote and protect the interests of mining groups
and the mining industry in general.
During the 20th century the Chamber of Mines was
one of the most effective employers’ organisations
in South Africa...
During the 20th century it was one of the most effective employers’ organisations
in South Africa. As well as dealing with government, it also negotiates with trade
union bodies and sets labour policy and standards for its membership.
Currently, membership of the Chamber consists of two financial corporations, eight
gold mines, and a large number of coal, diamond, PGM and other mining companies
and associated bodies. The Chamber of Mines members account for some 90% of
South Africa’s mineral production (by value) or 86% of gold production. The
Chamber is organised around a committee system, the most senior of which is the
Executive Council, responsible for setting the overall policy direction of the Chamber.
As far as gold mining is concerned, the Gold Producers Committee (GPC) is
responsible for directing policy in this sector. In addition to the GPC, there are
committees dealing with such common industry concerns as environmental issues,
occupational health and safety, health issues such as HIV/AIDS, human resources,
education and skills development, taxation, mining titles and mineral rights.
In recent years, the Chamber has responded to the
changing environment in which it operates and has
redirected many of its core activities...
The South African Mining Development Association
(SAMDA) was formed to promote the interests of
the junior and black economic empowerment sector
in South African mining...
In recent years, the Chamber has responded to the changing environment in which
it operates and has redirected many of its core activities by:
• refocusing to position itself as the principal advocate to government of major
policy positions endorsed by the mining industry;
• ending its direct involvement in the financial subsidisation of various industry
services; and
• expanding its membership base.
South African Mining Development Association (SAMDA)
The South African Mining Development Association (SAMDA) was formed to
promote the interests of the junior and black economic empowerment sector in
South African mining.
Founded in 2000 and funded by its members, it was registered as a Section 21
company at the end of 2002. Its key function is to lobby stakeholders such as
government, labour and organised business on behalf of its membership.
Junior mining companies in this instance are defined as those companies with
annual sales valued at between R30 million and R1 billion. The lower end of the
scale is obtained by using the definition of small-scale mining in the National Small
Business Act of 1996 with the upper end limit agreed at an interim committee of
SAMDA in 2002.
SAMDA’s membership includes 62 companies (comprising 181 individual mines
including diamonds, coal, gold and other minerals); 94% are involved in production.
The rest are involved in contract mining.
Of the 62 companies, 14 (22%) are BEE companies, wholly-owned and managed
black enterprises; 15 (24%) are involved in gold production, with 21 individual gold
mining operations.
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SAMDA’s current work includes:
• developing a coherent position on the Royalty Bill;
• lobbying government with respect to new mineral policies;
• conducting local and international research into junior mining issues;
• negotiating with the Chamber of Mines on matters of mutual interest;
• negotiating with banks and other financial institutions;
• assisting BEE and junior companies with advice on policy and mining;
• assisting educational institutions with curriculum development;
• skills development; and
• consultations with the National Union of Mineworkers.
Mintek
Mintek was established in 1934, initially as a technical adviser to the mining
industry in general. Since then, the organisation has broadened its service base
considerably. Apart from specialising in mining, metallurgical and engineering
projects, Mintek has branched out into social and human resource initiatives as they
apply to the mining industry, including training, HIV/AIDS treatment and
prevention, and jewellery manufacturing projects. Details of Mintek’s jewellery
projects and the small miners’ programmes are discussed in Appendix 3.
Apart from specialising in mining, metallurgical and
engineering projects, Mintek has branched out into
social and human resource initiatives as they apply
to the mining industry...
Mintek is financed by a combination of government grants and fees earned from
external services. The ratio of these revenue sources is broadly 50:50.
Mintek is directed by a Board, which includes a Chairman and Mintek’s CEO, plus an
additional six to nine other members. The Chairman is selected by the Minister of
Minerals and Energy. The CEO is supported by an executive management team, 18
divisional managers and over 400 employees.
In 2001, Mintek signed a three-year letter of intent with the South African
Government in terms of which the main focus of the organisation would be to:
• add value to South Africa's mineral resources;
• expand the country's mineral technology industries;
• develop minerals industries in the Southern African Development Community
(SADC) and throughout Africa; and
• support the growth of small, medium and micro enterprises in the minerals
sector.
Since 2004, this relationship with the Government has become known as the
Mintek Compact.
Apart from the technical services offered, Mintek also has an information centre
through which fee-paying members access data. Currently, Mintek has partners in
Canada, India, Brazil, Argentina, Bolivia, Uruguay and Peru, and is actively undergoing
a process of commercialisation via wholly-owned subsidiaries.
Currently, Mintek has partners in Canada, India,
Brazil, Argentina, Bolivia, Uruguay and Peru, and is
undergoing a process of commercialisation via
wholly-owned subsidiaries...
The commercialisation of Mintek
In 2002 Mintek established Mindev (Pty) Ltd, a wholly-owned holding company
designed specifically to support the commercialisation of Mintek’s technologies via
joint venture partnerships.
Mindev currently has non-controlling shareholdings in four companies namely Apic
Toll Treatment (Pty) Ltd, Mogale Alloys (Pty) Ltd, Musuku Beneficiations Systems
(Pty) Ltd and Tollsort (Pty) Ltd. Of the four, Mintek has capital invested only in Apic
Toll Treatment, and is involved in the remaining entities as the provider of licences
and Mintek technology. Musuku is discussed in more detail in Chapter 3 as is the
associated Minataur (Mintek Alternative Technology for Au Refining) process that
was developed by Mintek.
Tollsort was formed in conjunction with MikroSort SA, B&E International and the
SPA Group to assess and develop optic sorting to upgrade ore types.
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2.10.2 Government bodies
The Department of Minerals and Energy reports to
and advises the Minister, who, in consultation with
the cabinet, takes final responsibility for policy...
Department of Minerals and Energy (DME)
The DME is the primary government department responsible for formulating and
implementing mining and minerals-related policy. It reports to and advises the
Minister of Minerals and Energy who, in consultation with the cabinet, takes final
responsibility for policy.
Within the Department, the Electricity and Nuclear Branch is responsible for
electricity and nuclear affairs; the Hydrocarbons and Energy Planning Branch is
responsible for coal, gas, liquid fuels, energy efficiency, and renewable energy planning,
including the energy database; while the Mineral Development Branch manages,
among others, mineral prospecting and mining rights. The Mine Health and Safety
Branch is responsible for the application of mine health and safety legislation.
With respect to the gold industry, the main function of the DME is the
administration of minerals and environmental regulation through the MPRDA.
Other departments of the DME are:
• the Mineral Regulation Branch which is tasked with processing applications for
prospecting and mining rights, and mining permits;
• the Environmental Management Directorate which administers issues
concerning environmental management;
• a Social Plan Directorate which deals with mining rights;
• the Mine Economics Directorate which deals with issues such as royalties;
• the Mineral Policy and Investment Promotion Chief Branch of which the DME
has a Small-Scale Mining Directorate for the promotion of small-scale mining,
although its function also incorporates SMMEs involved in the beneficiation of
gold, mainly jewellery and craft manufacture; and
• the Directorate of Mineral Economics through which the DME deals with
statistics and mineral economics in relation to gold. The statistics section
collects and assimilates production, local sales, export sales and labour data in
relation to gold mines and recovery works. The DME also monitors
developments in the gold mining industry regarding both mineral economics
and policy. The department disseminates mineral economic statistics and
information on developments in reports, annual reviews and bulletins.
If the Precious Metals Bill (See Chapter 6 for further details) is enacted in its current
form, the Minister of Minerals and Energy (through the proposed Diamonds and
Precious Metals Regulator) will assume administration of the Precious Metals
legislation, except for exchange control and security-related matters.
The Mining Qualifications Authority (MQA) is a
statutory body made up and funded by the State,
and by employer and employee organisations in the
South African mining industry...
Mining Qualifications Authority (MQA)
The MQA is a statutory body made up and funded by the State, and by employer
and employee organisations in the South African mining industry. It was established
as a result of the South African Qualifications Authority (SAQA) Act 58 of 1995 and
the Mine Health and Safety Act 29 of 1996.
The MQA advises the Department of Minerals and Energy on matters relating to
education and training standards and qualifications in the mining industry. It has
adopted a constitution, set policy and devised a business plan.
42 GOLD IN SOUTH AFRICA

The MQA’s objectives are to:
• develop the mining industry;
• promote a safe, healthy, competitive and productive industry;
• promote access to education and training for all who participate in the industry;
and
• redress inequalities of the past, especially in training and education.
The MQA has five core functions. These are to:
• develop and implement a skills plan specific to the mining sector;
• develop standards and qualifications for the sector;
• establish, register, administer and promote learnerships and apprenticeships;
• maintain quality and learning provisions; and
• regulate the distribution of grants from the Skills Development Levy.
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In order to meet the need for a higher level of skills in the mining and minerals
sector, the MQA, via the National Skills Fund (NSF), offers bursaries to students
who are currently registered at a university or at a university of technology. The
MQA/NSF bursary funds are available for 2002, 2003 and 2004.
The National Skills Fund (NSF) offers bursaries to
students who are currently registered at a university
or university of technology...
MQA-supported fields of study include:
• mining engineering;
• mine survey and mapping;
• metallurgical engineering;
• chemical engineering (with minerals processing);
• mechanical engineering;
• electrical engineering (heavy current);
• geology;
• jewellery design and manufacture;
• environmental studies;
• analytical chemistry; and
• industrial engineering;
The MQA is also discussed in Appendix 3 in connection with training and
skills transfer.
2.10.3 Trade unions
National Union of Mineworkers
The National Union of Mineworkers (NUM) is the largest union in the mining
industry and the largest affiliate union of the Confederation of South African Trade
Unions (COSATU). It was established on 5 December 1982 in Klerksdorp. The union
initially served four regions – the Free State, Klerksdorp, Westonaria and
Carletonville, and had an initial membership of 14,000. As at July 2004, the latest
data available, membership totalled 264,659 and according to COSATU, 80% of
gold mine workers are members of NUM or other trade unions.
The regional breakdown of NUM members is shown on the chart on the right:
The union consists of the following structures:
• shaft stewards and shaft or workplace committees;
• branch committees;
• regional committees;
• the National Executive Committee (NEC);
• a central committee; and
• the national congress.
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The objectives of the union are to:
• recruit and unite into a single labour organisation all workers employed in the
mining and energy industries in order to enhance their economic and social
welfare;
• improve the wages and terms and conditions of employment of members
through collective bargaining;
• protect job security of members;
• improve the political, social, economic interests and material welfare of former,
current and prospective members of NUM and that of workers and labour
organisations in general;
• foster co-operation among all workers in the mining and energy industries and
other industries;
• establish contacts and relationships with other trade unions, trade union
federations and labour organisations nationally and internationally for the
benefit of the members; and
• embark on other lawful activities which are in the interests of the NUM and its
members and which are consistent with its constitution.
NUM remains the largest recognised collective
bargaining agent in South Africa...
NUM remains the largest recognised collective bargaining agent in South Africa,
representing the mining, construction and electrical energy sectors and is the
largest affiliate of COSATU.
The NUM is funded by individual member subscriptions, which its constitution
states must not be greater than 1% of the individual member’s monthly basic pay.
Collective bargaining with employers remains the union’s primary function,
although the organisation involves itself in job upgrading and re-skilling, education
and training, social security, housing and providing legal services to its members. It
also makes representations to government on issues of industrial and political
relevance to its members.
UASA came into being in its current form on 1 April
1998...
UASA
UASA’s roots date back to the beginning of the century, but it came into being in
its current form only on 1 April 1998, with the amalgamation of the Administrative,
Technical and Electronic Association of SA (ATEASA) and the Officials’ Association
of SA (OASA). It is the second largest union representing workers in the mining
industry, and its membership is primarily composed of white-collar workers in
clerical and technical job categories. Current membership, excluding pensioners, is
98,000, of which approximately 53% are black, coloured and Indian and 47% white.
UASA aims to provide the following benefits to members:
• advice and assistance on all matters pertaining to the member’s conditions of
employment, including pension funds, medical benefits, labour legislation, etc;
• free participation in a funeral benefit scheme covering the member’s family;
• maternity benefits;
• unfair Dismissal Assistance Fund, which could assist members to tie over between
an unfair dismissal and the final outcome of any court action;
• training of Branch Committee members by means of the Association’s
recommended Industrial Relations Course, which is accredited by the South
African Labour Development Trust (SALDT);
• representation of members during disciplinary and grievance procedures and
assistance and legal advice in respect of any work-related accident and/or
employment problem;
• assistance to the dependants of a deceased member to ensure that they receive
all the benefits they are entitled to; and
• assistance by a registered psychologist in the event of members losing their
employment by no means of their own doing.
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Solidarity
Solidarity was established in 2001 with the incorporation of the South African
Workers’ Union, (SAWU), Denel Union, Transporter’s Union and the Forestry and
Plantation Management Union into the original Mineworkers’ Union. In 2002 the
Association of Meteorological and Allied Workers joined Solidarity. The original
Mineworkers’ Union was established in 1913 and it expanded in the 1980s to
include the chemical, electrical, telecommunications and steel industries.
Membership comes predominantly from those industries’ skilled white production
employees, usually blue-collar workers such as miners and artisans.
Solidarity was established in 2001...
Membership totals 130,000 including employees from the mining, steel,
telecommunications, engineering, chemical, motor, rubber and general industries.
The main objectives of Solidarity are to:
• offer traditional trade union services;
• offer financial and insurance services to its members; and
• address training and re-skilling needs.
SAEWA
The South African Equity Workers Association (SAEWA) was established in 1937 and
in its early days membership was primarily drawn from the electricity industry. It
later expanded to include members in the food and beverage and mining sector. In
2001 it merged with the South African Allied Workers Union (SAAWU) and in 2003
with the United Metal Industries and Allied Workers Union of South African
(UMIAWUSA).
The South African Equity Workers Association
(SAEWA) was established in 1937...
SAEWA has in the region of 30,000 members, drawn from a range of industries.
In the mining industry its membership is drawn largely from electricity workers.
SAEWA's objectives include:
• protecting and furthering the interests of members in relation to their
employment;
• providing legal assistance to members in connection with their employment;
• encouraging the settlement of disputes through conciliation;
• assisting members to obtain employment;
• encouraging a higher degree of skill among members; and
• promoting, supporting or opposing, as deemed expedient, any proposed
legislation which might affect the interests of members.
GOLD IN SOUTH AFRICA 45

46 GOLD IN SOUTH AFRICA

CHAPTER 3
DORÉ TO SEMI-FINISHED PRODUCT: REFINING AND
RECYCLING
CHAPTER 3
Contents:
3.1 INTRODUCTION 48
3.2 SUMMARY OF THE SOUTH AFRICAN GOLD REFINING INDUSTRY 48
3.3 SOUTH AFRICAN REFINING IN AN INTERNATIONAL CONTEXT 49
3.3.1 The LBMA 49
3.3.2 Placing South Africa in a global context 49
3.3.3 Capacity and capacity utilisation 50
3.4 OVERVIEW OF THE LOCAL REFINING INDUSTRY 51
3.4.1 Primary refiners 51
3.4.2 Recyclers 53
3.5 EMPLOYMENT PROFILES 54
3.6 PRODUCT RANGE 55
3.6.1 Bars 56
3.6.2 Jewellery products 58
3.6.3 Coin blanks 58
3.6.4 Dental alloys 58
3.7 FINANCIAL PERFORMANCE 58
3.7.1 Ownership of gold during the refining process 59
3.7.2 Operating costs 59
3.7.3 Treatment terms 60
3.7.4 The Rand Refinery price of gold 61
3.7.5 Mark-ups 61
3.8 RECYCLING FEED 62
3.9 ASSAYING 62
3.10 BARRIERS TO MARKET ENTRY 63
3.11 REFINING TECHNOLOGY 63
3.11.1 The Miller Chlorination Process
and Wohlwill Electrolysis 63
3.11.2 The Minataur Process 64
3.12 ENVIRONMENTAL ISSUES 65
3
Photograph courtesy: Rand Refinery Limited
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DORÉ TO SEMI-FINISHED PRODUCT: REFINING AND RECYCLING
Gold refining in South Africa is concentrated in the
hands of two participants, Rand Refinery and
Musuku Beneficiation Systems...
There are at least another seven known, but very
small refiners in the country...
Illegal smelting houses and informal refiners
operate in and around the vicinity of the country’s
gold mines...
3.1. INTRODUCTION
In terms of both value and volume, gold refining in South Africa is concentrated in
the hands of two primary participants: Rand Refinery Ltd and Musuku Beneficiation
Systems 1 . Throughout this chapter, they are referred to as the primary refiners.
There are a number of fundamental differences between the two refiners in terms
of their history, ownership, feed, business structures, services and products, which
are discussed in more detail.
In addition to the primary refiners, there are at least another seven known, but very
small 2 , refiners operating in the country. While three of these companies report that
they refine output from the small-scale and informal mining sectors 3 and material
arising from dump treatment, all seven small refiners concentrate on the recycling
of old gold jewellery scrap and process scrap generated during the jewellery
manufacturing process, as well as medical and dental waste containing recoverable
precious metals. Throughout this chapter the small refiners are referred to as
recyclers.
Interviews with industry sources revealed that there are a number of illegal smelters
and refiners operating in and around the vicinity of the country’s gold mines. The
activities of these illegal operations are not quantifiable and have not been
accounted for in the statistics and analysis that follow. They do not form part of the
formal value chain as described in this review.
Detailed interviews were conducted with six of the sector participants, including
the two primary refiners. The results indicate different business structures; the
primary refiners being distinct from the recyclers in the volume of metal refined, as
well as in terms of cost structures, material and feed sourcing, customer bases and
end products.
In 2004, the primary refiners and recyclers treated
445t of fine gold...
3.2. SUMMARY OF THE SOUTH AFRICAN GOLD REFINING INDUSTRY
In 2004, the formal sector primary refiners and recyclers treated 445t of fine gold.
The breakdown of the origins of this fine gold and what it was used for are shown
in the following table.
Flows of gold to and from the refiners and recyclers in South Africa in fine gold 2004
Gold to refining from: t %
South African mine output 328.9 73.8
Other mine output (Non-RSA) 1 100.5 22.6
Dump treatment (RSA) 2 13.1 2.9
Secondary recycling 3 2.8 0.7
Total 445.3 100.0
Gold from refining to:
400oz bars 198.2 44.5
Kilobars and other bars 234.5 52.7
Local jewellery manufacture 9.6 2.2
Coins 2.9 0.7
Dental alloys 0.05 0.0
Electronics 0.01 0.0
Total 445.3 100.0
Note: Totals are net of process scrap
Data source: Virtual Metals.
Notes:
1. Other mine output originates from countries other than South Africa.
See Chapter 2 for details of this gold production.
2. Dump re-treatment is the reprocessing of previously mined waste.
3. Recycling is the processing of gold-containing material such as electronic waste
and old jewellery scrap but excludes fine gold contained in scrap generated
during the process of jewellery manufacture, termed processing scrap. These
sources of gold for refining are dealt with in more detail later in this chapter.
1 See individual company profiles in the Research Directory as well as the rest of this chapter for further details.
2 Small in terms of refining capacity and output, measured in kilograms rather than tons.
3 No details were given with respect to this specific source of gold. Chapter 2 deals with the small-scale gold miners
operating in South Africa.
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By far the majority of refined gold output (97% in 2004) is made into bars of
various specifications. The bars were all exported directly to customers (mainly in
India and Dubai), and also to the international bullion banks (mainly in London and
Europe).
A further 9.6t of fine gold (or 2.2% of total gold refined) was fabricated into
products for the jewellery sector, such as grain, plate and wire 4 .This percentage
refers to total gold refined in South Africa, which includes output from mines
outside South Africa. Of mine output from South Africa only 5 , the percentage of
gold fabricated into jewellery by local manufacturers in 2004 was 2.9%.
In 2004, 97% of refined gold output was made into
bars...
Only 2.2% of total gold refined was purchased by
South African jewellery manufacturers...
In 2004, a further 2.93t (or 0.7% of total gold refined) was struck into coinage and
the final 0.05t was applied to industrial and medical applications. Chapter 5
provides further details on gold coins and industrial applications.
3.3 SOUTH AFRICAN REFINING IN AN INTERNATIONAL CONTEXT
3.3.1 The LBMA
The London Bullion Market Association (LBMA) represents the interests of those
international gold dealers, traders and bullion banks operating through the London
gold market 6 . It was established in 1987 and issues a list of accredited refiners of
which there are currently 56 around the world. These are refineries that have met
specific criteria with respect to their refining standards and the quality of their
products, and have been awarded London Good Delivery status 7 , giving them
international recognition for quality and purity.
Both Rand Refinery and Musuku Benificiation
Systems have achieved LBMA accreditation...
The main requirements for achieving London Good Delivery status are:
• a record of at least three years of producing refined metal;
• production of a minimum of 10t of gold and/or 30t of silver per annum;
• a net worth of at least £10 million;
• evidence of ownership and directors;
• a suitable endorsement from the central bank in the refiner’s country of
operation; and
• proven and consistent quality and purity of product.
Until recently, the Rand Refinery was the only South African operation with LBMA
accreditation. Musuku Beneficiation Systems was awarded LBMA accreditation in
September 2005. Rand Refinery is also one of only five refineries in the world to
have been appointed by the LBMA as a Good Delivery Referee, responsible for the
testing of samples from Good Delivery refiners in support of the LBMA’s Good
Delivery system.
Rand Refinery is one of only five refineries in the
world to have been appointed by the LBMA as a
Good Delivery Referee...
In March 2005, Rand Refinery received Dubai Good Delivery Status.
3.3.2 Placing South Africa in a global context
Placing South African refining in a global context is not a simple task. Information
on precious metals refining, market shares, installed capacity and capacity
utilisation is considered proprietary and is difficult to obtain. An additional problem
relates to identifying complete records of refining operations internationally. While
it is possible to construct a database covering the known primary refiners and
recyclers, there are literally hundreds of smaller operations whose business profiles
cover a wide range of product lines, but which are essentially involved with the
recycling of gold scrap 8 . This is particularly true of areas like the Indian subcontinent
where such operations (dealing most commonly with less than 1kg of
gold per annum) operate outside the formal sector.
4 This tonnage is net of process scrap and Chapter 4 deals with the topic in more detail.
5 Excluding secondary recycling and mine supply from other countries refined in South Africa but including local dump re-treatment.
6 The LBMA publishes gold and silver turnover through the London market and these are charted Appendix 4.
7 London Good Delivery status has become an international benchmark of quality and purity as it applies to refineries and their products.
8 A class of operations in South Africa that this review defines as the recyclers.
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Review draws on global database comprising
162 known refineries...
This review draws on a global database consisting of 162 known refineries 9 and
recyclers. It analyses only commercial operations within the formal sector for which
it is possible to obtain data. This global database also includes precious metals
recovery associated with base metal refining, for example, gold and silver recovery
from copper, lead and zinc refineries.
The three tables that follow present the analysis on a broad regional basis, although
it should be noted that in the figures quoted for Africa, South Africa predominates.
Apart from the South African refineries, there is also limited refining capacity in
Zimbabwe. The figures for Africa also include three South African refineries that
process PGM concentrates containing gold as a by-product.
Africa accounts for 8% of the world’s gold
refineries...
Regional comparisons show that an estimated 8% of the world’s gold refineries are
found in Africa.
Refining summary (number of refineries)
Number %
Africa 13 8
Asia and Indian sub-continent 36 22
Australasia 7 4
Eastern Europe 12 7
Latin America 13 8
Middle East 4 3
North America 29 18
Western Europe 48 30
Total 162 100
Data source: Virtual Metals.
... and 12% of global refining capacity...
3.3.3 Capacity and capacity utilisation
The 162 global refining operations collectively have the capacity to treat 6,652t of
fine gold per annum. The regional breakdown of this capacity is tabulated below:
Refining summary (% global capacity)
t %
Africa 772 12
Asia and Indian sub-continent 1,027 15
Australasia 341 5
Eastern Europe 662 10
Latin America 207 3
Middle East 775 12
North America 778 12
Western Europe 2,091 31
Total 6,652 100
Data source: Virtual Metals.
Of this total, Africa represents 11.6% (or 772t) of which South African refining
capacity represents 98% (or 757t).
In 2004, global gold refining capacity utilisation
was estimated at 55%...
In 2004, global gold refining capacity utilisation was estimated at 55% 10 . This figure
is somewhat higher than historical global capacity utilisation averages of 45%-52%.
The reason for this increase is that, in 2004, larger than normal amounts of
secondary material were returned for refining in direct response to higher Dollar
gold prices, especially during the second half of the year.
9 Including the 56 operations that have LBMA London Good Delivery Status.
10 Virtual Metals estimates global mine supply and secondary recycling at 3,657t in 2004.
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DORÉ TO SEMI-FINISHED PRODUCT: REFINING AND RECYCLING
Refining capacity utilisation also shows some regional variances.
Refining summary 2004
Output (t) Capital utilisation (%)
Africa 475 61
Asia and Indian sub-continent 454 44
Australasia 928 37
Eastern Europe 185 28
Latin America 105 51
Middle East 155 20
North America 436 56
Western Europe 920 44
Total 3,657 55
Data source: Virtual Metals.
In this context, the following should be noted:
• Africa’s capacity utilisation is slightly higher than other regions. This is because
Rand Refinery has in recent years won refining contracts with mines in Ghana,
Mali and Tanzania, and in its financial year ending September 2004, processed
142t of fine gold from African countries outside South Africa 11 ;
• although Eastern Europe (the former CIS) has substantial installed capacity,
refineries based in these countries are forbidden by law to tender for
international refining contracts and have to rely on local feed;
• Western European capacity utilisation has increased since the closure in 2004
of Johnson Matthey’s Royston plant in the United Kingdom; and
• capacity utilisation in the Middle East is particularly low since this data includes
three new refineries able to treat a total of 700t gold per annum recently
commissioned in Dubai.
Irrespective of variations in regional capacity utilisation, the global gold refining
industry remains in a state of over-capacity and this has been the case for many
years. Despite this, there have been newcomers to the industry, for example
Musuku Beneficiation Systems in South Africa and the new refineries based in
Dubai. Consequently, tenders for refining contracts are aggressive, with treatment
terms 12 offered by the refineries being particularly competitive. When tendering for
international primary production, the refineries attempt to improve their tenders by
offering attractive insurance and transport terms.
Africa’s capacity utilisation is slightly higher then
other regions...
The global gold refining industry remains in a state
of over-capacity, as has been the case for many
years...
3.4 OVERVIEW OF THE LOCAL REFINING INDUSTRY
Analysis of the known refineries in South Africa highlights two distinct market
sectors, namely the two primary refiners and the recyclers. Fact sheets detailing the
business profiles and product lines of the two primary refineries and four of the
recyclers can be found in the Research Directory.
3.4.1 Primary refiners
Rand Refinery has been in existence since 1921 and is the result of a collaborative
effort by the major South African gold producers. Musuku Beneficiation Systems is a
relative newcomer to the business having been established in 1997, when Harmony
withdrew from Rand Refinery.
Rand Refinery has been in existence since 1921 and
is the result of collaborative effort of major South
African producers...
Harmony collaborated with minerals technology service provider Mintek in 1997 to
build a small-scale plant that was later expanded with funding from European
defence contractor BAE Systems, which supported the project as part of its defence
contract offset obligations as overseen by the Department of Trade and Industry.
The rationale behind the decision to establish Musuku was based on two premises.
• Harmony believed that it was possible to differentiate Harmony’s gold output
from that of other gold producers and to brand its bar products, and that as a
result the company could secure a premium for its products.
11 Data source: Rand Refinery 2004 Annual Report. It should be noted that figures cited in the review relate to calendar years, and thus
this Rand Refinery figure is not directly comparable.
12 See later in this chapter for further details on treatment terms.
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Rand Refinery is owned by AngloGold Ashanti
(53%), Gold Fields (33%), DRDGOLD (10%),
Avgold (2%) and Western Areas (2%)...
• Harmony believed that it would be cost-effective to refine its own output.
Rand Refinery still treats Harmony’s silver production and has assisted Harmony
with its gold refining throughput when process problems at Musuku have
required Harmony to process gold at Rand Refinery.
While Musuku Beneficiation Systems is 100% owned by Harmony Gold Mining, the
ownership structure of Rand Refinery is as follows:
Rand Refinery ownership (September 2004)
%
AngloGold Ashanti 53
Gold Fields 33
DRDGOLD 10
Avgold 2
Western Areas 2
Data source: Rand Refinery Ltd.
The table below summarises the differences in technology usage, funding, products
and client base between the two.
Differences between the two primary refiners
Rand Refinery
Limited
Musuku
Beneficiation
Systems
Date established 1921 1997, expanded in
2000
Funding Shareholders Harmony Gold,
Mintek and BAE
Systems (latter
funded expansion
only)
LBMA London Good Delivery Status Yes
Yes
2005
LBMA Good Delivery Referee Status Yes
No
Refining Process Miller Chlorination Minataur
Smelting Yes No
Carbon Incineration Yes No
Silver Electro-refining Yes No
Gold Electro-refining Pending No
Refinery Feed Doré Cathode Slime
Feed Source
Shareholders’ production South Africa
plus competes (Harmony
internationally for doré operations only)
and other material
Product Range:
400oz Good Delivery Bars Yes Not originally - only
recently awarded
LBMA status
Kilobars Yes Yes
Other bars Yes Yes
Legal tender coins Yes No
Coin blanks Yes No
Jewellery alloys Yes Yes
Dental alloys Yes Yes
Assaying services Yes No
Location Guateng, urban At Harmony mine
in Free State
Data source: Interviews.
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98% of Musuku’s feed is in the form of cathode slime, a product of electrorefining
13 . Rand Refinery’s feed is 90% doré 14 and the balance primarily cathode
slime. Rand Refinery also treats mine output from non-South African mines in
Ghana, Mali, Tanzania and Argentina, and as such is an exporter of refinery services.
Musuku’s feed is sourced only from Harmony group gold production in South Africa.
The recycling of old jewellery scrap, jewellery sweepings, medical and dental waste
and electronic scrap represents a small proportion of the feed taken by the primary
refiners. In volume terms, this secondary feed accounts for 2% of the refineries’
throughput.
98% of Musuku’s feed is in the form of cathode
slime; 90% of Rand Refinery’s feed is doré...
Recycling represents a small portion of feed by
primary refiners...
Both refineries reported that increasing volumes of electronic scrap were becoming
available in the local market. Currently only Rand Refinery has the ability to treat
this material.
For Rand Refinery, gold represents 96% of the company’s turnover by value. The
balance is made up from silver. For Musuku, in value terms, the gold to silver ratio is
lower than that of Rand Refinery at 85% gold and 15% silver. The difference
between the two is a reflection of the different primary feed the refineries receive
from their mining clients.
Kilobars that are exported directly into India make up in excess of 95% of Musuku’s
final product. A further 1% is made up of bar products other than kilobars such as
100g bars. This output is also destined for export, to the Indian sub-continent, the
Middle East or the Far East. The remaining 4% of Musuku’s output is destined for the
local market in the form of jewellery alloys and a limited amount of dental alloys.
Rand Refinery shows a similar high volume export business with 400oz bars for the
London market, and kilobars and 100g bars, primarily for the Indian market, (either
directly or indirectly via the major international bullion banks), as well as
Switzerland, Italy, Turkey and Dubai. The small bars and 400oz bars make up some
97% of Rand Refinery’s product line. The global destination of Rand Refinery’s
products is shown in the graph on the right.
Rand Refinery and Musuku between them account for an estimated 65% of the
kilobar and small-bar market in India with other international primary refiners, such
as Pamp SA, Argor-Heraeus SA, Metalor Technologies International SA, Valcambi SA
and Australian Gold Refineries (AGR) making up the balance. The profit margins
achieved on kilobars and small bars 15 are low, and in order to maintain overall
profitability, the refiners need to sell and ship gold bar products in large volumes.
3.4.2 Recyclers
There are seven known recyclers formally operating in the gold business in South
Africa, as well as an unknown number of illegal operations in existence, largely in
and around the vicinity of the mines, processing stolen gold, ore and gold
concentrates. Only information relating to the seven known recyclers has been
included in this discussion.
Cumulatively, the seven recyclers have the capacity to treat and return to the local
market just under 2t of fine gold per annum. In 2004, they supplied 1t of fine gold
which was destined for the jewellery manufacturing industry.
Cumulatively, the recyclers have the capacity to
treat and return to the local market just under 2t
of fine gold per annum...
13 Electro-refining: the metal to be purified is made the anode in an electrolytic cell and it is dissolved by the application of a current into a usually acidic aqueous
electrolyte or a molten salt. At the same time, the pure metal is deposited on the cathode. The process is carried out under conditions such that most impurities
will either precipitate as ‘sludge’ or remain dissolved in the electrolyte.
14 The product of the smelting process sent for further refining the content of which varies but normally contains at least 85% gold.
15 See the product list in the Rand Refinery fact sheet for details.
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Research showed a range of different business practices, customer bases and
product lines, with each recycler operating in a different niche of the business.
Examples include:
• recyclers whose core business is assaying but who will also treat precious metals
scrap;
• recyclers who treat mainly medical waste to recover silver but who will also take
jewellery sweepings and process scrap;
• recyclers who deal only with the jewellery industry and will not treat industrial
waste;
• recyclers who operate out of one regional centre only, serving only local
jewellery manufacturers;
• recyclers who have their main processing plant in one region, gather material
from around the country and thus service a wide network of clients from the
major jewellery manufacturing areas; and
• recyclers servicing only the very small jewellery manufacturers who use fine gold
measured in grams.
Secondary recyclers are all family-owned
businesses...
In 2004, the refining and recycling sectors in South
Africa directly employed 532 people...
These recyclers are all privately operated businesses that are family-owned.
3.5 EMPLOYMENT PROFILES
The collective gold refining and recycling sectors in South Africa directly employed
an estimated 532 people in 2004.
Demographic profile of primary refiners and recyclers
Primary
2004 refiners Recyclers Total
Total Employees 323 209 532
Men (%) 83 64 76
Women (%) 17 36 24
Data Source: From interviews.
On a weighted average basis, the gold refining and recycling industry is maledominated
(76% of all employees are men). The gender ratio in the primary
refineries is 83:17 (men to women) and in the recyclers this ratio is
2:1 in favour of men.
Primary refiners, on a weighted average basis,
produce more than six times as much fine gold per
staff member as the recyclers...
Primary refiners on a weighted average basis produce more than six times as much
fine gold per staff member as the recyclers, at 38kg and 6kg respectively, indicating
the economies of scale of operating a large refinery compared with the small
recycling plants.
Half the staff members working in the primary refineries are black.
Racial profile (%)
Primary
refiners Recyclers Total
White 43 43 43
Black 50 31 42
Coloured 5 26 14
Indian 2 0 1
Total 100 100 100
Data source: Interviews.
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The educational profile of employees within the refiners and recyclers is shown
below:
47% of employees in the refining and recycling
business have a tertiary qualification...
Education (%)
Primary
refiners Recyclers Total
No matric 26 30 27
Matric 22 32 26
Tertiary 52 38 47
Total 100 100 100
Data source: Virtual Metals analysis of interviews
Tertiary education includes diplomas or non-university post-matric training from
universities of technology (previously called technikons).
The higher level of tertiary qualifications among employees within the primary
refiners reflects the skills levels needed to ensure smooth production and
fabrication as well as to run the laboratories and assaying facilities.
While some of the recyclers may not offer assaying as a service to clients, they still
complete assays for internal purposes and therefore employ a percentage of
laboratory staff or technicians.
Job descriptions (%)
Primary
refiners Recyclers
Admin 16 20
Sales 3 25
Lab/Tech* 22 22
Management 17 14
Production 42 19
Total 100 100
Data source: From interviews.
* Technical refers to assaying staff, metallurgists and laboratory technicians.
The recyclers employ a high proportion of sales staff relative to their administrative
staff. These figures include company representatives who spend much of their time
on the road servicing a network of clients. Their primary role is the collection of
jewellery scrap and the marketing of their recycled alloys. Since the primary refiners
rely on large gold mining companies for the greatest part of their refining feed, they
have less need for sales and marketing staff to service such business.
3.6. PRODUCT RANGE
The primary refiners offer a range of semi-finished and finished fine gold products.
These products include bars, coins, jewellery alloys and dental alloys. The recyclers
focus mainly on the production of commonly used jewellery alloys.
Recyclers employ a high portion of sales staff
relative to administrative staff...
Refiners offer a range of semi-finished and finished
fine gold products, while recyclers focus mainly on
the production of commonly used jewellery alloys...
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Gold bars are either minted or cast...
3.6.1 Bars
Gold bars are either minted or cast:
• cast bars are manufactured by the casting of molten gold into a mould of
specific dimensions. The identifying marks 16 are then applied manually or by
press; and
• minted bars are struck from blanks (templates) that are stamped out of specific
dimensions from a flat strip of gold in the same way as coins are struck from
blanks. Identifying marks are usually applied during the minting process. Like gold
coins, the dimensions of minted bars are precise.
In addition to these broad definitions, the international gold industry also classifies
gold bars by weight with ‘large’ bars weighing 1,000g (1kg) or more and ‘small’ bars
weighing less than 1,000g.
The purity or gold content of the bars is usually marked on the bar in parts per 100,
1,000 or 10,000 as follows:
• 99.99 99.99 parts gold per 100;
• 999.9 999.9 parts gold per 1,000; or
• 9,999.9 9,999.9 part gold per 10,000.
Cast bars include 400oz bars, kilobars, 100g bars, 10 and 5 tola bars and 10 and
5 tael bars 17 .
Historically, the two primary refineries made significant sales of 10 tola bars and
5 tola bars. The 10 tola bar was widely traded in India, Pakistan and the Gulf. However
in 2003, the Indian authorities changed the local tax regime which halted demand for
the tola bars. Specifically, they centralised the VAT system in India which meant that
the tola bar became subject to VAT. Indian consumers ceased buying the tola bar and
switched to 100g bars and kilobars which were not subject to VAT. Both primary
refiners in South Africa adjusted their manufacturing emphasis to meet this shift in
Indian consumer preferences.
In 2004, sales of gold bars from South Africa were
predominantly kilobars (51%)...
As a consequence, sales of gold bars from South Africa in 2004 were predominantly
kilobars (51%) and 400oz bars (46%). In 2004, the two primary refiners reported no
sales of tael bars or minted bars.
Analysis of South African gold bar sales 2004
Cast bars t %
400oz bars:
99.9 London Good Delivery 4.5 1.05
99.5 London Good Delivery 193.7 44.77
Sub-total 198.2 45.81
Kilobars:
99.9 83.6 19.32
99.5 138.0 31.90
Sub-total 221.6 51.22
500g bars 99.5 0.3 0.08
100g bars 99.9 12.0 2.77
10 Tola bars 0.5 0.12
Sub-total 12.8 2.97
Total 432.7 100.00
Data Source: Rand Refinery Limited and Musuku Beneficiation Systems
Cast bars
In South Africa, only Rand Refinery and Musuku cast gold bars and, of the two, Rand
Refinery has the widest product range. The dimensions and specifications of Rand
Refinery’s cast bars are detailed in the table below and are typical of similar bars
fabricated elsewhere by other international refiners. Musuku’s product line includes
kilobars and 100g bars of the same dimensions and specifications as those cast by
Rand Refinery.
16 Purity, weight, serial number and refiner’s mark; see later for further details.
17 Tola is an Indian unit of weight: 1 tola = 0.375 oz or 11.664g. Tael is a Chinese unit of weight: 1 tael = 1,203oz or 37,429g.
56 GOLD IN SOUTH AFRICA

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Five weights of cast bars, namely 400oz bars, kilobars, 100g bars, 500g bars and tola
bars, are fabricated by the primary refiners.
400oz bars are cast and, to be accepted as London Good Delivery, they must
conform to the following specifications: 18
• the fine gold content must fall within a range of 350oz and 430oz (10.9 to13.4 kg);
• bar purity must not be less than 995 parts gold per 1,000;
• bars must bear the marks of the refiner/assayer, the fineness of the gold content
and a serial number unique to the bar; and
• bars must be smooth, free from surface cavities and bubbles. They must also
have rounded edges and must be easy to stack and handle.
The kilobar is the world’s most widely manufactured and traded gold bar, being
globally the most widely recognised and accepted. They are cast in three purities
999.9, 999 and 995 parts gold per 1,000 purity.
Quotable quotes:
“There is no money to be made in small bars, so
you have to go for volume. Your only chance to
achieve a reasonable margin is in the semifabricated
products, but here your market is limited
to the local environs which we believe is capped by
the prohibition on owning unwrought gold and the
imposition of value added tax.”
Major refiner
The kilobar is the world’s most widely
manufactured and traded gold bar...
The Rand Refinery kilobar specifications are shown in the table below. Musuku also
produce kilobars in 995, 999 and 999.9 parts gold per 1,000.
The 100g bars and, to a lesser degree, 500g bars, have become increasingly popular
in India, particularly since changes in VAT legislation. Musuku produces 100g bars in
995, 999 and 999.9 parts gold per 1,000.
Tola bars are still fabricated by Rand Refinery in 10 and 5 tola weights, although
following the changes in the Indian VAT structure, demand for these bars has declined.
Rand Refinery cast bars
400oz
Purity min 995 or 999.9
Dimensions (mm)
Top 260 X 80 X 40
Base 240 X 60 X 40
Serial numbers
2 letters, 4 numbers
1st Year of current shape 1921
Kilobar
Purity min 995 or 999.9
Dimensions (mm) 116 X 51.5 X 9.5
Serial numbers
2 letters, 4 numbers
1st Year of current shape 1959
100g bar
Purity 999.0
Dimensions (mm) 45 X 27 X 4
Serial numbers
As required
10 Tola bar
Purity 999.0
Dimensions (mm) 45 X 27 X 5
Serial numbers
None
5 Tola bar
Purity 999.0
Dimensions (mm) 31 X 19 X 4
Serial numbers
None
10 Tael bar
Purity 999.0
Dimensions (mm) 89 X 40 X 6
Serial numbers
None
5 Tael bar
Purity 999.0
Dimensions (mm) 70 X 29 X 5
Serial numbers
None
Data source: Rand Refinery Limited and The Industry Catalogue of Gold Bars Worldwide,
Grendon International Research, 1998.
18 LBMA good delivery specifications: http://www.lbma.org.uk.
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Minted Bars
The three most common minted bars are 10, 50 and 100g bars. Rand Refinery first
began minting these bars in 1999, in 999.9 parts gold per 1,000. While these bars
are available, no sales were recorded in 2004.
3.6.2 Jewellery products
The two primary refiners produce a range of gold products for jewellery
manufacture. These products are in the form of grain, sheet, wire, foil, strip and
plate of various alloys termed semi-finished products or semis. Jewellery
manufacturers purchase these products depending on their manufacturing process.
The two primary refiners offer a wide range of gold
products for jewellery manufacture...
The two primary refiners offer a wide range of these products in different caratages
and colours. As an example, the range of grain offered by Rand Refinery is
demonstrated in the table below:
Rand Refinery jewellery alloy
Alloy Code Colour Melting
grain Range˚ C Hardness Applications
9 Carat 09DD Yellow 900 - 950 Semi-Soft Casting
9 Carat 09J Yellow 880 - 960 Medium General purpose
9 Carat 090A5 Yellow 980 - 1,000 Medium Casting
9 Carat 09CW Medium white 980 - 1,050 Medium Casting, 2% Nickel
9 Carat 09LX White 950 - 1,000 Semi-Soft Casting
9 Carat 09RJ Rose 960 - 1,000 Medium General
14 Carat 14J Yellow 935 - 980 Medium General purpose
14 Carat 14LX White 980 - 1,020 Semi-Soft Casting
14 Carat 14RJ Rose 960 - 1,000 Medium General
18 Carat 18J Yellow 930 - 980 Medium General purpose
18 Carat 18D Yellow 970 - 1,000 Semi-Soft Casting
18 Carat 18SW Soft white 1,100 - 1,250 Soft Casting, 17% Pd
22 Carat 22J Yellow 950 - 980 Medium General purpose
Data source: Rand Refinery Limited.
Grain is widely used by jewellery manufacturers since it can be bought in small
quantities and is applied to casting techniques. Strip and sheet is applied to
stamping, and wire for chain-making.
Rand Refinery manufactures coin blanks for the
striking of Krugerrands...
3.6.3 Coin blanks
Coin blanks are manufactured solely by Rand Refinery for the striking of
Krugerrands. (See Chapter 5 for further information).
3.6.4 Dental alloys
The primary refiners also produce a range of dental alloys. (See Chapter 5 for
further information).
The financial aspects of the local and international
refining industries have always been confidential...
3.7 FINANCIAL PERFORMANCE
The financial performance of both the local and international refining industries is
not made public and information is difficult to obtain. This section attempts to shed
light on the operating cost structure of the two primary refiners and the recyclers,
on the refining terms quoted to clients and on mark-ups applied to their respective
products.
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3.7.1 Ownership of gold during the refining process
Ownership of gold in the refining pipeline is typically as follows:
• refining contracts are entered into between refineries and mining clients in
which treatment terms are agreed;
• doré is weighed and assayed at the mine, and the refinery is notified of the
quantity of doré to be delivered and its estimated fine gold content;
• the mining client’s account is credited with the value of the anticipated volume
of metal contained. Payment terms vary but payment to the mining customer is
generally not cleared until doré has physically been delivered to the refinery;
• the refinery concludes sales to buyers on the basis of the anticipated volume of
gold to be delivered;
• the gold price applied to the refinery’s sales of gold to end users is the same as
that used to pay the mining client so that the refinery takes no exposure to the
gold price. Usually the fix on the day of delivery of gold to the refinery is used as
a basis for pricing;
• the gold is again assayed by the refinery, and any differential between the
original anticipated metal content and the final assay is settled in value terms
between the refiner and the mining client; and
• the refined gold is then sent to buyers directly from the refinery or according to
the buyer’s specific instructions.
At no stage during this process does the refinery take ownership of the gold being
refined.
3.7.2 Operating costs
The research was able to highlight certain similarities in the cost structures of Rand
Refinery and Musuku, as follows:
• labour costs for both companies are approximately 42% of total operating costs;
• raw materials (for example chemicals), represent the second largest cost at 24%
of the total; and
• energy and marketing account for approximately another 5% and 4%
respectively.
At no stage during the process does the refinery
take ownership of the gold being refined...
Labour costs for both companies are similar,
representing 42% of total operating costs...
The remaining components of total operating costs include waste disposal, security
and other overheads.
For the recyclers, the weighted average cost breakdown varies as follows:
Typical cost profile: recyclers %
Raw materials 7.5
Waste disposal 2.5
Insurance 2.5
Labour 42.4
Rent 10.4
Energy 10.8
Marketing 15.9
Other overheads 8.0
Total 100.0
Data source: Interviews.
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Labour remains the major cost for both primary
refiners and recyclers...
Primary refiners and secondary recyclers will vary
treatment terms to gain or maintain a competitive
advantage...
With respect to these costs, it is worth noting the following:
• labour at 42% of the total remains the major cost for both the primary refiners
and the recyclers;
• for the recyclers, marketing is a relatively high cost (at almost 16% of the total)
but this includes the cost of sales representatives servicing the regional
manufacturing and retail jewellers;
• energy (both gas and electricity) makes up just over 10% of costs for the
recyclers while for the primary refiners it represents a smaller 5%; and
• waste disposal is a fixed cost imposed by environmental legislation. It involves
gaseous emission controls from the refinery and safe disposal of chemical waste
generated in the refining process.
3.7.3 Treatment terms
The cost and conditions of refining gold quoted by the refiners are referred to as
the treatment terms. In an international industry with surplus capacity, primary
gold refiners and secondary recyclers will vary their treatment terms in order to
gain an advantage. There is therefore no strict formula to which a refiner or recycler
will conform when drawing up refining terms. This section describes industry norms
in principle, but highlights where treatment terms can vary between the refiners
and recyclers.
Depending on the circumstances described below, international gold refining
treatment charges applied to kilobars and other small bars range between 30-45 US
cents per ounce with 100% metal returned. Within this range, treatment terms are
around 0.1% over the spot price of gold.
The terms described above are general and individual agreements will vary
depending on:
• costs incurred as a result of currency fluctuations should the physical location of
the refinery and the customer be in different currency areas;
• the particular content of the feed and the ratio of gold to other precious metals
in the feed. Other precious metals such as silver and PGMs in the feed will be
recovered and the customer is paid for these metals, termed by-product credits;
• the existence of deleterious elements such as mercury, lead and beryllium in the
feed. These elements have to be removed during the refining process and the
refiner will charge to do this;
• the existing relationship with the customer;
• the volume of feed;
• the regularity of feed; and
• transportation distances and methods of transport between the client and
the refinery.
Treatment terms are highly confidential...
Treatment terms quoted by primary refiners in South Africa to customers are
considered highly confidential. In general, however, terms are broadly in line with
those cited as average for the international refining industry.
In South Africa, the treatment terms for scrap vary considerably between the
recyclers and their customers, and the various categories of scrap 19 .
Research shows that:
• for high grade scrap (old jewellery in any caratage), customers receive 95% of
fine gold recycled in volume terms, or a simple payout on the assay and
calculated fine gold content based on Rand Refinery prices of the day 20 ;
• for jewellery sweepings, the refinery will return 85-92% of fine gold content in
either metal or value at the Rand Refinery price of the day, subject to a
minimum refining charge of R900 per job lot irrespective of the size of the job;
and
• for washings 21 , the refiner will return 85%-90% of fine gold content, or the value
of that amount of fine gold based on the Rand Refinery prices of the day.
60 GOLD IN SOUTH AFRICA
19 These are defined in more detail in the next section.
20 The Rand Refinery price is discussed in more detail later in this chapter.
21 Washings are the liquid waste resulting from the cleaning of jewellery during fabrication. This waste contains flecks of gold
and is routinely recycled.

CHAPTER 3
DORÉ TO SEMI-FINISHED PRODUCT: REFINING AND RECYCLING
Where a recycler is aggressively bidding for scrap, the recycler will discount the
treatment charges for targeted customers, returning anything from 97-99.5% of the
contained fine gold or the value of that gold (in Rands). In these instances, the
companies interviewed acknowledged that this business practice was a loss leader
for the company but was implemented where the operation needed feed material.
3.7.4 The Rand Refinery price of gold
The Rand Refinery quotes Rand-denominated prices for its gold products to its local
customers. This price is set twice-daily and is available on request. Given that the
price is used widely by recyclers as a benchmark by which they calculate their own
prices to customers, a description of the price mechanism is included:
• on any business day until noon local time, Rand Refinery will use the afternoon
London gold price fix of the previous day and the Rand/Dollar exchange rate at
the closing of the previous day;
• after midday on any business day, Rand Refinery will use the morning London
gold price fix of that day and the noon Rand/Dollar exchange rate of the same
day; and
• if, for whatever reason, there is no London morning or afternoon price fix,
(usually in the case of bank holidays in the United Kingdom), the Rand Refinery
will use the most recent London price fix.
3.7.5 Mark-ups
Mark-ups over the gold price achieved by the primary refiners in South Africa for
kilobars and other small bars are low, in keeping with premia achieved for small bars
internationally. 30 to 45 US cents per ounce is standard for kilobars. 100g bars and
other smaller bars may command slightly higher mark-upss. Mark-ups achieved will
vary according to international demand for small bars, but not necessarily according
to the gold price.
Rand Refinery sets the price twice-daily for its gold
products...
Secondary recyclers use the Rand Refinery price of
gold as a benchmark...
Mark-ups achieved by primary refiners for kilobars
are low, at between 30 and 45 US cents per ounce
of gold...
With respect to other gold products associated with the jewellery manufacturing
industry, mark-ups are higher, but vary depending on:
• the size of a purchase: the smaller the order, the higher the mark-up;
• the content of the alloy: alloys containing palladium and platinum command
higher mark-ups than those containing copper and silver;
• the relationship between the customer and the refiner: the longer and more
trusted the business relationship, the greater the possibility of discounts; and
• the frequency of purchase.
Research among recyclers indicated the following as examples of mark-ups (over
fine gold content) on different products for the jewellery manufacturing sector. It
should be noted that these mark-ups are benchmarked to the daily quoted Rand
Refinery price for fine gold:
• 6% and up for low carat (9 carats to 14 carats) solders and findings such as
earrings, wings and clasps;
• 4% and up for high carat solders and findings (18 carats and above); and
• 36% and up for dental alloy depending on the PGM content.
The range of mark-ups over the fine gold content is presented in the following table:
Typical price mark-ups for gold alloys by recyclers
%
22 carat yellow and red 4
18 carat yellow, red and white 6
18 carat with palladium 16
18 carat with platinum and palladium 36
14 carat red and yellow 6
14 carat white 25
9 carat yellow and red 6
9 carat white 38
Data source: Interviews.
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Quotable quotes:
“Jewellery sweepings are disgusting. We get these
dustbin bags bursting at the seams with anything
from six-month old sandwiches to cold drink cans.
With all this rubbish, jewellery manufacturers then
complain that the recovery grade is so low.
Occasionally I refuse to handle the stuff and have
sent it back.”
Recycler
Some seasonality exists in the rate at which
jewellery scrap and waste is returned for recycling...
There is no formal hallmarking system in place in
South Africa...
A number of jewellery manufacturers mark their
jewellery...
3.8 RECYCLING FEED
Those businesses involved in the treatment of recycled gold, including the
primary refiners, take secondary feed for recycling from a number of sources.
These sources include:
• old jewellery traded in for upgrading or refashioning from the private sector, or
job lots of unsold jewellery from major retailers after a stock clear-out 22 . In line
with the predominant gold caratage of finished jewellery product in South Africa,
95% of this material is 9 carat;
• jewellery fabricating or process scrap generated during the manufacture of gold
jewellery, including filings and polishings, offcuts and rejects. While 95% of this
scrap is 9 carat, it can also contain 14 carat and 18 carat scrap. Jewellers’ process
scrap is usually returned by the jewellery manufacturers to the refiners on a
monthly basis to assist the manufacturers in managing cash flows. The level of
process scrap is relatively large, up to 40% of the volume of gold used by
jewellery manufacturers;
• jewellery sweepings, literally the floor sweepings of jewellery workshops
collected and sent in, usually bi-annually, for recycling include material other
than precious metals, and the gold content is low (varying between 0.5% to 2%
in weight). Under exceptional circumstances, a good sweep can contain 30g of
fine gold per kilogram of sweeping, but these instances are rare;
• wash waters from the jewellery manufacturing process which can contain 4% to
5% gold (in weight);
• medical waste, primarily from x-ray films which contain silver;
• dental alloy, which is regularly returned for recycling. This is because there is a
high degree of wastage in this application 23 . To apply a gold filling, a dentist only
uses up to 25% of the metal he needs to work with; the balance is immediately
recycled; and
• electronic waste which has been increasing in recent years and which includes
not only gold but also palladium and silver. Not all the refiners and secondary
recyclers can process electronic scrap. According to interviews, Rand Refinery,
treats between 6t and 10t of electronic scrap annually. The precious metals
content of this feed can vary, but on average the material currently being
returned for recycling can typically contain 200g/t of gold.
There is some seasonality in the rate at which jewellery scrap and waste is returned
for recycling which is not sensitive to international or local gold prices. This waste is
returned with the greatest frequency and in the largest volume during the period
just before Christmas. There are two reasons for this:
• this is when manufacturers are busiest and are generating the maximum in
process scrap; and
• it is during this period that financial pressures on manufacturers are greatest due
to demand for working capital.
3.9 ASSAYING
There is no formal hallmarking system in place in South Africa and this has been
cited as a deterrent to locally made gold jewellery gaining international recognition
and acceptance.
However, a number of jewellery manufacturers do mark their jewellery with either a
caratage stamp or a manufacturer’s insignia. Furthermore, recyclers such as First
Assay offer assaying facilities in addition to those offered by Rand Refinery.
Interviews with those companies offering assay services revealed the following
costs and associated terms:
• six hours for results of an assay. If urgently required, an assay can be done in 2 1 /2
hours at an additional cost to the client;
• typically R65 per assay to yield gold and silver results;
• certificates are issued on all assays; and
• doré assays, mainly on behalf of smaller mining companies, are included in the
treatment terms ranging from 2% to 5% of the fine gold content.
22 Retailers’ policies on sending unsold finished jewellery back to the refiners is discussed in more detail in Chapter 4.
23 See Chapter 5 for details.
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Discussions with those regularly involved with assaying indicate that there is undercarating
in the South African gold jewellery industry. It was claimed that this was
often unintentional with inexperienced jewellers producing their own alloys. At
other times, however, this under-carating appears to be deliberate and the large
retailers make a practice of having all their stock assayed prior to it going into shop
windows.
3.10 BARRIERS TO MARKET ENTRY
The continuing global state of over-capacity in gold refining represents the
foremost barrier to market entry for potential newcomers to the refining industry,
with current capacity utilisation at 55% (although this varies on a regional basis).
Indications are that there is under-carating in the
South African gold jewellery industry...
The continuing over-capacity represents the
foremost barrier to market entry for potential
newcomers...
The decision to commission the Musuku refinery in 1997 was not based on the
need for further refining capacity in South Africa or indeed globally, but on
Harmony’s own marketing and process imperatives. The newly-commissioned
refineries in Dubai, with the latest technology 24 , have added to global refining overcapacity
and placed additional pressure on the industry.
To win refining contracts, individual operations not only have to be very
competitive, but also concentrate on additional logistical options. These include
offering potential clients a one-stop service from the mine gate including airfreight
and insurance.
3.11 REFINING TECHNOLOGY
Two refining processes are currently in use in South Africa. Rand Refinery makes use
of the Miller Chlorination Process and Wohlwill electrolysis. Musuku Beneficiation
Systems makes use of the Minataur Process. Both these processes are described
very briefly below and flow charts of both processes are included.
To win refining contracts, refineries now look at
logistics...
Two refining processes currently used in
South Africa...
3.11.1 The Miller Chlorination Process and Wohlwill Electrolysis
The Miller Chlorination Process was first developed by Dr F. B. Miller at the Sydney
Mint and is widely used internationally in the large-scale refining of gold.
It is a pyrometallurgical process whereby gold doré is heated in furnace crucibles.
The process is able to separate gold from impurities by using chlorine gas, which is
added to the crucibles once the gold is molten. Chlorine gas does not react with
gold, but will combine with silver and base metals to form chlorides. Once the
chlorides have formed, they float to the surface as slag or escape as volatile gases.
The surface melt and the fumes containing impurities are collected and further
refined to extract the gold and silver.
24 See earlier in the chapter for details.
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The Miller Chlorination Process, which can take up to 90 minutes, produces gold
that is at least 99.5% pure, with silver being the main remaining component. This
gold can be cast into bars, as 99.5% gold purity meets the minimum ‘London Good
Delivery’ requirements of the London bullion markets.
However, some customers such as jewellers and other industrial end users require
gold that is almost 100% pure, so further refining is necessary. In this case, gold
using the Miller process is cast into anodes, which are then sent to an electrolytic
plant. The final product is a 99.99% pure gold sponge that can then be melted to
produce various end products suited to the needs of customers.
The electrolytic method of gold refining was first developed by Dr. Emil Wohlwill in
1874. Wohlwill's process is widely used in major gold refineries and in conjunction
with the Miller Chlorination process. The Wohlwill process is based on the solubility
of gold and insolubility of silver in an electrolyte solution of gold chloride in
hydrochloric acid.
The impure gold is cast into anodes which are suspended in cells, while the
cathodes are thin strips of pure gold. By passing an electric current from anode to
cathode through the electrolyte solution, the anodes are gradually dissolved and
the gold is deposited on the cathodes; any silver, which is insoluble in the
electrolyte, and any platinum group metals are precipitated to the bottom of the
cells. The sequence takes about two days, following which the gold-coated cathodes
are removed, melted and cast into bars. The initial process can produce gold up to
999.5 parts per thousand fine, with further treatment bringing it up to 999.9 parts
per thousand.
The disadvantage of the Wohlwill process is that it is time consuming.
Consequently, most gold is refined using the quicker Miller Chlorination Process,
which can take gold to 995 parts per thousand fineness. Where gold of 999 or
999.9 parts per thousand is required, electrolytic facilities at many refineries have
been added.
3.11.2 The Minataur Process
The Minataur Process was developed by Mintek. In this process the gold-bearing
feed is leached in a chloride solution. The resultant material is then subjected to
selective solvent extraction to reject impurities and then stripped to produce a
purified, concentrated gold solution, from which high-purity gold powder is
precipitated by reduction.
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Source: http://www.musuku.com/minataur/flow2.htm
The gold content of the feed can range from about 20% to 90%. Suitable feeds
include silver-refining anode slimes, gold-electrowinning cathode sludge, zinc
precipitation filtrates, doré bullion and jewellery scrap. Materials with variable gold
content can be handled.
The Minataur Process allows miners to refine their own high-purity gold on site.
The refined product is formed into 99.99 percent or higher purity gold granules.
The first Minataur plant was constructed in 1997 for Harmony in Virginia, in the
Free State. This plant has been expanded, and now processes all of Harmony’s gold
output from its South African operations. Subsequently, turnkey plants have been
built and supplied to customers in Mexico, the United Arab Emirates and Algeria.
The plant in the United Arab Emirates is the largest of these with capacity up to
150t per annum. Plants in Algeria and Mexico are small, with a capacity of 1t to
3t per annum.
The first Minataur plant was constructed for
Harmony in Virginia, in 1997...
3.12 ENVIRONMENTAL ISSUES
The refining and recycling industries have two areas of environmental control that
apply specifically to their operations. The first is the appropriate disposal of waste
products (for example chemical residues) generated during the refining process and
the second is atmospheric emission and air quality control. These environmental
regulations apply to all the refining and recycling operations in South Africa
irrespective of their locations.
International environmental management standards under the International
Standards Organisation (ISO) can also be applied to the gold refining industry. The
ISO is a network of national standards institutes in 153 countries on the basis of
one member per country. The Central Secretariat is based in Geneva and the South
African member of the ISO is the South African Bureau of Standards (SABS). The
ISO standard relating to the environment is ISO 14001.
Rand Refinery achieved ISO 14001 certification in April 2001.
GOLD IN SOUTH AFRICA 65

66 GOLD IN SOUTH AFRICA

CHAPTER 4
FINAL PRODUCT: JEWELLERY
CHAPTER 4
Contents:
4.1 INTRODUCTION 68
4.2 JEWELLERY MANUFACTURING 69
4.2.1 Size, structure and ownership 69
4.2.2 Capacity and capacity utilisation 74
4.2.3 Employment profiles, education and skills 76
4.2.4 Means of financing 78
4.2.5 Fabrication costs 79
4.2.6 Price mark-ups 80
4.2.7 Exposure to financial variables and
access to financial protection 82
4.2.8 Design considerations and product ranges 82
4.2.9 Trade bodies, initiatives and publications 84
4.3 JEWELLERY RETAILING 87
4.3.1 Size, structure, ownership and vertical integration 87
4.3.2 Distribution networks 89
4.3.3 Employment profiles, education and skills 92
4.3.4 Jewellery retail business profiles and retail strategies
(including marketing) 92
4.3.5 Relationships with suppliers 97
4.3.6 Imports 97
4.3.7 Price exposure and financial risk 99
4
Photograph courtesy: Harmony Gold Mining Limited
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4.1 INTRODUCTION
During 2004, primary refiners and recyclers in the
formal sector supplied 12.6t of fine gold to the local
gold fabricating industry...
During 2004, the primary refiners and secondary recyclers in the formal sector
supplied 12.6t of fine gold to the local gold fabricating industry.
The details are shown in the table below.
Gold usage in fabrication
t %
Jewellery fabrication 9.64 76.6
Coin fabrication 2.90 23.0
Other fabrication 0.05 0.4
Total 12.59 100.0
Jewellery imports 1.28
Jewellery exports 5.07
Domestic sales (including imports) 5.85
Domestic sales (locally manufactured) 4.57
* All figures net of process scrap
Data source : Virtual Metals.
Note 1: ‘Other fabrication’ includes dentistry and electronics, both of which are discussed in Chapter 5.
Note 2: This jewellery fabrication figure is net of processing scrap – gold returned by the manufacturer to
the refiner during the fabricating process.
Most of this supply (76.6%) was destined for the manufacturing of jewellery.
Official imports of fine gold in the form of finished jewellery products amounted to
1.28t and official exports of fine gold in jewellery products totalled 5.07t. This
implies that South African jewellery sales, including imports, amounted to 5.85t of
which 4.57t was fabricated locally 1 .
The research method used in preparing this chapter on jewellery fabrication and
recycling involved a combination of face-to-face interviews and the analysis of
resultant data. Appendix 1 lists those interviewees whose data was used in
constructing sectoral databases.
The scope of the research undertaken to compile this chapter is detailed below.
Manufacturing:
Members of the Jewellery Council of South Africa (JCSA) as well as the Council itself
and its manufacturing affiliates, the Jewellery Manufacturers Association of South
Africa (JMA) and the Cape Jewellery Manufacturers Association (CJMA), were
interviewed.
The annual volumes of fine gold used by the 34 jewellery manufacturers were
collated into a database. Collectively, the 34 companies accounted for 7t of fine
gold consumption in 2004. Of these, 20 were interviewed in depth and data was
obtained for the remaining 14. Manufacturers known to use the largest volumes of
fine gold were selected for interview, giving a representative sample of gold usage
of 73% of the fine gold supplied to local jewellery manufacturers by the refiners
and recyclers. The interviews also included a number of manufacturers who use
relatively small amounts of fine gold in order to contrast the varied business
models, market niches, client bases and products of different local manufacturers.
1
Many retail stores in South Africa refer to fine gold jewellery as they differentiate between carat jewellery of a minimum of
9 carat and costume jewellery (less than 9 carat). This review avoids using the term fine gold jewellery as we define fine gold
as pure gold of ‘4 9s’ fineness (999.9 parts per 1,000 pure gold or 24 carat gold). When referring to jewellery, we use the
terms gold jewellery or carat jewellery implying a minimum of 9 carat.
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Retailing:
The analysis of the retail sector of the South African gold jewellery industry
included the following:
• compilation into a database of the regional distribution networks of the
13 companies that dominate retail jewellery sales and an analysis of their
951 stores located around the country, which represent just under 77% of the
total value of South African jewellery retail sales;
• interviews with buyers representing 10 of these retail companies, accounting for
73% of total retail sales, and the collation of the data collected into a database;
and
• the analysis of qualitative information gained from these interviews in the
discussion.
4.2 JEWELLERY MANUFACTURING
4.2.1 Size, structure and ownership
In 2004, South African gold jewellery fabrication at 9.64t accounted for 2.8% of
local mine production. According to Virtual Metals’ global supply/demand balance,
with consumption of 9.64t of fine gold in 2004, local fabricators represent 0.35% of
total gold consumed in jewellery manufacture globally (2,795t 2 ).
Gold jewellery purchased locally is predominantly (95%) 9 carat. The balance is
made up of 18 carat gold associated with gem-set items, especially diamonds and
tanzanite. The presence of 14 carat gold is associated with tourist sales. Gold
jewellery manufactured locally specifically for export to the USA is either 14 carat
(50% by weight) or 10 carat (40% by weight) with the balance being 18 carat.
In 2004, South African gold jewellery fabrication at
9.64t accounted for 2.8% of local mine
production...
Gold jewellery purchased locally is predominantly
(95%) 9 carat...
Different types of businesses fall under the blanket description of ‘jewellery
manufacturer’. These manufacturers demonstrate a spectrum of business models,
product ranges, customer bases and operational parameters.
This review segments the jewellery manufacturing sector into four categories
according to their annual fine gold usage.
Micro
Small
Medium
Large
Manufacturers using 20kg or less per annum
Manufacturers using more than 20kg but less than 50kg
per annum
Manufacturers using more than 50kg but less than
750kg per annum
Manufacturers using more than 750kg per annum
Details of the data sample (34 manufacturers) are tabulated as follows:
Size of company Micro Small Medium Large Total
(750kg)
to to
50kg) 750kg)
Number of companies interviewed 9 3 5 3 20
Number of companies added data 5 7 2 0 14
Total companies 14 10 7 3 34
Total fine gold usage (kg) 98 390 1,530 5,010 7,028
Data source: Virtual Metals.
2
Virtual Metals estimates for 2004.
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Hobbyists are defined as individuals who practise
jewellery fabrication but for whom gold jewellery
manufacturing does not represent a primary source
of income...
There were 2,456 valid jewellery permits in issue in
South Africa in 2004...
Hobbyists, who were included in our research, are incorporated in the micro
manufacturers category. Hobbyists are defined as individuals who practise jewellery
fabrication but for whom gold jewellery manufacturing does not represent a
primary source of income. It is not known exactly how many hobbyists there are in
South Africa. However, by law they have to hold valid jewellers’ permits if they are
working in precious metals and thus are accounted for in these statistics.
Size of the industry and number employed
According to the Gold and Diamond Branch of the South African Police Service,
there were 2,456 valid jewellery permits in issue in South Africa in 2004. In order to
practise as a fabricator of precious metals jewellery, individuals must, by law, hold a
valid jewellery permit. Of this total, 241 licences were newly-issued, an increase of
10.9% in the number of manufacturers over the previous year.
The legislation pertaining to these jewellery permits is discussed in Chapter 6 under
the Mining Rights Act of 1967 and its amendments.
Between them, the Cape Jewellery Manufacturers
Association (CJMA) and the Jewellery Manufacturers
Association (JMA) had 99 members in 2004...
Between them, the Cape Jewellery Manufacturers Association (CJMA) and the
Jewellery Manufacturers Association (JMA) had 99 members in 2004. 3 Analysis of
these membership lists indicates that there were some members of these
associations who were not directly involved in gold manufacturing (being
exclusively recyclers, or diamond or platinum manufacturers), and some areas
of overlap.
It was possible to conlude that the CJMA and the JMA between them have 86 gold
jewellery manufacturing members. A comparison of the combined memberships
and the number of valid jewellers’ permits currently in issue therefore indicates
that, by number, only 3.5% of jewellery permit holders are members of these trade
bodies although, by volume of gold usage, the organisations include the three
largest manufacturers as members.
The gold jewellery manufacturing sector in South Africa has the following
characteristics.
• In terms of volume of fine gold usage, the industry is consolidated. The top 10
manufacturers (medium and large entities) account for 6.5t of fine gold usage
annually, or 67% of the 9.6t identified as being consumed by the industry. Of
these 10 companies, three account for 5t (52% of total fine gold usage 4 ) and
are defined in this review as large manufacturers.
• In terms of the number of manufacturers, however, the industry is fragmented:
the 2,456 valid jewellery permits in issue in 2004 bear testimony to this. It is
not clear how many holders of these jewellery permits are manufacturers in
that they run workbenches and design and fabricate jewellery, as opposed to
jewellers who might undertake jewellery repairs but are neither designers nor
manufacturers of jewellery. Goldsmiths who might have a small retail shop with
a workbench to handle repairs are still required to hold a valid jewellery permit.
Discussions with the recyclers who specialise in supplying fine gold to the micro
manufacturers confirmed that they have client bases in excess of 400 entities.
These recyclers acknowledged two factors in this regard:
• customers buy their fine gold from more than one recycler. There is, therefore
an element of overlapping and potential double counting; and
• there are jewellery manufacturers who source gold from the primary refiners
and not the recyclers and, therefore, the recyclers’ customer bases were not
necessarily a true reflection of the total number of jewellery manufacturers.
With respect to the numbers of people employed in the gold jewellery
manufacturing industry, the 34 companies for which there is data employed 1,297
permanent employees.
3
At the time of writing this report the two Associations were in discussions with respect to amalgamating.
4
The three are: Alan Mair Manufacturing Jewellers, Silmar Marketing SA (Pty) Ltd and OroAfrica (Pty) Ltd.
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Without conducting an exhaustive survey of all gold jewellery manufacturers in
South Africa, an exercise which is outside the scope of this study, it is only possible
to give an estimate of the total numbers employed in the jewellery industry. This
estimate is based on the following assumptions.
The sample researched in this review gives wide coverage of the large- and
medium-sized manufacturers, as defined in this chapter. Therefore, it is assumed
that those jewellery manufacturers for which there is no confirmed data are, by
definition, the small and micro manufacturers. These manufacturers are known to
be either one-man operations or to have only one or two staff members on the
payroll.
It is not possible to verify how many of the valid jewellery permits are held by
hobbyists who, by definition, would not employ staff since their goldsmithing would
not be a primary source of income. Discussions with the jewellery manufacturers
and the trade associations, however, suggest that there are between 1,200 and
1,500 gold jewellery hobbyists.
Taking the above into account it is estimated that 2,680 people are employed by
the country’s gold jewellery manufacturing sector.
It is estimated that 2,680 people are employed by
the country’s gold jewellery manufacturing sector...
Geographic distribution and ownership
Gold jewellery manufacturing is concentrated in and around Johannesburg and
Cape Town and their close environs. Gauteng and the Western Cape are home to
just under 70% of South Africa’s gold jewellery manufacturers. If KwaZulu-Natal is
included, the total rises to just over 85%.
A regional analysis of valid jewellers’ licences for 2003 and 2004 gives the following
distribution of jewellery manufacturers across the country:
Number of valid jewellery permits 2003 2004 Region as
% of 2004 total
Gauteng 838 982 40.0
Western Cape 710 733 29.8
KwaZulu-Natal 351 385 15.7
Eastern Cape 76 95 3.9
Free State 71 84 3.4
Northern Cape 59 63 2.6
Mpumalanga 50 52 2.1
Limpopo 33 34 1.4
North West 27 28 1.1
Total 2,215 2,456 100
Data source: Virtual Metals’ analysis of South African Police Service data.
The following table shows, on a regional basis, where the increase in number of
jewellery permits occurred in 2004, compared with previous years. According to the
data the increase was mostly in the Eastern Cape (25%), the Free State (18.3%)
and Gauteng (17.2%).
Gauteng and the Western Cape are home to just
under 70% of South Africa’s gold jewellery
manufacturers...
Growth in jewellery permits between 2003 and 2004
%
Eastern Cape 25.0
Free State 18.3
Gauteng 17.2
KwaZulu-Natal 9.7
Northern Cape 6.8
Mpumalanga 4.0
North West 3.7
Western Cape 3.2
Limpopo 3.0
Country average 10.9
Data source: Virtual Metals’ analysis of South African Police Services data.
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There are two reasons for the 25% increase in the number of jewellery permits held
in the Eastern Cape in 2004:
• increased tourism in the province; and
• the perception by newly qualified jewellery manufacturers that the area offers
better market opportunities compared to the already well-serviced Western Cape.
In terms of the volume of fine gold usage,
manufacturing is concentrated in the Johannesburg
and Cape Town areas...
The industry is still family-based in terms of
ownership, sometimes with third or fourth
generation owners...
In terms of the volume of fine gold usage, manufacturing is concentrated in the
Johannesburg and Cape Town areas. Two of the three big manufacturers are based
in Johannesburg and the third in Cape Town.
With respect to the number of manufacturing entities, the industry is still familybased
in terms of ownership, sometimes with third or fourth generation owners. Of
those interviewed, more than 90% of the businesses were either family concerns or
partnerships whose origins were in family businesses. The remaining 10% of
businesses were partnerships which did not involve family members. This is
particularly true where the manufacturer also specialises in diamonds and fancy
stones. The implications of small family-owned businesses are discussed in more
detail in Appendix 3 which deals with training and skills transfer.
Market niches and business models
The umbrella definition of gold jewellery manufacturers covers a variety of
fabricators exhibiting diverse business models. Manufacturers have structured their
businesses to service sub-sectors to which they deliver their final product.
The identification of niche markets on the part of a manufacturer influences that
fabricator’s product line, design work, staffing needs, customer base and marketing.
These factors have a bearing on the cost profile of the company.
Within the jewellery fabricating sector in South Africa are manufacturers who
demonstrate the following distribution, product and manufacturing process
characteristics:
Distribution channels:
• supply only one retail franchise consisting of multiple retail stores around the
country;
• supply various different retail outlets simultaneously;
• supply a combination of retail outlets and private clients;
• supply a private client base exclusively and directly;
• supply local purchasers only, target the export market only, or have a client base
of both local and export consumers;
• specialise in the domestic market only or target the tourist market; and
• combine manufacturing with retail, supplying their own outlets or those of
other retailers or wholesalers.
Product niches:
• specialise in gem setting, especially diamonds and fancy stones set in a
minimum of 18 carat or platinum;
• specialise in cubic zirconia and semi-precious stones set in 9 carat;
• specialise in mass-produced product only;
• specialise in hand-made items; and
• manufacture both mass-produced and hand-made items.
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Manufacturing process:
• specialise in machine-made, mass-produced chain;
• specialise in stamped or cast jewellery; and
• specialise in hand-made goods in the absence of machine-made items.
In terms of volumes of fine gold, the majority of gold is consumed by
manufacturers of mass-produced chain and cast or stamped jewellery for both the
local market and direct export. Mass produced jewellery represents approximately
80% of fine gold jewellery fabricated in South Africa each year.
In terms of the numbers of businesses, however, the dominant business model is
the small enterprise focusing on cast or hand-made jewellery sold into the local
market.
In terms of volumes of fine gold, the majority of
gold is consumed by manufacturers of massproduced
chain and cast or stamped jewellery for
both the local market and direct export...
The dominant business model is the small enterprise
focusing on cast or hand-made jewellery sold into
the local market...
The following table highlights these findings. Among the micro and small
manufacturers interviewed, cast and hand-made jewellery accounts for over 90% of
manufacturers in volume terms.
Manufacturing process (%)
Micro Small Medium Large
Cast 55 45 69 19
Machine-made 5 9 1 25 81
Hand-made 36 54 6 0
Data source: Interviews.
Medium-sized manufacturers produce mainly cast jewellery (67%), although they
also produce more machine-made jewellery (27%) than the micro and small
fabricators. Very little of the medium-sized and none of the large manufacturers’
jewellery is hand-made.
The three large manufacturers are almost exclusively mechanised. Silmar focuses on
chain-making and Alan Mair Manufacturing Jewellers focuses on casting. OroAfrica
focuses on machine-made chain, but has some casting and speciality chain
manufacturing capability. The dominance of these three manufacturers in volume
terms skews the weighted average for the collective industry, as the pie chart on
the right shows.
The three large manufacturers are almost
exclusively mechanised...
Interviews with retailers highlighted two concerns about the manufacturing
processes carried out in South Africa:
• First, retailers felt that although the quality of the final product was good,
outdated and aged machinery was being used which was not capable of
producing the latest designs. This problem of ‘old’ machinery also raised
concerns about operating efficiencies. Manufacturers responded to these claims
with concerns about the cost of new machinery, which, together with the
necessary spares, had to be imported. However, capital expenditure on the
upgrading of machinery was ongoing in at least two of the large manufacturers
interviewed.
5
Machining includes stamping.
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• Second, retailers felt that South African manufacturers were being left behind in
areas such as electro-forming, various methods of gem-setting (such as invisible
setting) and the manufacture of intricate hollow jewellery. They highlighted
these issues as detracting from the ability of local manufacturers to compete
effectively on an international level. Nevertheless, local manufacturers
maintained that their product could compete internationally in terms of
manufacturing processes and finish.
4.2.2. Capacity and capacity utilisation
Overview
Interviews indicated the following regarding capacity and capacity utilisation:
For the large manufacturers, labour is a relatively
small component of total costs...
Quotable quotes:
“We load up the machines with wire and leave
them running overnight. They stop running when
they run out of wire.”
Chain-maker
Small and medium manufacturers are highly
susceptible to the capacity constraints associated
with seasonality...
Large manufacturers
For the large manufacturers, labour is a relatively small component of total costs.
With capital already invested in their machinery, there are strong incentives to
boost productivity through higher levels of capacity utilisation. In these instances,
capacity is limited only by the number of machines and their ability to operate
around the clock. In general, these manufacturers are somewhat less subject to
seasonality and tend to supply customers throughout the year, although the period
between September and November was still noted as a particularly busy time with
a marked slow-down in January.
At the time of interviewing, the strong Rand was having a dramatic effect on
manufacturers. With export levels down as a result of the robust currency, capacity
utilisation was down to 65% of potential 6 . The large manufacturers were actively
addressing this problem by refocusing on their local customer base.
Small and medium manufacturers
Small and medium manufacturers are highly susceptible to the capacity constraints
associated with seasonality. Like many of the micro operations, they are reluctant
to expand capacity permanently because of the associated increase in overheads.
For many, labour costs represent the largest expense and this dictates capacity
decisions.
During the busy period in the months prior to the delivery of Christmas orders, they
will either take on temporary staff or, more commonly, will outsource basic work
such as repairs to micro jewellers. Factors influencing the decision to outsource are
discussed in more detail later.
Micro manufacturers
Micro entities fall into two categories (excluding the hobbyists).
• There are those manufacturers using less than 1kg of fine gold per annum who
tend to deliver product as and when they can. They can often be stretched with
respect to being able to fill orders but have little financial latitude to increase
capacity and are unwilling, or unable, to increase overheads accordingly.
• The second group use greater volumes of metal (but still less than 20kg) and
are subject to the seasonality of the Christmas cycle and, in many cases, will
take on temporary staff to overcome capacity constraints.
Jewellery manufacturing shows distinct seasonality
that affects capacity utilisation...
The manufacturers’ year
Apart from high-volume, machine-made items, jewellery manufacturing shows
distinct seasonality that affects capacity utilisation. In general the year is structured
as follows:
• Mid-January through to mid-April
The early months of the year through to mid-April tend to be quiet, with
capacity utilisation at its lowest (estimated at 60%). Permanent core staff
members continue with ongoing work. Many manufacturers use this time to
complete design work. Those wishing to participate in the Vicenza Jewellery Fair
in Italy travel to Europe in January.
6
During periods of a weaker Rand against the Dollar and stronger export potential, the capacity utilisation of these large jewellery
manufacturers is closer to 80%.
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• May and June
Manufacturers will begin recruiting part-time staff in June, if required, in
preparation for incoming Christmas orders. Depending on their job description
and existing skills, these part-time staff members would be given at least two
months to familiarise themselves with the jewellery range to be manufactured
in order to meet the Christmas demand. Relative to permanent staff, the parttimers
can be substantial in number, in some instances doubling the payroll and
head count for the associated months.
Discussions with the industry revealed that there is a relatively large pool of
qualified goldsmiths from which manufacturers can draw during these periods.
These people would come from the micro sector of the industry, as defined
earlier in this chapter, and appear to be independent goldsmiths, amenable to
periodic high season work, and to whom the larger manufacturers can also
outsource overflow work. If they do not take on temporary staff, many
manufacturers will outsource overflow work to these micro entities.
There is a relatively large pool of qualified
goldsmiths from which manufacturers can draw
during these periods...
Two factors influence the decision as to whether to outsource or to employ
temporary staff:
• the size of the premises on which a manufacturer operates. Space
constraints, especially jewellery workbenches, will influence the decision
to outsource; and
• some manufacturers indicated they felt more comfortable with
temporary staff working on their premises where the manufacturer
could control inventory, equipment and raw materials more closely than
when outsourcing work.
Those attending the second Vicenza Jewellery Fair of the calendar year travel to
Italy in June 7 or they might attend the JCK Jewellery Fair in Las Vegas.
• July and August
By the end of this period, the year’s designs and the product range for the year
are tabled and portfolios are complete. The development of the year’s product
range is a combination of a number of processes. Manufacturers generally
attend the Jewellex Jewellery Fair in July.
If they do not attend a trade show early in the year, manufacturers will at least
have the most recent trade magazines which would give a good indication of
the latest designs and fashions. They will then consult with their major retail
customers on the design range the retailer is most likely to order. Samples will
be made up and marketed. Orders will then be placed and this process is usually
completed by early September.
If manufacturers also participate in the jewellery industry as retailers, they will
do their own marketing in the form of brochures, newspaper inserts and
magazine advertisements. On the basis of our interviews, this work appears to
be completed in-house, usually by the owner or manager of the company.
Throughout this period (January to August) the industry operates at below
capacity.
• September through to mid-December
The industry then goes into a period of intense production. The rate at which
the manufacturers deliver final product will vary, depending on the product
range. Four to eight weeks is the norm for the time required for delivery of the
final product.
Quotable quotes:
“We essentially run a six-month business but have
12 months of fixed costs.”
Small-sized manufacturer
From mid-October onwards, orders are delivered. Christmas catalogues are
distributed, advertising in magazines and newspapers is filled and shops stocked.
By mid-December, the process is normally complete and the manufacturers
close until mid-January.
September through to the end of the year is the time of maximum capacity
utilisation.
7
From 2006, the second Vicenza Jewellery Fair of the calendar year will be held in May.
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4.2.3 Employment profiles, education and skills
The following section analyses the employment profile of the manufacturing
jewellery sector. It acknowledges the presence of the three largest manufacturers
and their ability to affect the results of the analysis, particularly when considering
the sector in terms of volumes of fine gold usage, as opposed to numbers of
operating entities. Unless otherwise stated, the weighted average of the
manufacturers (in terms of fine gold usage) has been used. In each case, however,
data is also presented for each of the four categories of manufacturers in a form
that is directly comparable.
Within the four defined categories of manufacturers, a number of employment
profiles are identified. The weighted average shows that the ratio of men to women
employed in the jewellery manufacturing sector is 57:43. The results are influenced
by the gender profile of the three large manufacturers of 52% women to 48% men
as, in the other three categories, a far greater percentage of jobs is held by men.
Men are most commonly found at the workbenches (participating in the production
of jewellery product as opposed to other support functions in the company) with
women filling administrative, accounting and marketing roles. Women are also
employed to do work in polishing, filing, washing and finishing. The sales role of
women was particularly apparent when the manufacturers maintain retail outlets as
well and require a shop front sales force.
Manufacturers who combine diamond jewellery manufacture (or gem-setting in
general) with the fabrication of gold-only jewellery, had a higher average number of
employees. The labour intensity of gem-setting and its associated manufacturing
processes clearly inflated employment levels in these companies. This was
particularly true of the micro category, where employment rose to seven staff
members per company.
The age profile of the workforce showed a standard distribution and this was true of
the weighted averages for both the industry and individual categories:
95% of those working in the jewellery manufacturing sector are South African,
either by birth or by naturalisation. In terms of racial groups, the ratios are as
follows on a weighted average basis:
By industry segment, the racial profile is as follows:
Racial profile % Micro Small Medium Large
White 40 22 26 27
Black 52 64 18 55
Indian 6 3 0 10
Coloured 2 11 57 8
Data source: Interviews.
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The high proportion of whites in the micro manufacturers reflects the historical
structure and family-owned nature of these companies. In the medium category,
many companies are located in the Western Cape.
The high proportion of whites in the micro
manufacturers reflects the historical structure and
family-owned nature of these companies...
Turning to levels of education and skills within the jewellery manufacturing sector,
the research showed that, on a weighted average basis for those companies where
information is available, almost 42% of those on the payrolls of the jewellery
manufacturers have a matriculation qualification. Nearly as many (41%) do not,
and the remaining 17% have secondary or tertiary education.
By market segment, the educational profile is as follows:
Education (%) Micro Small Medium Large
No matric 57 52 12 48
Matric 32 30 73 31
Tertiary 10 18 15 20
Data source: Interviews.
An analysis of job descriptions shows that, on a weighted average basis, 67% of
those employed in gold jewellery manufacturing work on the jewellery benches. 8
By market segment, the analysis showed that the large manufacturers have the
highest percentage of their staff on the jewellery benches (74%).
Job description (%) Micro Small Medium Large
Admin 11 15 15 16
Benches 61 70 59 74
Management 17 10 4 5
Other 11 4 22 5
Data source: Virtual Metals’ analysis of detailed interviews.
Quotable quotes:
“The ability to make a good piece of jewellery is an
art form – a highly skilled task which is not
determined by a matriculation certificate or
Technikon diploma. The art is learnt on the job – at
the bench and there is no substitute for experience.”
Micro manufacturing jeweller
A high proportion of those employed do not have a matriculation certificate. It
should be noted that a majority are employed on the jewellery bench where they
are called apprentices by jewellery manufacturers. Goldsmithing is then learnt on
the job where specialist skills such as alloying, all the stages of casting, machining
and stamping, gem setting, polishing and finishing are gained from practical
experience. Apprenticeship training received from a manufacturer is not formally
structured in the way a diploma course or a degree might be at a university of
technology or university and therefore it would probably be more accurate to term
the training received as a mentorship rather than an apprenticeship. 9
This situation is not unique to South Africa, nor the jewellery manufacturing sector.
Discussions with manufacturers in Europe revealed similar profiles. The implications
of these observations are discussed in more detail in Appendix 3, in the context of
the universities of technology (formerly known as technikons) and their actual and
perceived roles in offering formal goldsmithing qualifications.
8
In the case of the large manufacturers ‘benches’ also refers to machine operators.
9
This is discussed in more detail in Appendix 3 which discusses training and skills transfer.
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Jewellery manufacturers train staff in-house, on the
job, in the form of apprenticeships...
There was very little evidence of manufacturers
approaching the Mining Qualifications Authority
(see Chapter 6) for financial assistance with
in-house training programmes...
In terms of training, the jewellery manufacturers train staff in-house, on the job, in
the form of apprenticeships. Only one manufacturer interviewed expressed the
opinion that training in-house was not desirable or indeed necessary. This fabricator
argued that in-house training only left the company vulnerable to having their
newly-trained staff either poached by competitors or setting themselves up in
competition. This attitude was by far the exception and other manufacturers agreed
with the need to train the next generation of goldsmiths. Readers are referred to
Appendix 3 for a more detailed analysis of training and skills development.
There was very little evidence of manufacturers approaching the Mining
Qualifications Authority (see Chapter 6) for financial assistance with in-house
training programmes. Two reasons for this were given:
• there appeared to be a lack of awareness of the financial assistance available to
encourage training; and
• there was some distrust on the part of manufacturers who perceived
government involvement in their businesses as a threat.
In discussing current training programmes offered by universities of technology (as
opposed to in-house training), manufacturers expressed the view that existing
courses were too theoretical and did not prepare trainees fully for life at the
jewellery bench. They argued that the skill of goldsmithing is largely acquired
through experience, and universities of technology training programmes need to
give students more practical knowledge.
Discussions with the universities of technology revealed a different perspective.
They maintained that it is common for manufacturers not to recognise
qualifications obtained through universities of technology because the lower the
level of education recognised, the lower the wage to be paid by the manufacturers.
4.2.4 Means of financing
The rate of growth of the South African gold jewellery manufacturing industry has
historically been constrained by the absence of cost-competitive financing facilities
of precious metals in the jewellery fabrication pipeline.
The problem is attributable largely to the proportionately high value of raw
material in relation to the final product. Unlike other manufacturing industries (such
as textiles for example), gold jewellery manufacturers have to deal with the very
high cost of working capital for their raw material, over and above the financial
outlays necessary to establish and run a business.
The high cost of gold, and the volatile nature of the gold price, renders it
particularly expensive for a manufacturer to own the metal tied up in the
manufacturing process or locked up in the finished product.
The issue of funding the manufacture of gold is considered in more detail in
Chapter 6, but some comments are warranted here.
• In other parts of the world (especially in major jewellery fabricating centres
such as Italy), manufacturing jewellers can borrow fixed quantities of metal
from financial institutions at an internationally-related gold lease rate
(see chart) plus a pre-agreed risk premium. The company is assessed on
capitalisation and turnover and, depending on the company’s financial track
record, guarantees (save for insurance) will be tailored appropriately. In these
instances there is a long financial track record, management expertise and
proven experience in the industry which, in the case of the small and micro
jewellery manufacturers in South Africa, is not the case.
• South African gold manufacturers do not have access to similar financing
structures. Currently they have to buy raw material outright through working
capital, or they have to finance it at the local prime lending rate (plus a risk
premium which, depending on the jeweller, can be some basis points above
prime). In addition to this, they have to provide collateral as loan security which
may be up to 120% of the value of the loan.
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In the high interest rate environment of South Africa (see chart on previous page),
finance is most often cited as either a barrier to market entry or the major
constraining factor to growth in jewellery production. This places the local industry
at a competitive disadvantage internationally and has been cited as a primary
reason for business failures or discouraging new entrants to the market.
In the high interest rate environment of South Africa,
finance is most often cited as either a barrier to
market entry or the major constraining factor to
growth in jewellery production...
In limited instances and specific to the large manufacturers, some more favourable
form of financing is in place. The details are confidential to those manufacturing
jewellers but it is believed that gold can be borrowed (against a guarantee of up to
120%) for between 2% and 7% with an additional 1.5-2% fee to the lending
financial institution to cover the guarantee provided.
Access to this sort of finance is by far the exception, applying only to the large
manufacturers and to a limited number of medium-sized manufacturers. It does
not apply to the small and micro manufacturers.
But manufacturers are faced with another problem. Those interviewed noted that
while they had insurance cover for third party liability and stock in transit, the
premiums associated with insuring jewellery inventories and metal in the
manufacturing pipe-line are prohibitive. The absence of insurance has implications
for the jewellery fabricator’s ability to participate in gold financing schemes, since
sufficient insurance coverage is a stated pre-requisite.
Chapter 6 deals in more detail with the specifics of the financing mechanisms that
are in place, including those offered by Rand Refinery and most recently by a gold
advance scheme to be underwritten by BAE Systems/Saab, AngloGold Ashanti and
Gold Fields.
4.2.5 Fabrication costs
Given the different customers and product ranges around which the South African
jewellery manufacturers have built their business models, the cost of fabricating
gold jewellery can vary widely. The size of the business, manufactured volumes, the
type of final product and the raw materials required influence the cost structure of
the company.
Analysis showed two distinct cost profiles, depending on the size of the operation
and on the method of manufacture. Given these differences, it would be
inappropriate to calculate a single weighted average for the industry and thus cost
profiles are discussed separately. The average cost profiles of the micro, small and
medium fabricators are tabulated below, although these figures should be
considered in the context of the notes that follow:
Typical cost profile of micro, small and medium gold jewellery manufacturers
%
Raw materials 30
Financing 12
R&D/training 5
Labour 30
Rent/overheads 20
Marketing 3
Total 100
Data Source: Interviews.
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Notes
• These estimates cover the manufacture of gold items only. If a company also
makes use of diamonds, fancy stones and platinum, the cost of raw materials
increases by up to 50%. Conversely, where a company makes extensive use of
silver in addition to gold, the raw materials represent less in the way of costs.
• Rentals are substantially higher for those manufacturers who also run retail
outlets, especially in shopping malls. In these instances, combined insurance,
floor rental and other administrative overheads can represent as much as 50%
of total costs.
• Of significance is that these estimates exclude insurance on loss of stock. The
manufacturers interviewed were covered for third party liability and accident as
well as loss of stock in transit, but not for their finished jewellery inventories or
pipeline stocks.
• The majority of those interviewed considered labour as a variable cost,
particularly with respect to overtime when filling Christmas orders. Thus, over
the period from July to mid-December, overtime paid to permanent staff and in
many cases the presence of part-time staff members can greatly increase the
ratio of labour costs to other costs.
• Financing in general represents overdraft facilities to ensure cash flow on a
monthly basis and to fund the purchase of raw materials. As interest rates have
decreased since 2003, financing as a percentage of total costs has declined.
Gold is purchased and paid for in cash on delivery, inclusive of VAT. The VAT is
returned on a rolling two-month basis. Depending on the items being
fabricated, work in progress can be anything from two to three weeks for
simple, mass-produced items and up to six to eight weeks for more intricate
goods.
In the case of very high value jewellery, with a
greater design content and gem setting, a piece can
be in the production pipeline for more than eight
weeks...
The cost profiles of the large category
manufacturers are different from those of micro,
small and medium manufacturers...
In the case of very high value jewellery, with a greater design content and gem
setting, a piece can be in the production pipeline for more than eight weeks. Where
manufacturers are supplying retail clients, the terms for payment can range from 60
and 90 days and even 120 days. This term can be longer if the goods are exported
and therefore the period of exposure by the manufacturer to the gold content is
extended. Very little appears to be sold on consignment.
The cost profiles of the large category manufacturers are different. Because they are
primarily mechanised, the labour component of total costs is lower. Furthermore,
because of their size and turnover, they tend to have access to more cost-effective
financing which reduces this item of expense compared with the other three
categories of manufacturers. Their higher rate of production turnover also means
that their raw material costs are a much larger percentage of total costs and the
profile is estimated as follows:
Cost profile of the large gold jewellery manufacturers
%
Raw materials 85
Financing 2
R&D/training 2
Labour 5
Rent/overheads 2
Marketing 1
Other 3
Total 100
Data source: Interviews.
4.2.6 Price mark-ups
Given the diversity of business practices, client bases and product lines, the
manufacturing sector includes a spectrum of mark-ups and measures of
profitability.
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All mark-ups cited in this sector are in addition to those achieved by the refiners or
suppliers of metal to the jewellery manufacturers. In other words, the mark-ups are
compounded – they are added to the price at which the manufacturer buys his fine
gold and not to the spot price or international gold price quoted on a daily basis.
Analysed in terms of the number of jewellery manufacturers (as opposed to the
volume of gold used), the mark-up for cast jewellery most frequently cited was
between 15% and 20%. This mark-up range applies to 9 carat gold only.
All mark-ups cited in this sector are in addition to
those achieved by the refiners or suppliers of metal
to the jewellery manufacturers...
The most common belief among those interviewed
was that they can achieve a mark-up of between
15% and 20% for cast jewellery...
In comparison, discussions with European manufacturers noted that basic nonchain,
gold-only jewellery achieved average mark-ups in the range of 8% to 21%.
While the comparison is useful, readers should bear in mind that the European
industry deals with larger orders than the South African industry and uses a higher
caratage of gold. Both economies of scale and jewellery alloy would affect the
achieved mark-ups.
For items of a higher caratage, hand-made items or gem-set items, higher mark-ups
can be applied and up to 40% can be achieved. In the case of individually
commissioned items of jewellery, designed to a client’s exact requirements, even
higher mark-ups can be levied. In these instances, where a piece of jewellery
requires a good deal of design time and craftsmanship, mark-ups of 100% were
cited. Since these items are commissioned by individual clients and are destined for
those clients, the associated mark-ups should actually be compared with the markups
achieved by retailers and not with the mark-ups of manufacturers who are
filling mass orders.
In terms of the volume of fine gold usage, the mark-up profile is very different and
ranges of 5% to 10% were cited as the norm for the majority of 9 carat, gold-only
items. This applies particularly to fully mechanised manufacturers and their
machine-made product range.
For items of a higher caratage, hand-made items or
gem-set items, higher mark-ups could be applied
and up to 40% can be achieved...
For machine-made chains, interviewees indicated an
average mark-up of 5%...
There are of course variations around this average and the following is worth
noting:
• manufacturers will adjust their mark-up relative to the size of an order. The
larger the order the more the manufacturer will be prepared to discount
margins;
• manufacturers will adjust margins in favour of regular customers placing
ongoing orders, as opposed to a customer who might only place sporadic orders;
and
• manufacturers will adjust margins in line with other terms agreed between the
customer and fabricator. In general, the longer the time to payment, the higher
the mark-up.
These three variations are not unique to the jewellery industry and apply to the
manufacture of other goods such as clothing.
Discussions with market participants in South Africa yielded the following averages:
Summary of average jewellery manufacturing mark-ups in South Africa
process mark-up %
Machine-chain 5
Other mechanised 5-10
Cast 15-20
Hand-made 40
Gem-set 40
One-off custom designed Up to 100
Data source: Interviews.
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For machine-made chain (the largest category of gold products), interviewees
indicated an average mark-up of 5%. This appeared to be in line with those markups
achieved by European jewellery fabricators, especially in Italy. The mark-ups
associated with the South African chain manufacturers remained at these levels
irrespective of whether the final product was for local consumption or for export.
Financial parameters affecting gold manufacturers
are the Dollar spot price of gold, the value of the
Rand relative to the Dollar and local interest rates...
4.2.7 Exposure to financial variables and access to financial protection
The manufacturers interviewed were unanimous in their response with respect to
their exposure to three financial parameters.
These are:
• The Dollar spot price of gold;
• The value of the Rand relative to the Dollar (or the currency of the country to
which they may be exporting their final product, for example the British Pound);
and
• Local interest rates, in instances where they borrow funds to finance metal in
working progress.
To the extent that there is no industry-wide access to leased metal, the
manufacturers’ exposure to the international gold lease rate is not of significance.
With the exception of the large manufacturers, local jewellery fabricators have to
buy their metal outright and they calculate their margins on the basis of the price
paid for the gold from their suppliers. Any sharp changes in international or local
gold prices while the gold is in the production pipeline or in inventory do not affect
the selling price of those goods. These manufacturers either borrow to fund working
capital or finance the purchase of their gold out of working capital.
Manufacturers could buy forward cover for currency
from local banks and protect themselves from
adverse movements in the currency but, in practice,
they do not make use of the local currency forward
market...
Manufacturers could buy forward cover for currency from local banks and protect
themselves from adverse movements in the currency but, in practice, they do not
make use of the local currency forward market. During interviews, some said the
cost of forward cover was too expensive, while others maintained that their pipeline
times do not justify buying currency protection. Others indicated that their
businesses were simply not sophisticated enough to warrant the use of financial
mechanisms.
With respect to the gold price, there is currently no local futures contract to protect
them from price movements. There is, however, a local contract based on the
Krugerrand (see Chapter 5).
When asked if they would consider making use of a dollar-denominated exchange
futures contract if it were offered locally, many noted that the amount of gold they
used on a daily basis was too small to warrant this form of hedging. Only the large
manufacturers indicated that they might investigate the possibility of using this
hedging mechanism, but the cost of such cover would be a critical factor.
Design is a function of the type of jewellery being
produced and the market sector into which the
jewellery is to be sold...
4.2.8 Design considerations and product ranges
Design is a function of the type of jewellery being produced and the market sector
into which the jewellery is to be sold.
With respect to the mass-produced product lines (chain as well as cast product),
international jewellery trends drive the product ranges. Decisions with respect to a
season’s or year’s product line are an interactive process between the manufacturer
and the retailer customer.
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Jewellery manufacturers attend major international jewellery fairs as well as the
local Jewellex Jewellery Fair, or access international trade magazines for the latest
designs and ideas.
The manufacturers compile a range of product designs and their retailer clients then
select the range that they believe is most likely to appeal to the market niche that
they serve. Large retailers also travel to jewellery fairs with their main
manufacturing suppliers to identify product ranges.
The manufacturers compile a range of product
designs and their retailer clients then select the
range that they believe is most likely to appeal to
the market niche that they serve...
It is common for South African consumers to buy locally fabricated jewellery that is
indistinguishable (in design) from product sold in Western markets elsewhere. In
both design and caratage, the South African mass market is similar to that of the
United Kingdom. This is particularly true of mass-produced chain, bangles, bracelets
and earrings.
In other instances however, distinctly South African preferences are apparent.
Examples of this exist in the product category of zirconia combined with semiprecious
stone dress rings set in 9 carat yellow gold, which are popular throughout
the country. Although they do not have a particularly ethnic design to them, they
are distinctive enough to be recognisable as typically bought and preferred by
South Africans.
According to our categories of manufacturers, the breakdown by type of product
sold is shown in the following table.
Product lines (%) Micro Small Medium Large
Rings 46 40 33 3
Solid bangles 20 22 20 14
Chain (neck and bracelets) 8 6 14 74
Other, including earrings
and pendants 26 32 34 9
Data source: Interviews.
Note: Solid bangles referred to here are non-chain or non-linked bracelets.
The micro and small manufacturers specialise in rings, earrings, pendants and nonchain
bangles. These product ranges contain very little chain and any linked
necklaces and bracelets are hand made.
The medium-sized manufacturers interviewed noted that rings dominated their
product line (33%) with other non-chain items (earrings, pendants and bangles)
representing another 54%. Again, linked chain represents a relatively small
proportion of their product line and is hand-made.
On a weighted average basis by mass, mechanised chain manufacture represents
74% of the output of the three large companies.
On a weighted average basis for the entire industry, the predominance of chain by
mass falls to 56% as shown in the chart overleaf.
On a weighted average basis by mass, mechanised
chain manufacture represents 74% of the output of
the three large companies...
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Overall, South African consumer preferences exhibit the following characteristics.
• South Africans still prefer yellow gold to white gold. This is even true of the
diamond engagement ring sector, although according to the manufacturers,
white metals are beginning to gain market share.
• The market remains predominantly 9 carat (95% of volume), usually with a
high gloss as opposed to matt finish.
• Chain in styles similar to those seen in Europe is very popular.
• Dress rings are particularly popular, and are marketed successfully not only in
large retail stores but also in pharmacies across the country.
• Stud and sleeper earrings remain popular but more flamboyant hoops are
gaining ground. Creole earrings are a firm favourite.
For hand-made items, and items with a high stone content, manufacturers are less
likely to be influenced by international product ranges. In these instances, the
design is geared more to the preferences of the client. Thus the retailer, or the
ultimate customer, is likely to have considerable input especially where a product
range, or more particularly an individual item, is commissioned.
For hand-made items, and items with a high stone
content, manufacturers are less likely to be
influenced by international product ranges...
Where product is geared to the tourist, two distinct
product ranges were detected...
For jewellery destined for export, design falls into two categories, either jewellery
for direct export or jewellery destined for indirect export via the tourist. The export
market is dominated by mass-produced, lighter ranges of jewellery where price is
the decisive factor for the retailer. The output is very similar, if not identical, to
those ranges produced by competing international fabricators. In these instances,
international jewellery trends dictate design. In this category, the research did not
reveal a uniquely South African product range.
Where product is geared to the tourist, two distinct product ranges were detected:
• the first, up-market 14 carat to 18 carat gem-set jewellery, is discussed in more
detail in the retail section of this chapter; and
• the second, serving tourists with lower budgets, focuses on designs that have a
distinct African bias, and are very often complemented with materials
associated with Africa such as local stones, beads, bone or elephant hair.
The ‘big five’ and the outline of the African continent are examples of motifs
that often feature in this product range.
4.2.9 Trade bodies, initiatives and publications
The Diamond and Jewellery Federation
The Jewellery Council of South Africa (JCSA) has recently been restructured and
incorporated under a new umbrella organisation, the Diamond and Jewellery
Federation. 10
The Jewellery Council will represent the following jewellery associations:
• The Jewellery Association of South Africa (JASA) which represents jewellery
retailers;
• Jewellery Manufacturers Association (JMA);
• The Jewellery Council members; and
• The Cape Jewellery Manufacturers Association (CMJA) 11 .
Another affiliate, the Jewellery and Watch Distributors Association (JAWDA) was
recently merged into the main membership of the Council.
The subscription rates for the JCSA and its affiliates are as follows:
• jewellery wholesalers pay a once-off entrance fee of R410 to the Council and an
annual subscription of R660;
• retail jewellers pay a once-off fee of R760. They then pay an annual
membership subscription fee of R840 for their main retail store and R600 for
any other store they wish to link to the membership (R1,490 per annum for
main retail store and one linked store); and
• jewellery manufacturers who have 10 or more employees pay R400 as a
once-off fee and R1,600 subscription membership per annum. Jewellery
manufacturers with between five and nine employees pay R900 membership
per annum and those with fewer than five employees pay R700 per annum.
10
There are also three affiliate associations which serve specifically the diamond industry namely the Rough Diamond Dealers
Association (RDDA), Master Diamond Cutters Association (MDCA) and Diamond Dealers Club of South Africa (DDCSA).
11
At the time of writing, the CJMA and JMA were in discussions regarding a possible merger.
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The JCSA currently has 170 direct members, representing companies that are not
members of any of the JCSA affiliated organisations. These include watch makers,
diamond dealers, jewellery retailers and secondary refiners.
The Jewellery Manufacturers Association has 74 members and the Cape Jewellery
Manufacturers Association has 25 members. The Jewellery Association of South
Africa, which represents the retailers, has 245 members including the head offices
of the major chain stores and 618 individual branches of the large retail stores.
When compared with the number of valid jewellery permits held by manufacturers
in 2004, only 3.5% of jewellery fabricators are members of the JCSA and its
affiliates. However, in terms of the volume of gold usage, the JCSA is well
represented by the large and medium-sized manufacturers. Of the 18
manufacturers interviewed, 17 were either direct members of the JCSA or members
of the Council’s affiliates.
In addition to representatives from the various constituent bodies, six major entities
serve on the Council executive. These are AngloGold Ashanti, Anglo Platinum, the
Chamber of Mines, De Beers, Harmony and Mintek.
The primary objectives of the JCSA are to:
• promote and protect the interests of itself and its members;
• encourage co-operation between members;
• promote or react appropriately to any legislative measures that might affect the
industry;
• promote high business standards in the industry;
• protect the jewellery consumer;
• encourage fair trade;
• disseminate information to members;
• act as a mediator and arbitrator; and
• market itself, its members and the industry, especially South African branded
jewellery.
On an international level, the JCSA is a member of the International Confederation
of Jewellery, Silverware, Diamonds, Pearls and Stones (CIBJO) which automatically
allows members to participate in the promotional activities of associated
international organisations presented by 35 countries.
Interviews with JCSA office bearers indicated that the secretarial and administrative
functions needed to meet the Council’s primary objectives, and undertaking
programmed objectives, took up at least 80% of the staff’s time. Membership issues
and marketing together account for 10-20% of the JCSA’s time.
Arbitration, while an important service offered by the JCSA, does not consume
much of the office bearers’ time. On average they are called on to mediate about
five to six times annually, with cases dealing with issues of payment being more
common than those related to quality concerns. The arbitration rate is low as the
JCSA will only moderate in cases where members are involved. Where cases arise
involving members of the public against non-JCSA members, the JCSA will not
arbitrate.
Jewellex, the annual local trade fair, dominates the JCSA’s annual promotional
efforts. Held in July each year, usually at the Sandton Convention Centre, the fair is
open to jewellery manufacturers as well as to watch and clock makers, and
wholesalers of jewellery equipment and accessories. Although open to international
trade, Jewellex exhibitors are mainly from South Africa and other SADC countries.
Membership subscriptions cover the costs of running the JCSA. Any profit derived
from other areas of business, such as the Jewellex trade fair or the diamond
laboratories, is applied to marketing drives and other activities designed to meet
the organisation’s objectives.
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In response to recommendations made by the consultancy group Kaiser Associates,
in their report to the Jewellery Sector Counterpart Group dated 26 June 2001 12 the
JCSA initiated the Support Services Group (SSG). It was launched in September
2002 after the JCSA secured special funding from the Fund for Research into
Industrial Development Growth and Equity. 13
The SSG initially considered the Kaiser Associates recommendation which included
the provision of a centralised service to the jewellery industry, addressing, among
other issues, materials financing, VAT and dollar-denominated accounts, small
business support, branding and training. After two years in operation, the SSG was
renamed the Jewellery Development Group, concentrating on facilitating South
African jewellery exports and on securing and expanding export markets for local
jewellery product. At the time of writing, it had been merged into the Jewellery
Manufacturing Association, which is continuing with these activities.
There were divergent views with respect to the
effectiveness of the JCSA...
The Gold Zone is an initiative aimed at encouraging
gold beneficiation in South Africa through a secure
and appropriately serviced site for modern
industrialised jewellery manufacturing...
There were divergent views with respect to the effectiveness of the JCSA. Some
manufacturers claim that it has failed to deliver results that are meaningful,
particularly to their sector. Others maintain that it is doing the best job possible
within the constraints of its budget. There was also the concern that the majority of
the manufacturing sector, through non-membership, was failing to support the JCSA
and were criticising it in the absence of participation and constructive
recommendations or proactive suggestions. Office bearers and several active
members noted that there is a core of jewellery manufacturers and retailers who
are actively involved in the JCSA and its activities, and that industry support for a
trade body of this nature was always left to a willing few who then came in for
criticism from those unwilling to make the effort to participate.
The Gold Zone
The Gold Zone is an initiative aimed at encouraging gold beneficiation in South
Africa through a secure and appropriately serviced site for modern industrialised
jewellery manufacturing. Rand Refinery and a property developer appointed by
Rand Refinery, Keenland Properties 125 (Pty) Ltd, established the Gold Zone.
Rand Refinery donated land (3.3 hectares) adjacent to its premises for the
development of the Gold Zone, which was officially opened on 6 October 2000 by
the then Minister of Trade and Industry, Alec Erwin.
The objectives of the Gold Zone are to:
• create and develop a cost-competitive gold jewellery manufacturing zone where
South African gold can be beneficiated on an internationally competitive basis
for export;
• provide skills development and training in manufacturing and design, and to
provide a direct interface with the jewellery manufacturers based at the Gold
Zone;
• establish the Gold Zone as a recognised entity through which international
marketing campaigns can be implemented; and
• facilitate the direct marketing of locally manufactured gold jewellery by creating
a gold tourism and retail jewellery destination at Rand Refinery.
The Gold Zone is intended to provide:
• direct and secure access to gold in the various forms required by manufacturing
jewellers via Rand Refinery;
• low rentals and service costs;
• joint marketing; and
• financing and export facilities.
The Gold Zone is situated immediately adjacent to
the Rand Refinery with direct access to export
facilities associated with Johannesburg International
Airport...
The Gold Zone is situated immediately adjacent to the Rand Refinery with direct
access to export facilities associated with Johannesburg International Airport.
Located in Germiston, it is 15km from the Johannesburg central business district
and 20km from Johannesburg International Airport. The Zone consists of dedicated,
purpose-built buildings in an enclosed security area.
12
Kaiser Associates Economic Development Practice.
13
FRIDGE is a NEDLAC (National Economic Development and Labour Council) initiative.
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Tenants of the Gold Zone are offered the benefits of Rand Refinery’s secure
industrial and transport infrastructure in Germiston and the Refinery’s high-security
vaults at Johannesburg International Airport. Tenants’ export products can be
transported to the vault facility on the ‘airside’ at the airport and this enables the
South African Revenue Services to keep track of the value and volumes of export
products.
Manufacturing on site began in February 2002 but to date has attracted only one
tenant (one of the largest manufacturers) and has yet to meet its objectives.
Regarding the aim of creating a jewellery-orientated tourist destination,
manufacturers interviewed expressed doubt about this on the basis that the Gold
Zone is geographically isolated from other tourist destinations. Furthermore,
manufacturers were concerned that relocating to the Gold Zone in Germiston
would remove them geographically from their local client base.
Manufacturers also expressed concern that being located in the Gold Zone would
limit their ability to source their gold from suppliers other than Rand Refinery.
Industry publications
SA Jewellery News
SA Jewellery News is the official mouthpiece of the JCSA. It has been published
monthly for the last 70 years and belongs to the Jewellery Trade Magazines
Network. The circulation is 10,000 copies monthly to the trade and subscriptions
cost R144 per annum.
Distribution is by mass mail-out to subscribers monthly by Isikhova Publishers and
the publication is fully funded by the JCSA.
Manufacturers expressed concern that if they were
located in the Gold Zone, it would limit their ability
to source their gold from suppliers other than Rand
Refinery...
Quotable quotes:
“My local clients are my bread and butter and are
based in the northern suburbs of Johannesburg.
My tourist sales are seasonal and highly variable as
they are dependent on the currency. If I move to
the Zone, I fear that I will lose my local clients.”
Manufacturing jeweller
Jewellers Network
Jewellers Network is a jewellery trade publication directed at the manufacturing
sector. Published independently, it comprises an annual directory and monthly
magazine. These publications are funded by advertising and cover fees.
In preparing the directory, the company maintains a database covering in excess of
3,000 businesses associated with the jewellery industry, including manufacturers,
retailers and suppliers of all equipment, hardware, raw materials and accessories.
The directory is printed annually in hard copy and is published in Johannesburg at
the end of January. Those companies appearing in the directory are not charged for
either their directory listing or for copies of the annual publication. For those
readers not appearing in the directory, a charge of R144 per copy is charged.
Jeweller’s Network also publishes a monthly magazine, JewelTrader, which is
distributed free of charge to those in the trade who are listed in the annual
directory. The content focuses on the trade and the buying and selling of jewellery
services in the local industry. The company also offers a direct mail service through
which clients can mail their own promotional materials using the Jewellers Network
database at rates agreed with Jewellers Network.
In 2003, Jewellers Network launched a debut retail exhibition in South Africa,
‘Jewels for Less’, which was held at Vodaworld in Midrand.
4.3 JEWELLERY RETAILING
4.3.1 Size, structure, ownership and vertical integration
According to the Department of Trade and Industry (DTI), local retail sales of
jewellery during 2003 totalled R2.4 billion 14 , equivalent to 1% of total retail sales.
Ranked by percentage share, this is shown below.
14
This will be the last year of data publication. See later for discussion.
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Tariff code 2003 Share
Rand (000) (%)
According to the Department of Trade and Industry
(DTI), local retail sales of jewellery during 2003
totalled R2.4 billion, equivalent to 1% of total retail
sales...
Perishable/ processed food 7,285 31.0
Inedible groceries 14,462 6.2
Alcoholic and non-alcoholic beverages 10,785 4.6
Footwear 9,250 3.9
Men's and boys’ clothing and accessories 13,547 5.8
Ladies', girls' and infants’ clothing
and accessories 22,784 9.7
Textiles 4,884 2.1
Household furniture 12,646 5.4
Domestic appliances 6,306 2.7
Audio appliances 2,444 1.0
TV sets, videos etc 2,568 1.1
Other domestic furnishings 2,830 1.1
Glass, crockery, cutlery, kitchenware 6,244 2.7
Pharmaceuticals, medicines,
cosmetics and toiletries 19,612 8.3
Books, magazines and newspapers 4,486 1.9
Sport and recreation requisites 7,502 3.2
Jewellery, silverware, watches and
precious stones 2,394 1.0
Hardware 9,351 4.0
All other merchandise 9,979 4.2
Total 234,923 100.0
Data source: STATS SA, 2003.
According to STATS SA there are two sets of statistics, sales by type of business and
sales category by type of merchandise. The category 'Jewellers' in the first set
covers only specific jewellery retailers and totalled R1.625bn in 2003. This excludes
jewellery counters sited within larger retail stores selling a range of other consumer
products. The second category, 'Jewellery, silverware, watches and precious stones'
covers all jewellery sales and thus includes the discount stores and general
department stores that sell jewellery as well as those retailers that sell jewellery
exclusively 15 .
Two points need to be made about this data:
• first, this category of retail sales includes fine gold jewellery, watches, silverware,
platinum jewellery and stones. The way that it is presented does not allow for
the distinction between pure gold jewellery plus predominantly gold jewellery
(with set stones) as distinct from the other categories of non-gold jewellery or
watches; and
• second, STATS SA has recognised weaknesses in the data to the extent that it
no longer collates or publishes these statistics, and 2003 is the last year for
which data is available.
STATS SA concerns included:
• the accuracy of large enterprise data. Although some large retailers did give an
accurate breakdown, others reported categories as unchanging in percentage
each year which raised doubts as to their accuracy;
• the accuracy of small and medium enterprise data as the sample coverage was
low; and
• the response rate to surveys. STATS SA reported that, by including large
questionnaires with such frequency (monthly), their response rate fell to levels
of reduced statistical significance.
15
The jewellery figures quoted in the accompanying table refer to the second set of statistics that include all jewellery sales
(gold, silver, platinum watches, pearls and so on) in all stores including discount stores.
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After taking advice from consultants, STATS SA elected to cease collating this data
and no alternative is being considered.
While recognising STATS SA’s concern about the data, it has been used in this
review since no other source of national sales figures for jewellery exists.
Furthermore, to incorporate as much of the sales as possible, the second category
of data which includes non-gold jewellery such as watches, pearls, silver, platinum
and stones was used. We were then left with the task of determining what
proportion of total sales represented gold-only jewellery.
On the basis of gold jewellery fabrication, the import figures used in this review and
findings with respect to mark-ups along the jewellery manufacturing chain, it is
estimated that 58% of total jewellery retail sales in 2003 applied to gold-only
product.
In both value and volume terms, the local jewellery sector is characterised by a high
level of consolidation with 13 large retail chains owned by nine companies 16
dominating sales and accounting for 77% of the total value of jewellery sales over
the last three years (2002-2004 inclusive). 17
An analysis of ultimate ownership of these retail names shows that the jewellery
retail sector is even more consolidated than is suggested by these 13 companies.
It is estimated that 64% of total jewellery retail sales annually in the country
originate from stores that belong to six retail groups.
Quotable quotes:
“South Africans really like their yellow gold – white
metals just do not seem to feature locally as
predominantly as elsewhere in the world. Platinum
has a following among the super-rich and, more
recently, has captured some of the
wedding/engagement ring sector. Silver is flea market
stuff - dispensable. Gold falls between the two.”
Buyer for a major retail store
In both value and volume terms, the local jewellery
retail sector is characterised by a high level of
consolidation with 13 large retail companies
dominating sales and accounting for 77% of the
total value of jewellery sales over the last three
years...
Of the list of large retail stores, one is conspicuous by its absence. Woolworths does
not offer jewellery of any description (fine gold, silver or stones), having recently
eliminated the range from its product line. Discussions with the company indicated
that it is store policy that all merchandise must be available for purchase off-thepeg
(that is customers are self-serving up until the cash point stage). The only
exception the company has made with respect to this policy is the dedicated and
serviced counter selling mobile telephones.
4.3.2 Distribution networks
An analysis of the collective extent of the distribution network of the 13 main retail
chains offering fine gold jewellery revealed 951 shops and branches across South
Africa selling gold jewellery. Only stores that offer gold jewellery were included in
this figure. Stock held and sold by retailers differed regionally, and there are a
number of branches of these retail chains that do not offer gold jewellery.
An analysis of the collective extent of the
distribution network of the 13 main retail chains
offering fine gold jewellery revealed 951 shops and
branches across South Africa selling gold jewellery...
The results of this analysis by company are presented in the table that follows. The
Foschini group (including American Swiss and Sterns) dominates, accounting for
40% of the retail stores offering jewellery around the country. Truworths accounts
for almost 23%. The two corporate groups between them accordingly account for
almost two thirds of all jewellery retail outlets in South Africa. 18
16
Both Sterns and American Swiss belong to the Foschini Group. Game, Dions and Makro belong to Mass Discounters. The
Tourvest group owns five retail jewellery outlets namely Forma Viva, Tanur, Pinns, Murdock and Diamond Works.
17
See later for estimates of marker shares.
18
See later for analysis of market shares by turnover
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Number of jewellery retail stores by company
Retailer Stores %
Truworths 214 22.5
American Swiss 169 17.8
Edgars 109 11.5
Sterns 109 11.5
Foschini 103 10.8
Galaxy 90 9.5
Game/Dions 61 6.4
NWJ 44 4.6
Arthur Kaplan 18 1.9
Makro 13 1.4
Browns 12 1.3
Tourvest Grp 9 0.9
Total 951 100
Data Source: Virtual Metals.
On a regional basis the distribution of these retail stores is as follows:
Regional distribution of major jewellery retailers
Number %
Gauteng 292 30.7
Western Cape 227 23.9
KwaZulu-Natal 130 13.7
North West 86 9.0
Eastern Cape 62 6.5
Free State 57 6.0
Mpumalanga 48 5.0
Northern Cape 34 3.6
Limpopo 15 1.6
Total 951 100.0
Data source: Virtual Metals.
Research among the jewellery manufacturers shows
that the jewellery retailers diverged in their business
models. This is reflected in different product ranges,
suppliers, customer bases, inventory management
and mark-ups...
Research among the jewellery manufacturers shows that the jewellery retailers
diverged in their business models. This is reflected in different product ranges,
suppliers, customer bases, inventory management and mark-ups.
Examples of the various business models follow.
• Game, Dions and Makro are mass retailer discount stores, offering a range of
consumer goods at highly competitive prices. Within these stores, the companies
have jewellery counters selling lightweight and mass-produced gold jewellery at
prices that discount other retailers. The value of their gold jewellery sales is a
small percentage of total store turnover (just less than 5%) 19 . They stock core
product lines which they know sell well and their jewellery stock turnover rate is
higher than that of traditional jewellery retailers. Price is the most important
factor in the minds of their customers and the companies are considered the first
point of entry for jewellery buyers. Throughout the discussion and comparisons
that follow, they are referred to as ‘discount stores’.
• Truworths, Foschini and Edgars offer jewellery counters in stores that sell a
range of clothing, cosmetics, fashion accessories and soft furnishing. Prices are
geared to a more upmarket client base than the discount stores and the
jewellery range and the prices reflect the different client base. The jewellery
sales still account for only a fraction 20 of turnover and the jewellery is not
considered core to the companies’ businesses. These stores are referred to as
‘retail chains’.
19
White goods such as fridges, washing machines and cookers and electronic equipment such as TVs, videos and DVDs top
the list of sales.
20
It was not possible to confirm the exact figure but interviewees indicated that this was substantially less than 10%.
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• Sterns, American Swiss, Arthur Kaplan and Browns are categorised as ‘dedicated
local jewellery retailers’. Their product ranges are exclusively jewellery and
watches and their customer base is predominantly local (at least 80%) with the
balance being tourists. Their target markets are the middle to higher end of the
range and their pricing is structured accordingly.
• Galaxy and NWJ are also ‘dedicated local jewellery retailers’ but both also
exhibit unique characteristics that differ from the companies described above.
– Galaxy is not only a retailer with 90 stores around the country, it is also a
manufacturer, featuring in the medium-sized category of fabricators, and a
wholesaler to the local jewellery industry of final product. Galaxy therefore is
the largest most vertically integrated jeweller in the country.
– NWJ is also a medium-sized manufacturer. The unique feature of this
company is that it has franchised its retail outlets throughout the country. The
franchises run independently but provide a guaranteed destination for NWJ’s
manufactured output. Thus NWJ also shows high levels of vertical integration.
• Tourvest which operates the retailers Forma Viva, Pinns, Murdock, Tanur and
Diamond Works is designated as a ‘dedicated tourist retailer’. Only 20% of their
sales are to local customers and their product line is geared specifically to
tourists in South Africa.
• Finally, this section must make reference to ‘single-outlet retailers’ that run their
independent businesses usually in the main shopping malls 21 . (South African
retail shopping is characterised by centralised shopping malls rather than main
street or high street shopping.) These jewellers also invariably call themselves
manufacturers although they are more involved with jewellery repairs rather
than jewellery manufacturing. Thus, their shops double as a retail store and
basic repair workshop. To avoid double counting., they are included in the
discussion on manufacturing. Calculations, however, suggest that they account
for 27% of the value of total annual retail sales of jewellery in South Africa and,
therefore, the review refers to them where their presence is pertinent to the
analysis.
The cumulative market share of the independent single outlet retailers was inferred
from the estimated market share of the 13 large retailer chains. This involved
detailed discussions with office bearers representing 10 of the major retail stores
and an analysis of these companies’ financial results. The results for 2004 are
tabulated as follows:
Estimated retail market shares by category in 2004
%
Dedicated local jewellery retailers 42.9
Single outlet retailers 27.1
Discount stores 15.6
Dedicated tourist retailers 10.0
Retail chains 4.4
Total 100.0
Data Source: Virtual Metals.
Data collation, analysis and comparisons of the local jewellery retailing sector
proved more difficult than was the case in respect of jewellery manufacturing. There
were a number of reasons for this.
• Firstly, the sector is intensely competitive with respect to market shares and
market niches. As a result, the sector was less forthcoming in providing the
statistical basis needed for a full sectoral comparison. The degree of
consolidation in the sector compounded this reticence.
21
While we have defined these retailers as single-outlet companies, we acknowledge that there are some entities that have
two or more shops. They tend however to be few and far between relative to the one-shop retailer.
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• Secondly, where a retail jewellery company was part of a larger commercial
entity, the pertinent jewellery sales data was very often collated by the
company for the larger entity and the statistics specific to the jewellery
component of the overall business were not always available. As an example,
the discount stores could confirm how many staff were involved with jewellery
buying and the counter sales of jewellery in their stores. However, they could
not confirm the number of staff involved with jewellery inventory management,
security, accounting, marketing or advertising since these people fulfilled
functions at a corporate level for a wide range of products and not just
specifically for jewellery. The costs of these services, therefore, were accounted
for at head office level.
4.3.3 Employment profiles, education and skills
On a weighted average basis by sales of the major retail stores, an analysis of
employment profiles and the level of education and skills in the sector showed the
following.
On a gender basis, the weighted average suggests a ratio of employment that
strongly favours women in the retail sector at 88:12. This reflects the dominance of
women in the sales teams in individual shops. Men act more as administrators and
serve in accounting, and as buyers for these companies.
Unlike the manufacturing sector, the age profile of the retail workforce did not
represent a normal distribution but favoured the 18-25 age group. Again this reflects a
sales force made up of younger women. The chart on the left demonstrates this.
In respect of racial groups, employment in the retail sector is shawn in the chart on
the left.
Turning to education and skills levels within the jewellery retail sector, the research
showed that in excess of 86% of the staff employed by the large jewellery retail
stores have either a matric or some form of tertiary education. This profile was
similar across the various retail categories as defined in this review.
An analysis of job descriptions in this sector shows that, on a weighted average
basis, sales teams comprise almost half (49%) of the jobs in the retail sector, with
management and administration making up 47%. The technical (eg IT) component
of the staff profile only accounts for 4% as the chart on the next page shows.
Quotable quotes:
“Two days before Christmas we have fraught
looking men coming into our branches, pointing at
something on display and saying “How much is
that, just wrap it please.”
Buyer for a major retail store
4.3.4 Jewellery retail business profiles and retail strategies (including marketing)
Seasonality and marketing
Three events dominate the retail calendar. In order of importance, they are
Christmas (December), St Valentine’s Day (February) and Mothers’ Day (May).
However, retailers do proactively organise other sales-generating events during the
course of a year,.
The busiest times for all the retailers are the last two to four shopping days prior to
Christmas Day when stores will record sales in excess of monthly averages for the
remainder of the year.
Customers over the Christmas period, St Valentine’s Day and Mothers’ Day are
mostly men buying for their wives and partners. At other times of the year, buying
is more frequently a joint decision, with couples coming into the shops together
and the intended recipient of the gift having a substantial say regarding what is to
be purchased. This is particularly the case when higher priced jewellery is being
bought. Women also buy jewellery for themselves, but usually less expensive items.
In addition to the traditional calendar events, retailers hold sales, commonly twice
yearly, aimed at moving stock by discounting prices. Sterns and American Swiss
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hold an annual winter diamond jewellery sale between June and July and their
competitors often pre-empt this event with promotional campaigns of their own in
May. Irrespective of the competition, dedicated local retailers all reported increased
sales over this period.
The only exceptions to these seasonal patterns are those companies, defined as
dedicated tourist retailers, whose customer base is 80% reliant on tourism. Their
sales are seasonal, in that northern hemisphere visitors tend to visit South Africa
during their winter. The tourist season peaks in November/December, but there is
also an influx of tourists during the late South African summer months, mainly
between January and April.
Promotional activity
An analysis of the advertising undertaken by retailers highlighted differences in the
quality and quantity of gold jewellery advertising, and in the amount spent
annually on marketing.
The retail chains spend on average between 3.5% and 5.5% of annual turnover on
marketing. Those interviewed unanimously agreed that this amount ought to be
higher, closer to 6-8% of annual turnover.
The retail chains spend on average between 3.5%
and 5.5% of annual turnover on marketing...
With respect to the mass discount stores, it was not possible to isolate the
marketing spend specific to jewellery. These companies advertise in daily and
weekend newspapers (usually in colour and usually in the form of inserts). Their
jewellery is not advertised independently of the store’s other range of products and
gold jewellery might share a page with white goods and electronic goods for
example. The advertising emphasis is on price discounting.
The retail chain stores also advertise in newspapers. Although the advertisements
are in leaflet/brochure format, they are of a substantially higher quality than those
of the discount stores with good photographic reproductions on glossy paper and in
A5 format. The advertising emphasis is less on price discounts, and more on value
for money. Again, gold jewellery shares advertising space with cosmetics and makeup,
perfumes and soft household furnishings.
Dedicated local jewellery retail stores differentiate their advertising from that of the
retail chain stores with full-colour inserts appearing not only in newspapers, but
also in fashion magazines. These inserts tend to be more substantial in volume,
advertising a wider range of products and photographed in close-up detail. The
marketing emphasis is value for money and luxury spending.
Dedicated local jewellery retail stores differentiate
their advertising from that of the retail chain stores
with full-colour inserts appearing not only in
newspapers, but also in fashion magazines...
The dedicated tourist retailers and the upmarket single outlet retailer target a
totally different market. Their advertising focuses on single pages in full colour
fashion and women’s magazines. They also concentrate marketing spend on tourist
magazines destined for hotel rooms and on local and international airline in-flight
magazines. The retailers that make most use of this promotional route are those
dominant in more expensive diamond- and tanzanite-set jewellery. Less up-market,
single outlet retailers do not appear to do any active marketing, save for brochures
which they distribute via their shops.
Retailers who have attempted to sell their product via the internet reported that
this approach had been particularly unsuccessful.
Customer profiles and product lines
The various categories of retailers address different customer bases and different
buying preferences. The following tables collate average retail prices for a very basic
range of core product and give an indication of the varying customer bases
associated with each category of retailer. Given that jewellery retailers stock
thousands of different items, direct comparisons are not easy. Nevertheless,
comparisons have been made as directly as possible by identifying the average total
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weight of the basic products. For the dedicated local jewellery retailer, the sector
has been further segmented into a high, mid-range and low-end of the product line.
The tables need to be read together with the notes that follow:
Price of Dedicated Discount Retail Average
selected items - tourist stores chains weight
Rand inc VAT retailers in grams
Sleeper earrings Not on offer R29.99-R34 R30-R50 0.2 each
Fine chain R2,000- R199- Up to Up to 5
R5,000 R2,000 R2,000
Other neck chains R10,000 to R700- R2,000- 10 upwards
R25,000 R1,600 R5,000
Bangles R5,000 R199 for R1,200- 5 upwards
upwards 4mm R2,500
R1,399
for 15mm
Rings with diamonds R5-25,000 R299- R1,000- 8 upwards
upwards R799 R2,500 including
stones
Rings with tanzanite R34,000 Not on Not on 10 upwards
to R65,000 offer offer including
stones
Data Source: Virtual Metals.
Quotable quotes:
“We sell 25,000 pairs of Creole earrings a year at
R29.99 per pair.”
Buyer for a major discount store
Dedicated local jewellery retailers
Price of selected Mid-range Low-end High-end Average
items -
weight
Rand inc VAT
in grams
Sleeper earrings R49 R89- R250 0.2 each
upwards R199 and over
Fine chain R399 R349- R1,000 Up to 5
upwards R999 and over
Other neck chains R800 R2,000 R5,000 10 upwards
upwards upwards upwards upwards
Bangles R499- R349- R2,000 5 upwards
R999 R1,200
Rings with diamonds R1,099 to R299- R34,000 - 8 upwards
R5,200 R40,000 R100,000 including
stones
Rings with tanzanite R3,000 - R1,500 - R50,000 - 10 upwards
R10,000 R10,000 R120,000 including
stones
Data Source: Virtual Metals.
Notes:
Fine chain refers to the light chain used to hang pendants. Other neck chains refer to heavier chain with
larger links, worn as jewellery in its own right as opposed to being used to hang pendants.
Bangles refer to non-chain bracelets.
Where diamonds and/or tanzanite are included in products, prices vary vastly, depending on the size and
quality of the stones. In the case of the Discount Stores and the low end of the market Dedicated Local
Retailers ‘diamonds’ refer to cubic zirconia or diamond chips.
Discount stores cater for the first-time buyer and the lower end of the retail
market. Within this customer profile, components of the product range are preferred
by different customers. Chain necklaces with matching bracelets are favoured by
both black men and women. Bangles (non-link) are favoured by white women. Rings
with zirconia find favour with Indian women. Earrings, especially sleepers and
Creole, are favoured by black customers. The entire product range is 9 carat and
almost exclusively yellow gold.
Looking at dedicated local jewellery retailers, there is a close overlap in the
geographical positioning of Sterns and American Swiss retail outlets, largely for
historic reasons. These retailers used to be competitors, until the Foschini Group
bought Sterns in 1993. Since then, Foschini has differentiated between the two in
product lines. American Swiss is geared towards younger, more self-assured buyers
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while Sterns targets a more conservative buyer who welcomes advice and
reassurance from sales staff. Thus, the American Swiss jewellery range is more
influenced by latest fashion trends whereas Sterns’ is more traditional.
Dedicated local jewellery retailers stock a full range of products. As the price tables
showed, there are tiers of dedicated local jewellery retailers each serving a different
profile of customer. Nevertheless, each has a core range of firm favourites that
remain popular such as classic link chains, bangles, cross pendants, solitaire rings,
and hoop, stud and sleeper earrings. 95% of this range is 9 carat. There are some
18 carat items usually associated with diamond settings and engagement rings.
Retailers adapt the latest designs and fashions to the core range. Over time these
have included items such as Russian wedding rings, linked bangles 22 and friendship
rings. New items are added to the stock regularly, usually every three months and
these additions represent an estimated 10% of the core range.
Dedicated tourist retailers target a different market. Located mainly in Cape Town
and Johannesburg, these stores are reliant on visitors to the country. With respect
to this market segment, the strength of the rand influences the level of jewellery
purchases.
Quotable quotes:
“We don’t buy 6,000 pieces of the same item and
shift them over six months. We buy a few items of
a wider range, viewing them more as a fashion that
will move every two to three months.”
Buyer for a dedicated local retailer
Dedicated tourist retailers target a different market
Tourists arrive in South Africa with a predetermined Dollar, Pound or Euro budget.
The value of the Rand against these currencies will then dictate how much visitors
will have available to spend on jewellery and keepsakes after they have paid for
their holiday expenses such as hotel accommodation, meals and car hire. The
stronger the Rand, the less will be spent on jewellery.
Discussions with retailers indicated that tourists regularly anticipate buying a piece
of good quality jewellery during a visit to South Africa. Invariably it is gem-set,
usually with diamonds but more recently tanzanite. Being on holiday, tourists have
the time to shop around and be selective.
‘Tourist retailers’ reported that their jewellery range is not 9 carat but 70% 18
carat, and associated with good quality and sizeable diamonds and tanzanite, and
to a lesser extent other stones. The remaining 30% is 14 carat. These retailers noted
that even visitors from the United Kingdom, who are accustomed to 9 carat gold
jewellery, will opt for 14 carat when on holiday in South Africa. They also reported
that diamond engagement rings feature high in their range.
Retailers in this sector have attempted to brand their companies rather than their
product. They acknowledged that their products lack an obvious and easily
identified brand, and they attempt to ‘brand’ themselves by offering a superior
service, including:
Quotable quotes:
“The tourists visiting our shops don’t necessarily
want something with a strong African design – they
come more for the stones. They want a nice piece
of jewellery, a reminder of their trip that they will
be able to wear back home in the years to come.
We cannot understand the preoccupation with the
African look among promoters and designers.”
Buyer for a retailer specialising in the tourist trade
Retailers in this sector have attempted to brand
their companies rather than their product...
• the finish and quality of the final goods;
• sales expertise and advice;
• after sales service (repairs);
• personalised design work;
• reputation and reliability (especially with respect to stones); and
• packaging associated with the company.
Inventory management and security
Inventory management forms an important part of the retailer’s business as large
volumes of unsold stock represent a financial cost. Since the contents of shop
windows are financed, the unsold stock represents unrealised profits and locked-up
capital. Four options are open to jewellery retailers with respect to unsold items.
They can:
• discount the price until the stock sells; or
• move the stock to other branches around the country; or
• return the stock to the manufacturer; or
• send the stock to a refiner for remelting.
22
Three linked bangles or rings each of a different colour gold: yellow, white and red.
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Our interviews revealed varying policies with respect to inventory management.
Two of the dedicated local jewellery retailers prefer not to return stock to either
refiners or manufacturers, but to continue to discount prices until the items sell.
Depending on the item, these stores will begin discounting the price after six to 12
months of the piece appearing in the show cases.
Dedicated tourist retailers will buy a collection and
display it for three months in their stores...
Quotable quotes:
“Shoplifting is not an issue. The way we show
customers the jewellery does not really give people
a chance to pocket anything. But we have been
held up at gun point.”
Dedicated Local Jewellery Retailer
Dedicated tourist retailers will buy a collection and display it for three months in
their stores. If unsold within that period, the retailers will return the items to the
manufacturer through resale.
Sending material for remelting is the least attractive alternative since they receive
back only the gold content, less the recycling fee, resulting in a financial loss to the
retailer of the original manufacturers’ mark-up, the cost of holding the stock and
the recycling fees.
Whatever the policy towards inventory management among these retailers, they
attach no sentimental value to their stock. This differentiates them from the singleoutlet
independent retailer. A jeweller who is both manufacturer and retailer and, as
a small business, carries a limited number of pieces, is more likely to hold unsold
stock for a period longer than is financially prudent. Having made it themselves,
these retailers seem reluctant to acknowledge that a piece might not be that
popular and appear reluctant to take the decision to cut their losses and send the
item back for recycling of the gold content.
In terms of stock loss, retailers reported that loss as a result of internal theft (theft
by staff as well as shoplifting by customers) was minimal and estimated this at
about 1% of the value of the stock. This is because security is in place. External
theft in the form of armed robbery is more of a threat.
The majority of jewellery retail outlets do not suffer
the same financial and cash flow constraints
identified with jewellery manufacturing...
Financial issues
Given that 64% 23 of total retail jewellery sales in South Africa are generated by
companies that belong to larger corporate groups offering a wide range of
consumer durables, the majority of jewellery retail outlets do not suffer the same
financial and cash flow constraints identified with jewellery manufacturing.
Nevertheless, in the single-outlet, independent retailer, where typically the jeweller
runs a small workshop on the same premises as the retail store, financial constraints
similar to those suffered by the manufacturers apply, namely, lack of access to
affordable funding and recurring cash-flow issues.
Three of the large retailers (other than those such as Galaxy and NWJ where the
business is integrated from manufacturing through to retail), reported that they
financially assist their major manufacturing suppliers. This is done by forwarding to
the manufacturer payment to the value of the gold contained in an order, on
placement of the order, so that the manufacturer can pay in full for their raw
materials. All other costs, including the cost of labour, the manufacturers’ mark-up,
transport and delivery etc, are settled only after delivery of the order.
23
American Swiss, Sterns, Galaxy, Edgars, Foschini, Truworths, Game, Dions and Makro.
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With respect to terms offered by retailers to end-customers for jewellery, the
various categories of retailer showed different business practices.
Retailer Cash Credit Interest Other
Discount facilities charged
(months) per annum
Mass Discount None None None None
Browns 35% 12 15% 4 Month
24 35% lay-bye
American Swiss 10% over R5,000 6 0% None
12 17%
18 17%
Sterns 7% over 6 0% None
R5,000 12 10-14%
18 10-14%
Arthur Kaplan No details given 6 0% None
12 20%
Galaxy 10% over R10,000 6 0% 3 month
12 12.7% lay-bye for
18 12.7% purchases
over R500
Data Source: From retail stores.
Quotable quotes:
“We are always on the lookout for something
different – something with a ‘wow’ factor that will
catch on and become the latest fad. When taking
on a new supplier, we look at a range and then ring
around the industry to check out the manufacturer.
It is a very small world and everyone knows
everyone else.”
Buyer for a discount store
Quotable quotes:
“Our suppliers are very protective of our
relationship with them to the extent that they will
over-carat their alloys rather than make the
mistake of under-carating. We have our stock
assayed on a regular basis.”
Buyer for a discount store
4.3.5 Relationships with suppliers
The vertically integrated jewellery retail companies, Galaxy and NWJ, have close
relationships with their suppliers, being separate businesses within the same
companies. But the discount stores and other dedicated local jewellery retailers also
exhibited a close alliance with suppliers in offering financial assistance by paying
upfront for the gold contained in an order. This relationship also extends to design
work to the extent that large retailers will travel with manufacturers to
international jewellery fairs to jointly look at the latest product ranges.
Discount stores order thousands of pieces of the same item of jewellery. They
cannot rely on the small manufacturer who may not have the capacity to produce
jewellery in this volume. They therefore concentrate on business relationships with
the large and medium-sized manufacturers in the country. They will, however, also
give consideration to smaller orders produced by other manufacturers where the
product line does not offer core designs but rather fashion goods that might sell
quickly.
Dedicated local jewellery retailers carry a core range of many more different pieces
compared with discount stores, and they do not order items in the same quantity.
This allows them to order jewellery from the smaller manufacturers.
Discount stores order thousands of pieces of the
same item of jewellery...
Dedicated local jewellery retailers carry a core
range of many more different pieces compared with
discount stores...
4.3.6 Imports
All the retailers interviewed import jewellery product, both directly and through
wholesalers, particularly where the local industry is not geared to produce the latest
designs. The discount stores noted that they import at peak periods, where the local
industry cannot supply the volumes needed swiftly enough. The two vertically
integrated jewellery companies reported that at an exchange rate of R6 to the
Dollar, they can import goods including the 20% import duty, plus a 2% to 3%
clearing charge for less than they can fabricate comparable items in their own local
workshops.
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Retailers apply their own mark-up to the final
product...
Quotable quotes:
“We don’t lose any money on jewellery. If we offer
‘buy a chain and get a free bracelet’, rest assured
the cost of the bracelet is in our price.”
Buyer for a discount store
The mark-ups applied by dedicated local jewellery
and tourist retailers are high, ranging from 250% to
320%...
Mark-ups and costs
In addition to mark-ups to gold product added by the refiners and manufacturers,
retailers apply their own mark-up to the final product. Variations between
categories occur. All mark-ups cited here include VAT at 14%.
Indicative retail mark-ups in the South African jewellery industry
Indicative Comments
Mark-Ups
Dedicated local jewellery retailers 250% For core products
Up to 350% For specialised
range and
fast sellers
Dedicated tourist retailers 250% For core products
Up to 350% For specialised
range and fast
sellers. Where
diamonds are
included mark-ups
can be higher
Discount stores 20% - 50% For non-core range
100%-150% For core products
Retail chains 250% + For specialised
range and
fast sellers
Data source: Interviews.
The mark-ups applied by dedicated local jewellery and tourist retailers are high,
ranging from 250% to 320%. The 250% mark-up is applied both to core products,
designed to attract customers into the store where they may spend money on
more expensive goods, and to experimental products where the retailer is yet to be
convinced of the ranges’ popularity. If a range then sells well, the retailer will
consider increasing the mark-up to the 320% level. In stores catering for tourists,
mark-ups can exceed 350% if high quality stones, especially diamonds, are
included.
A comparison between mark-ups achieved by the manufacturers and the retailers
reveal a large differential in the retailers’ favour. This, however, does not imply that
the retailer’s profits are proportionately higher. For retailers applying a 300% markup,
the profit margin achieved for very basic 9 carat core product is 70% after costs
of sales are accounted for, as well as cash discounts 24 that might be offered. For the
discount stores that apply mark-ups of 50% to 150% (depending on the product
line) the profit margin is lower, ranging from 6% to 33%.
The cost profiles of the major dedicated local retailers and the retail chains are
shown below:
Cost profiles of the major dedicated retailers and retail chains
%
Inventory 58.0
Labour 14.1
Rent/overheads 7.8
Marketing 4.7
Other 14.8
Total 100.0
Data source: Interviews.
24
See previous table which lists discounts offered ranging from 7% to 35% depending on the store and the ticketed price of
the item.
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As with all analyses, the cost estimates have been made on a weighted average
basis. Our analysis here showed that the cost of purchasing and holding inventory
predominates and represents 58% of the cost profile.
4.3.7 Price exposure and financial risk
All the large retail stores reported that they are exposed to both the Dollar price of
gold and the Rand/Dollar exchange rate. Their exposure to the Dollar-based price of
gold relates to the extent to which they may be importing finished product from
manufacturers abroad. The dedicated tourist retailer is particularly exposed to the
value of the Rand against other currencies as tourists visit with a budget fixed in
their local currency and the amount they have available to spend is then dictated
by the number of Rands that they can buy with their foreign currency.
The cost of purchasing and holding inventory
represents 58% of the cost profile...
All the large retail stores reported that they are
exposed to both the dollar price of gold and the
rand/dollar exchange rate...
None of the retailers interviewed expressed concern about the absence in South
Africa of financial mechanisms to offset their gold price risk. None were aware that
the JSE Limited offers a Krugerrand contract 25 and they were unfamiliar with the
workings of gold futures and options contracts traded by the international
exchanges such as COMEX/Nymex.
Since 64% of the value of total jewellery retail sales is from retail stores that are a
part of larger companies, the costs of running their businesses are funded internally.
To that extent, they are not exposed to interest rates.
Those retailers (both large and independent) that are not part of larger commercial
groups, either have to fund their business from profits generated or to borrow, and
are thus in the same position as the manufacturers with respect to raising
affordable credit. They echoed the concerns voiced by the manufacturers of having
to pay 2-3% above the prime interest rate, as well as having to provide collateral of
up to 120% of the value of the loan.
25
See Chapter 5 for further details of the Krugerrand contract.
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100 GOLD IN SOUTH AFRICA

CHAPTER 5
FINAL PRODUCT: COINS, INDUSTRIAL
END USES AND INVESTMENT
CHAPTER 5
Contents:
5.1 THE SOUTH AFRICAN COIN INDUSTRY 102
5.1.1 The South African Mint Company (Pty) Ltd and Coin World 102
5.1.2 Other mints and coin producers 103
5.1.3 Employment profile of the coin sector 103
5.2 COIN PRODUCTS 104
5.2.1 Krugerrands 104
5.2.2 The Natura coin series 106
5.2.3 The Protea coins 107
5.2.4 The R1 and R2 coin series 107
5.3 DENTAL ALLOYS 108
5.4 ELECTRONICS 110
5.5 INVESTMENT 110
5.5.1 The JSE Limited’s Krugerrand contract 110
5.5.2 ABSA’s NewGold Gold Bullion Debenture 111
5
Photograph courtesy: Rand Refinery Limited
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Apart from jewellery, other end uses of gold in South Africa include coins, dental
alloys and electronic components. In 2004, the fine gold used in these sectors was:
Fine gold usage in South Africa 2004
Non-Jewellery Applications t % of global
fabrication
Coin/medal fabrication 2.93 1.98
Dental alloys 0.04 0.07
Electronics 0.01 0.004
Total 2.98 0.49
Data source: Virtual Metals.
In South Africa, these sectors are small, accounting collectively for 0.87% of South
African gold mine output in 2004 and 0.49% of global consumption in these
sectors.
5.1 THE SOUTH AFRICAN COIN INDUSTRY
In 2004, fabrication of gold coins accounted for
2.93t of fine gold, about 1.96% of total gold
consumed in coin fabrication worldwide...
In 2004, fabrication of gold coins in South Africa accounted for 2.93t of fine gold
representing 1.96% of total gold consumed in international coin and medal
fabrication.
The following tables show coin fabrication and sales in tons of fine gold between
2002 and 2004.
South African coin fabrication 2002 - 2004
Fine gold - t 2002 2003 2004
Krugerrand bullion 0.76 1.81 2.34
Krugerrand proofs 0.22 0.19 0.18
Proteas 0.09 0.02 0.19
Naturas 0.18 0.15 0.18
R1 0.01 0.02 0.01
R2 0.03 0.02 0.03
Medallions 0.00 0.00 0.00
Total 1.29 2.22 2.93
Data source: SA Mint, Universal Mint and Gold Reef City Mint.
South African coin sales 2002 - 2004
Fine gold - t 2002 2003 2004
Krugerrand bullion 0.91 2.18 2.87
Krugerrand proofs 0.19 0.15 0.17
Proteas 0.05 0.01 0.18
Naturas 0.13 0.15 0.18
R1 0.01 0.01 0.01
R2 0.03 0.02 0.02
Medallions 0.00 0.00 0.00
Total 1.33 2.51 3.43
Data source: Rand Refinery, SA Mint, Universal Mint and Gold Reef City Mint.
Note: Annual sales exceed minting due to sales out of inventory. Medallions appear in these tables as zero
fabrication and usage since the gold volumes involved are less than 10kg.
5.1.1 The South African Mint Company (Pty) Ltd and Coin World
The South African Mint Company (Pty) Ltd is a wholly-owned subsidiary of the
South African Reserve Bank (SARB). It was established on 1 September 1988 and in
October 1990 moved from Pretoria to its current location at Gateway in Centurion.
Its main function is to mint coinage under the Reserve Bank Act of 1989. The South
African Mint can produce both legal tender and commemorative gold coins,
although currently all the gold coins issued are legal tender. Decisions with respect
to current and future coin programmes are taken by the Government at Cabinet
level. The SARB requires Cabinet approval for planned coin issues, details of which
are published annually in the Government Gazette. The coins are then struck by the
SA Mint and made available for purchase by the public. The SA Mint currently
102 GOLD IN SOUTH AFRICA

produces several legal tender gold coins, namely Krugerrands, Naturas, Proteas and
the R1 and R2 cultural coin series.
Coin World (a wholly-owned subsidiary of SA Mint) is a retail outlet and museum
on the premises of the South African Mint. All the analysis that follows regarding
the SA Mint relates to the Coin World business of the Mint only, and not the Mint
in its entirety, since the Mint’s main function is to strike and distribute the
country’s legal tender coinage.
CHAPTER 5
FINAL PRODUCT: COINS, INDUSTRIAL END USES AND INVESTMENT
5.1.2 Other mints and coin producers
In addition to the SA Mint, there are two other companies that strike gold coins.
Their products are commemorative medals and medallions and not legal tender
coins. These are the Cape Mint and the Gold Reef City Mint.
In addition to the SA Mint, there are two other
commercial minting facilities operational in South
Africa...
The Cape Mint, located in Cape Town, strikes commemorative gold coins to order
for export. The Cape Mint collaborates with the Universal Mint, a coin sales broker
with no actual production facility, on certain of these export projects. In 2004,
these companies collectively struck coins for the Cook Islands and Uganda to
commemorate various national milestones.
The mark-ups for these issues are not made public but the manufacturing costs
were reported to be R18 per coin irrespective of the coin size. These costs pertain
to gold coins and exclude packing and shipping charges.
Buyers of coins from the Universal Mint and the Cape Mint are required to pay up
front for the purchase of the gold on placement of their order. The terms for the
balance of the payment, including minting, delivery cost etc, are then 30 days after
delivery of the coins.
The Gold Reef City Mint in Johannesburg also strikes gold medals, medallions and
commemorative coins for sale to local purchasers and tourists visiting Gold Reef City.
The company purchases gold grain from Rand Refinery or other secondary refiners.
It produces its own blanks and strikes its own coins and medals. Apart from
marketing its own products, the Gold Reef City Mint also markets Krugerrands.
While the client base for these Krugerrands is mainly local purchasers, tourists
visiting Gold Reef City also buy from this source. The mark-ups applied to the coins
sold to tourists also reflect a commission paid to the tour operators who ensure
that tourists visit the mint.
Interviews conducted with these mints indicated that they are operating at well
under capacity although they declined to indicate their current rates of minting.
Should demand for coin products increase, they would be able to meet orders
through increasing existing capacity utilisation.
5.1.3 Employment profile of the coin sector
An analysis of staffing in the South African coin sector follows. The figures
associated with the SA Mint staff relate directly to Coin World and not to staff
involved with the striking and issuing of monetary coins in circulation.
Coin sector
Staff profile
Number %
Men 40 48.0
Women 42 52.0
Total 82 100.0
Data source: From interviews.
The age profile of the coin sector staff showed a statistically normal distribution.
The demographic make-up shows a predominance of whites and coloureds at 37%
each and blacks at 26%.
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52% of the staff employed in the coin sector have a matriculation certificate
(matric) as a basic qualification and another 19% have education after matric.
Some 29% do not have a matric qualification.
64% of the staff in the coin sector are in manufacturing, specifically in preparing
the blanks, striking the coins and polishing and packing the finished product.
Another 16% are involved in marketing, leaving 7% and 4% involved in the
administrative and technical sides of the business respectively.
5.2 COIN PRODUCTS
Coins manufactured by the South African Mint Company are distributed for sale via
Coin World, Rand Refinery and 10 local dealers throughout the country. According
to the SA Mint, the active local market for gold coins totals 10,000 buyers of which
6,000 are regular purchasers. These buyers are either investors or collectors.
5.2.1 Krugerrands
Krugerrands were first minted on 3 July 1967. They have been produced and sold
locally and internationally every year since. They are legal tender coins of 22 carat
or 916.67 parts per 1,000 gold (the remaining 83.33 parts per 1,000 made up of
copper).
Krugerrands have been produced and sold locally
and internationally since 1967...
Krugerrands were first minted in one size only – one full troy ounce (31.1035
grams) of fine gold. From 1980, three other coins, termed fractionals, were
introduced – the 1/2 ounce, the 1/4 ounce and the 1/10th ounce. Since the launch
of these fractional coins, the original Krugerrand is sometimes referred to as a ‘full’
or ‘one-ounce Kruger’ and within the local and international coin trade the word
‘Kruger’ or ‘Krugerrand’ refers to the original, full-sized ounce coin.
In striking and marketing Krugerrands, the industry differentiates between the
bullion Krugerrand and the proof Krugerrand. While the design of the coins is
identical, there is a difference in quality and price.
The term ‘proof’ is not a grade, but a term applied to particular coins. These coins
have the raised part of their design in a matt or sand-blasted finish while the
background of the coin has a highly polished or mirror finish. The dies used to strike
proofs are usually sand-blasted first and then the area of the die that corresponds
to the coin’s background is polished. Prior to striking proofs, the coin blanks are
specially polished. The blanks are then hand-fed on to the stamping press and after
being double struck (two stampings or strikings of the die to give a perfect finish
with the sharpest image), the proof coins are then sealed in capsules or gift sets
and allocated a certificate of authenticity which states the number of proof coins
struck in that year. For a collector, a proof Krugerrand would be termed
internationally FDC, which stands for ‘fleur de coin’ – a coin with no blemishes and
of the highest quality. In addition to this, the proof Krugerrand has 220 serrations
(raised demarcations along the edge of the coin), compared with 180 serrations on
the bullion Krugerrand.
In contrast, bullion Krugerrands are not double struck and they are sold not in
sealed capsules but in presentation gift boxes.
The coin blanks for Krugerrands are manufactured,
and supplied exclusively by Rand Refinery...
The coin blanks for Krugerrands are manufactured and supplied exclusively by Rand
Refinery and coins are struck to order. The reason for Rand Refinery’s exclusivity is
largely historical since, in the early years of the Krugerrand, it was the only primary
refinery operating in South Africa.
On receipt of the coin blanks, the SA Mint strikes the bullion coins and then sends
them to Rand Refinery or other outlets for distribution and sale. The conversion
charge (the cost of striking the coin from the blank) levied by the SA Mint is R2.60
per coin, irrespective of the size of the coin. The SA Mint strikes and markets its
own proof Krugerrands. Any coin blanks subject to mis-strikes during the minting
process are returned to Rand Refinery for remelt.
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The price of the bullion Krugerrand is linked to the international gold price with a
fixed premium, while proof Krugerrands, including fractionals, are offered in limited
quantities at a price based on a fixed premium that is adjusted on a quarterly basis.
The number of proof Krugerrands minted annually is a Cabinet decision; however,
the total number of Krugerrands issued (both proof and bullion) is limited to a
maximum of 500,000oz of fine gold per annum.
The price of the bullion Krugerrand is linked to the
gold price...
Krugerrand specifications are as follows:
Krugerrand specifications
Face value Mass Gold content Gold
Rand g parts per content
thousand
g
1 oz 10 33.9305 917 31.104
1/2 oz 5 16.9653 917 15.552
1/4 oz 2.5 8.4826 917 7.776
1/10 oz 1 3.3931 917 3.11
Serrations Min diam Max diam Min thick Max thick
mm mm mm mm
1 oz 180 32.61 32.77 2.74 2.84
1/2 oz 150 26.93 27.07 2.12 2.22
1/4 oz 140 21.94 22.06 1.79 1.89
1/10 oz 115 16.45 16.55 1.25 1.35
Data source: SA Mint, www.taxfreegold.co.uk and www.24carat.co.uk.
The mark-ups on bullion Krugerrands over the value of the contained gold are as
follows:
Krugerrand mark-ups %
1 oz coin 3
1/2 oz coin 5
1/4 oz coin 7
1/10 oz coin 9
Data source: SA Mint.
In June 2005, the mark-up on a proof Krugerrand was calculated at 42% above the
gold price.
The level of these mark-ups far exceeds the level of mark-ups on gold bars, and gold
coins are not a cost-efficient means of retail investment in gold, but therefore tend
instead to be purchased as commemorative gifts or by collectors.
The fractional coins have never been as popular as the full ounce coins and are
usually purchased on a one-off basis with many of them destined to be set in
jewellery, normally pendants. Krugerrands are also sold in full sets, containing one of
each size coin. The ratio of full ounce Krugerrands to fractional coins (both bullion
and proof coins) in terms of the number of coins minted is tabulated below.
Krugerrands - fractional ratios - %
Number of bullion coins struck
2002 2003 2004
1 oz 41.6 62.3 100.0
1/2 oz 0.0 16.1 0.0
1/4 oz 27.1 1.7 0.0
1/10 oz 31.2 19.9 0.0
Total 100.0 100.0 100.0
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FINAL PRODUCT: COINS, INDUSTRIAL END USES AND INVESTMENT
Krugerrands - fractional ratios - %
Number of proof coins struck
2002 2003 2004
1 oz 31.0 26.2 25.5
1/2 oz 25.1 19.1 17.8
1/4 oz 19.0 26.0 30.2
1/10 oz 25.0 28.6 26.5
Total 100.0 100.0 100.0
Data source: Calculated from SA Mint.
Sales of Krugerrands are split equally between local
buyers and those destined for export...
According to the SA Mint, sales of Krugerrands are currently split equally between
local buyers and those coins destined for export. This ratio is affected by two
factors, namely the international gold price and the Rand/Dollar exchange rate. The
performance of the Rand against the Dollar affects investment decisions on the
part of local buyers. The international gold price affects offshore investors’ buying
decisions.
When the Krugerrand was first introduced in 1967, it was the first bullion legal
tender coin of its kind. It was the leading gold coin sold worldwide at the time that
gold coins were the principal medium for retail investment in gold. Peak sales of
187t occurred in 1978, but falling retail interest in gold and progressive sanctions
imposed on South African goods saw Krugerrand sales decline.
Between 2002 and 2004, sales of Krugerrands again increased off a low base at a
rate of 45% per annum. Sales of the US Eagle bullion coin 1 showed similar but not
quite as strong growth, at 30% per annum. Buoyant international gold prices and
heightened interest in gold as an investment throughout this period appear to have
encouraged greater interest in these coins.
The SA Mint holds inventory of Krugerrands for up to one year. After this, the
unsold coins are remelted at the SA Mint and restruck into new coins with the
current date. They are not returned to Rand Refinery. Rand Refinery also holds
inventory of Krugerrands and hence the Refinery’s reported sales of coins can be in
excess of the reported levels of coin minted in any one year.
Under the Reserve Bank Act of 1989, the South African Reserve Bank is obliged to
buy back Krugerrands from the general public. These coins are not resold but are
either taken back into the country’s gold reserves 2 or are sent back to Rand Refinery
for remelt. By law, members of the public can return unwanted coins to any branch
of the South African Reserve Bank. In practice, this rarely happens since the holder
of the coin would receive only the fine gold Rand value of the coin and would lose
the premium initially paid for the coins.
5.2.2 The Natura coin series
The Natura gold coin series was launched in 1994 as South Africa’s first 24 carat
gold coin. Three series have been issued since: the Big Five from 1994-1998, the
Monarchs of Africa from 1999-2001 and, in 2002, the Wild Cats of Africa. The
details are as follows.
Big Five
1994 Lion
1995 Rhinoceros
1996 Elephant
1997 Buffalo
1998 Leopard
Monarchs of Africa
1999 Kudu
2000 Sable
2001 Oryx
Wild Cats
2002 Cheetah
2003 Lion
2004 Caracal
1
Directly comparable, as the Eagle is also 22 carat.
2
See Chapter 6 for further details covering South Africa’s gold reserves.
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FINAL PRODUCT: COINS, INDUSTRIAL END USES AND INVESTMENT
Natura coin specifications
Face value Diam Mass Metal content
R mm g parts per thousand
1 oz 100 32.69 31.107 999.9
1/2 oz 50 27.00 15.553 999.9
1/4 oz 20 22.00 7.777 999.9
1/10 oz 10 1.50 3.110 999.9
Data Source: SA Mint.
5.2.3 The Protea coins
The Protea gold coin series was launched in 1986 and was initially struck in 22
carat gold. Since 1998, however, the series has been struck in 24 carat. In the years
1987, 1989 and 1990 no Protea coins were issued.
The details of the Protea issues are as follows:
1986 Centenary of the Gold Rush
1988 500th Anniversary of Bartholomew Diaz’s
Circumnavigation of the Cape of Good Hope
1989 300th Anniversary of the Landing of the Huguenots
1990 150th Anniversary of the Great Trek
1991 Tribute to 100 years of SA Nursing
1992 Centenary of Minting in SA
1993 200 Years of Banking in SA
1994 Centenary of Nature Conservation in SA
1995 Centenary of Railway Links
1996 The New Constitution
1997 South African Women
1998 Year of the Child
1999 The Mining Industry in SA
2000 The Wine Industry in SA
2001 The Tourist Industry in SA
2002 Soccer and World Summit
2003 Cricket
2004 10 Years of Democracy
Protea coin specifications (24 carat coin)
Face Value Diam Mass Metal content
R mm g parts per thousand
1 oz 25 32.69 31.107 999.9
1/10 oz 50 16.50 3.11 999.9
R1 Silver 1 32.70 15 Ag 925
Data source: SA Mint.
5.2.4 The R1 and R2 coin series
The R1 gold coin was introduced in 1997 as a legal tender 24 carat proof quality
coin. The coin depicts cultural diversity in South Africa as follows:
1997 Heart transplant (30th anniversary)
1998 The San – the Lost People
1999 The Zulu culture
2000 The Xhosa culture
2001 The North and South Sotho cultures
2002 The Tswana culture
2003 The Tsonga culture
2004 The Venda culture
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R1 coin specifications
Face Value Diam Mass Metal content
R mm g parts per thousand
1/10 oz 1 16.50 3.11 999.9
Data source: SA Mint.
The R2 gold coin was also introduced in 1997 as a legal tender 24 carat proof
quality coin. The themes since then have been as follows:
1997 Mrs Ples – Almost Human
1998 Coelacanth – The Living Fossil
1999 Thrinaxodon – The Mammal-like Reptile
2000 Little Foot – Most complete skeleton found
2001 Gondwana – Continental drift
2002 Robben Island
2003 Greater St Lucia Wetland Park
2004 Ukhahlamba-Drakensberg Park
R2 Coin Specifications
Face value Diam Mass Metal content
R mm g parts per thousand
1/4 oz 2 22.00 7.777 999.9
Data source: SA Mint.
The target market for the Natura, Proteas and R1
and R2 coins is the small investor and collector...
The target market of the Naturas, Proteas and the R1 and R2 coins is the small
investor and collector. With respect to Naturas and Proteas, the design is changed
every three to four years. This is timed to maintain the interest of the collector but
without offering too many new designs, which would price the collector out of the
market.
The R1 and R2 gold coins are re-launched with a new design every year. At 1/10th
of an ounce and 1/4 of an ounce respectively, they are affordable enough to
support annual issues. The fact that these four coin issues are struck in 24 carat
gold not only differentiates them from the Krugerrand but also allows for direct
comparison (in terms of caratage and hence, price) between them and other
international bullion coins that are 24 carat – for example, those bullion coins
struck and marketed in Canada and Australia.
The SA Mint buys 24 carat grain from Rand Refinery and produces its own coin
blanks, from which it strikes the coins in-house to meet demand for the four 24
carat coin programmes. The mark-up on the coins is 30% and the gold represents
95% of input costs to the SA Mint.
5.3 DENTAL ALLOYS
According to the South African Medical and Dental Council (now known as the
Health Professions’ Council of South Africa), there are 3,500 registered dentists in
the country. Dentists themselves do not have to hold permits to work with gold
alloys since they work with pre-ordered, made-to-measure inlays only, supplied by
independent dental laboratories. Only in instances where a dentist maintains his
own laboratory will that practice require a permit; otherwise, it is the dental
laboratories that hold the precious metal permits.
The South African Police Service Diamond and Gold Branch reports that 427 valid
dental licences had been issued in the country as at 2004. Of the total, 23 were
issued in the year, implying an increase of 5.7% compared with 2003.
108 GOLD IN SOUTH AFRICA

A regional breakdown of these permits is shown below for 2003 and 2004. In terms
of number of permits issued, this aspect of the gold business appears to be
concentrated in the Cape region, with more than half of the dental permits on issue
in 2004 issued in the Western Cape.
Number of valid dental permits
2003 2004 % of
total total 2004 total
Western Cape 231 231 54.1
Gauteng 128 147 34.4
KwaZulu-Natal 24 24 5.6
Mpumalanga 11 13 3.0
Eastern Cape 10 11 2.6
North West 0 1 0.2
Free State 0 0 0.0
Limpopo 0 0 0.0
Northern Cape 0 0 0.0
Total 404 427 100
Data source: Virtual Metals analysis of South African Police Service data.
CHAPTER 5
FINAL PRODUCT: COINS, INDUSTRIAL END USES AND INVESTMENT
Gold usage in dental treatment cannot be expected to be a material growth sector
owing to the downturn worldwide in the usage of gold alloys for dentistry purposes.
This is largely because medical and dental insurance does not cover the cost of the
gold as a dental material. A survey of medical insurers revealed only one that
compensated members for payment of gold used in dental work, and in that
instance, only to ‘premium’ members. A similar lack of growth potential is mirrored
internationally as medical insurers in countries such as Germany have, over time,
amended their insurance cover to patients, discouraging the use of gold in dental
treatment.
Gold usage in dental treatment is not a
growth sector...
In terms of scrap generation, dental alloys are frequently returned to recyclers for
remelt since the manufacture of a dental construction generates a very high level of
wastage, estimated by recyclers at 75% to 90% per inlay.
Dental alloy can vary in caratage and colour and is applied according to the
customer’s specifications.
Dental products
Description
Alloys Star cast -
110, 200, 400, 550, 602
Starbond -
515G, 780G, 860G, 575G, 730G, 750G
Data source: Musuku Beneficiation Systems.
Discussions with refiners and recyclers revealed that, in 2004, no more than 0.04t
of fine gold was purchased by the local dental industry. Dentists reported that this
sector had shown no growth in recent years due to insurers’ exclusion of gold in
dental treatment.
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Quotable quotes:
“To work with a crown that will eventually weigh
5g of gold, the dentists have to begin with at
least 20g of alloy. The balance gets recycled
immediately.”
Recycler
Quotable quotes:
“I don’t see any growth potential in the South
African electronics manufacturing industry. We
import components from the Far East cheaper than
we could ever manufacture them here.”
Electronic component manufacturer
Historically, South Africans have been limited in the
ways that they could invest in gold...
5.4 ELECTRONICS
The level of gold usage in the manufacture of electronic components in South Africa
is insignificant. The refiners reported that they supplied collectively 0.01t to South
African companies manufacturing components for a variety of electronic hardware,
including switches and connectors. This represents less than 0.004% of the global
total of 250t 3 of fine gold destined for use in electronics.
Research revealed five companies that either manufacture or assemble electronic
components using gold. One, Bosco Printed Circuits (Pty) Ltd, dominates, although
its exact market share could not be established. The company uses gold in
manufacturing the ‘fingers’ which connect external cards to computer hardware and
in instances where superior connections are required in telecommunications
hardware. The gold is applied through electroplating.
Printed circuit boards (PCBs) are manufactured in South Africa but discussions with
the industry revealed that these PCBs do not contain gold. Where high performance
PCBs, which require gold usage, are needed, they are imported.
5.5 INVESTMENT
Until recently, South Africans were limited in the ways that they could invest in
gold. They could (and still can) buy coins in the form of Krugerrands, Proteas or
Naturas. However, while bullion coins have a place for the collector, they are not
considered a competitive alternative in an investment portfolio. This is because the
premium levied on purchase is not recouped on sale of the coin.
South Africans could and still can invest in gold equities and, in the absence of a
Dollar or Rand denominated gold futures contract, they could trade the Krugerrand
futures contract offered by the JSE Limited (discussed below). Recently, however,
South African citizens have been offered access to a gold Exchange Traded Fund
(ETF). These two investments vehicles are described below.
5.5.1 The JSE Limited’s Krugerrand contract
The JSE Limited offers a Rand-denominated futures contract based on the
Krugerrand through which the public and institutions such as pension funds can
take an investment exposure to gold, other than buying coins or gold mining
equities. The contract specifications are:
Contract
Code
Underlying instrument
Expiry dates & times
Quotations
Expiry valuation method
Settlement method
Clearing house fees Futures R2.50
Data source: JSE Limited.
Krugerrand futures
KGRD
1 Krugerrand
17h00 on 3rd Thursday
of March, June, September
& December or previous
business day if a public
holiday
In whole Rands to 2 decimals
Official closing price as determined by the
JSE Limited
Physical delivery
3
Virtual Metals global industry estimates for 2004
110 GOLD IN SOUTH AFRICA

Krugerrand futures have failed to become a liquid and actively traded contract. The
reason for this is not clear. It is possible that, in the past, private investors who were
likely to invest in gold other than equities would have bought Krugerrands and
therefore there was little reason for them to make use of the futures contract. In
other words, those who wanted bullion coins would have bought them outright and
those investors who might make use of a futures contract would not have an
interest in bullion coins. This does not, however, explain why the institutions have
not made use of this contract since fund managers are permitted to place up to
10% of their funds in Krugerrands.
Discussions with portfolio managers reveal that they have invested neither in the
physical coins nor the futures contract; turnover figures bear this out. A reason for
this is the loss of the initial premium payable on the purchase of the coins once the
coins are subsequently resold.
In the fourth quarter of 2004 only 48 Krugerrand futures contracts were executed.
In the first two months of 2005, the contract traded four times.
5.5.2 ABSA NewGold Gold Bullion Debenture
An ETF allows an investor to trade shares or securities in an exchange listed fund
(shares which represent small amounts of gold, usually 1/10th or 1/100th of an
ounce) as simply as the investor could trade in the equities of exchange-listed
companies. Gold ETFs are funds, the sole asset of which is physical gold, and the
value of which is fully backed by physical gold, held as allocated metal by a
nominated custodian. The shares are traded on a stock exchange just as any other
exchange-listed security. The cost of buying into a gold ETF is the ‘spread’ 4 as with a
normal share purchase, plus brokerage charges. There is then an annual
management fee of between 0.3% and 0.4% compared with the 3% premium over
gold for buying a one ounce Krugerrand. Gold ETFs are designed to be cost effective
and to provide investors with a secure way to invest in gold.
CHAPTER 5
FINAL PRODUCT: COINS, INDUSTRIAL END USES AND INVESTMENT
On 2 November 2004, ABSA Bank launched a gold ETF in South Africa called the
NewGold Gold Bullion Debenture, the third such ETF after similar launches of ETFs
in Australia (on the Australian Stock Exchange) and the United Kingdom (on the
London Stock Exchange). Two similar products were launched in the United States
shortly afterwards, one by State Street Global Advisors, called streetTRACKS Gold
Trust and one underwritten by Barclays Bank Plc called the iShares COMEX Gold
Trust.
Gold ETF launched in South Africa in
November 2004...
4
The difference between the bid and offer (buy or sell) price on the underlying asset.
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CHAPTER 5
FINAL PRODUCT: COINS, INDUSTRIAL END USES AND INVESTMENT
The South African product 5 , issued by a public company called NewGold Issuer
Limited, is administered by ABSA Bank and Rand Refinery functions as custodian.
Each debenture is valued at 1/100th of an ounce of fine gold and is priced in SA
Rands. The price of the debenture closely follows the international gold price. The
specifications are:
NewGold
Listing
Issuer
JSE Code
Price
Entitlement
Underlying asset
Custodian
Administered
Gold Bullion Debenture
JSE Limited
NewGold Issuer Ltd,
Reg Number 2004/014 199/06
GLD
ZAR price of 1/100th troy ounce
of fine gold
Initially 1/100th troy ounce of fine gold,
reduced daily by the management fee
Gold kept in 400 oz London Good Delivery
Bars in allocated form
Rand Refinery
ABSA Investment Management Services
(AIMS)
Minimum investment Lump sum and ad hoc investments -
R1,000
Recurring or monthly debit order
investments - R300
Fee structure -
NewGold Gold Bullion Debentures
Fee structure -
NewGold investment plan
Data source: ABSA Bank.
Management: 0.4%pa accrued
daily debited in gold
Creation and redemption: 0.15%
Brokerage and statutory fee: standard
brokerage fees apply
Lump sum and ad hoc investments: Initial
fee (excl VAT): 0.3%, annual management
fee (excl VAT): 0.8%
Debit order: Initial management fee
(excl VAT): R2.50/order; Annual
management fee (Excl VAT): 0.8%
Immediately after its launch on 2 November 2004, purchases in the South African
ETF took the assets to 3t of gold, before declining slightly. Buyers of the product
were local pension funds and financial institutions. Since its launch, progress has
been slow. The product is traded in the smallest of the four gold investment
markets which are now home to ETFs and therefore it stands to reason that in
comparison with the other ETFs, its offtake has been the smallest. The actual
offtake of all four ETFs traded are compared in the accompanying table.
ETF Offtake in Metric Tons of Fine Gold
Launch Average Average daily Total offtake t
Date traded daily offtake t (at 30 June
volume t 2005)
Australia 28-Mar-03 0.04 0.01 7.89
UK 9-Dec-03 0.75 0.14 46.95
South Africa 2-Nov-04 - 0.01 2.87
US (SSGA) 18-Nov-04 6.74 1.15 181.51
US (Barclays) 28-Jan-05 0.2 0.12 12.42
Total 251.64
Source: Virtual Metals’ calculations from company data.
Note: Data as of 30/06/05, SSGA = State Street Global Advisors.
In terms of offtake per day, the South African ETF is more comparable with the
longer-running Australian ETF. Both products are nevertheless dwarfed by the UK
ETF, and especially the State Street Global Advisors US fund offtake.
5
http://www.absabrokers.co.za/Individual/0,2999,2762,00.html#newgold
112 GOLD IN SOUTH AFRICA

NewGold is currently subject to a ceiling on the number of debentures that ABSA
can create – up to 500,000oz worth of debentures per annum. Should the bank
wish to generate more, it would require prior permission from the Minister of
Finance.
With respect to the ability to take physical delivery on redemption of the
debentures, investors wishing to do so would need to hold a valid precious metals
permit as required by the Mining Rights Act. Only blocks of 400,000 debentures or
more (equivalent to 4,000oz of gold or more) can be redeemed at a time.
In May 2005, Barclays plc bought 60% of ABSA. This development is considered by
ABSA to be supportive of NewGold in South Africa, since Barclays has its own ETF
in the United States, and is committed to the ongoing marketing and
administration of these investment products.
CHAPTER 5
FINAL PRODUCT: COINS, INDUSTRIAL END USES AND INVESTMENT
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114 GOLD IN SOUTH AFRICA

CHAPTER 6
TRANSFORMING THE INDUSTRY: LEGISLATIVE,
FISCAL AND FINANCIAL CONTEXT
CHAPTER 6
Contents:
6.1 INTRODUCTION 116
6.2 KEY LEGISLATION AFFECTING THE GOLD INDUSTRY 116
6.2.1 The Mining Rights Act 20 of 1967
and the Precious Metals Bill 116
6.2.2 The Mineral and Petroleum Resources
Development Act 28 of 2002 117
6.2.3 The Broad-Based Socio-Economic
Empowerment Charter for the Mining Industry
(the Mining Charter) 119
6.2.4 The Mineral and Petroleum Royalty Bill 121
6.3 TRANSFORMING THE INDUSTRY: BLACK ECONOMIC
EMPOWERMENT, EMPLOYMENT EQUITY 121
AND SKILLS DEVELOPMENT
6.3.1 Black Economic Empowerment (BEE) 121
6.3.2 The Employment Equity Act 55 of 1998 122
6.3.3 The Skills Development Act 97 of 1998 123
6.4 TAXATION 124
6.4.1 Corporate tax 124
6.4.2 Value-Added tax 125
6.5 FINANCING THE SOUTH AFRICAN GOLD BUSINESS 126
6.5.1 The mining and refining sector 126
6.5.2 The jewellery sector 126
6.6 THE ROLE OF GOVERNMENT MINISTRIES AND
ASSOCIATED ENTITIES IN THE GOLD INDUSTRY 129
6.6.1 The Department of Trade and Industry (DTI) 129
6.6.2 Industrial Development Corporation (IDC) 131
6.6.3 The South African Reserve Bank (SARB) 134
6
Photograph courtesy: AngloGold Ashanti Limited
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TRANSFORMING THE INDUSTRY: LEGISLATIVE, FISCAL AND FINANCIAL CONTEXT
6.1 INTRODUCTION
Key legislation affecting the South African gold industry is considered in this
chapter, including:
• the Mining Rights Act 20 of 1967 and its proposed amendments;
• the Minerals and Petroleum Resources Development Act 28 of 2002 (MPRDA);
• the Broad-Based Socio-Economic Empowerment Charter for the Mining
Industry (The Mining Charter); and
• the Mineral and Petroleum Royalty Bill.
This body of legislation has had a significant impact
on the gold industry and will continue to shape its
evolution...
This body of legislation has had a significant impact on the gold industry to date
and will continue to shape its evolution. It is therefore dealt with in some detail.
Other legislation exists which applies to the gold industry, and more particularly to
gold mining, for example, on mine health and safety. It would, however, be outside
the scope of this study to provide a complete overview of all of the various
legislative measures that impact on the sector, and these aspects of the legislative
framework for the industry have not therefore been covered.
The gold industry is additionally subject to a number of legislative and regulatory
measures that address the issue of transformation, for example on Black Economic
Empowerment (BEE), employment equity and skills development. This chapter
describes these measures and their impact on the South African gold industry.
6.2 KEY LEGISLATION AFFECTING THE GOLD INDUSTRY
The mining industry is by far the largest participant in the South African gold
business, in terms of investment, numbers employed, annual turnover, net asset
value and contribution to the local economy. The legislation highlighted in this
section applies primarily to the mining industry, although many of its provisions
also have an impact on refining and jewellery manufacturing.
The Mining Rights Act of 1967 has had a significant
impact on the way the South African gold business
has evolved...
6.2.1 The Mining Rights Act 20 of 1967 and the Precious Metal Bill
Historically, the Mining Rights Act of 1967 (specifically Chapter XVI) has had a
significant impact on the way the South African gold business has evolved, as it
prohibited private individuals and institutions from holding gold in any form other
than bullion coins or jewellery 1 .
In other jewellery manufacturing economies, jewellery manufacturers were able to
benefit from the existence of private gold holdings in their own or neighbouring
countries (in the case of Italy, for example, significant holdings exist in neighbouring
Switzerland). These private holdings, typically lodged with commercial banks, led to
the development of an active gold-lending market. The existence of such a market
was an enabling factor in the growth of the jewellery manufacturing sector, as
jewellers were able to borrow gold from commercial banks at relatively low lease
rates.
The Mining Rights Act regulates the possession and trade of gold in businesses
where gold is used as a raw material, such as refining and jewellery manufacturing.
At the time of publication of this review, Chapter XVI was the last remaining
chapter of the Mining Rights Act still in place. The Precious Metals Bill, which is
currently in the process of Parliamentary approval and which will replace the
remaining sections of the 1967 Mining Rights Act still in force, aims to reduce the
administrative procedures relating to the possession and trade of gold as a raw
material that are imposed by the Act. It stops short, however, of total deregulation
of the metal.
1
Bullion coins are gold coins (usually 22 or 24 carat). All bullion coins currently minted in South Africa are legal tender. Refer
to Chapter 5 for a full explanation and description of these coins.
116 GOLD IN SOUTH AFRICA

The Bill amends the definition of wrought and unwrought metal in the Mining
Rights Act and introduces new categories of licences for users of precious metals. In
terms of the Bill, gold is considered unwrought if it is unrefined or has been refined
to a purity of up to but not including 99.95%. Semi-fabricated metal is defined as
metal which has been refined beyond 99.95% and is in the form of sheet, tube,
wire, grain, plate, strip or rod, or any other such form approved by the Diamond and
Precious Metals Regulator (a new position to be created by the Bill).
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TRANSFORMING THE INDUSTRY: LEGISLATIVE, FISCAL AND FINANCIAL CONTEXT
In its current form, the Bill allows for three categories of licences for the acquisition,
possession or disposal of precious metals in unwrought and semi-fabricated form.
The three categories of licence provided for by the Bill are:
• refining licences, which authorise the holder to buy, receive, refine or dispose of
unwrought precious metals. Refining licences are granted for a period of 25
years and are renewable for further periods of 25 years;
• beneficiation licences, which authorise the holder to buy, receive, change, add
value to and dispose of semi-fabricated metal. Beneficiation licences are granted
for a period of 10 years and are renewable for further periods of 10 years; and
• jewellers’ permits, which confer the same rights as beneficiation licences but
which are granted for a period of five years, renewable on application to the
Regulator for further periods of five years.
The Bill, in its current form, allows for three
categories of licences for the acquisition, possession
or disposal of precious metals in unwrought and
semi-fabricated form...
Holders of refining licences are required to keep a register of all transactions in
precious metals and to submit this register quarterly to the Regulator.
Holders of beneficiation licences and Jewellers’ permits are obliged to submit
annual financial accounts prepared in accordance with Generally Accepted
Accounting Pratice (GAAP) to the Regulator, no later than 90 days after the end
of each financial year.
It is anticipated that the Bill will be passed into law in early 2006.
6.2.2 The Mineral and Petroleum Resources Development Act 28 of 2002
South Africa’s economic policies are based on the principles of private enterprise
and the free market, thus allowing for the development of commerce without
undue State intervention. After the election of the first representative government
in 1994, it was recognised that the country’s mineral and mining policies required
review as the majority of the population had largely been excluded from
participating in the ownership and management of the mining industry.
This review began in April 1995 and the ensuing process involved representatives
from government, mining companies, the junior mining sector, labour, and
associated communities, and culminated in the release of a White Paper, A Minerals
and Mining Policy for South Africa, in October 1998 2 .
The policies that were presented in that White Paper were then embodied in the
MPRDA, which was passed into law in October 2002 and promulgated (thus
becoming law) in May 2004.
The MPRDA is the primary act of Parliament that governs mining activity in South
Africa. Under this Act, a new mineral rights regime has been introduced in terms of
which ‘new-order’ rights replace so-called ‘old-order’ prospecting and mining rights
that were issued under the Minerals Act 50 of 1991. All old-order mining rights
must be converted within a period of five years (that is by 2009) of the Act having
become law 3 .
The MPRDA is the primary act of Parliament that
governs mining activity in South Africa...
2
All these groups collectively became known as the stakeholders and it is to them that this review refers when mentioning
the stakeholders.
3
Old-order rights refer to all old-order prospecting rights and old-order mining rights.
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TRANSFORMING THE INDUSTRY: LEGISLATIVE, FISCAL AND FINANCIAL CONTEXT
The MPRDA is based on the principle of state
custodianship of mineral and petroleum resources...
Mineral rights have become an important
instrument in achieving transformation in ownership
and management in the mining industry...
The MPRDA is based on the principle of state custodianship of mineral and
petroleum resources. Prospecting, exploration and mining rights for all minerals now
vest in the state and applications for those rights have to be made directly to the
state. This is in contrast to the previous legislative regime, where mineral rights
were privately-owned, though with significant restrictions such as the need to
obtain government approval before the minerals in question may be exploited.
Under the MPRDA, mineral rights have become an important instrument in
achieving transformation in ownership and management in the mining industry.
This transformation goes beyond the mine gate as the Act also stipulates that
holders of mineral rights should contribute towards the socio-economic
development of host communities and communities that contribute their labour to
the industry.
Transitional provisions in the MPRDA facilitate the conversion of existing, old-order,
prospecting and mining rights to new-order prospecting and mining rights. For
successful conversion, applicants are required to satisfy the objectives of the
MPRDA as set out in the Mining Charter.
New-order mining rights
The most important right for operating a commercial mine in South Africa is the
new-order mining right which can be granted by the Ministry of Minerals and
Energy if the application meets the following requirements:
• the metal or mineral can be mined optimally in accordance with the mining
work programme;
• the applicant has access to financial resources and has the technical ability to
optimally conduct the proposed mining operation;
• the financing plan is compatible with the intended mining operation and the
duration thereof;
• mining will not result in unacceptable pollution, ecological degradation or
damage to the environment;
• the applicant has provided financially and otherwise for the prescribed Social
and Labour Plan;
• the applicant has the ability to comply with the relevant provisions of the Mine
Health and Safety Act, 1996 (Act No. 29 of 1996);
• the applicant is not in contravention of any provision of the MPRDA;
• the granting of the mining right substantially and meaningfully expands
opportunities for Historically Disadvantaged South Africans (HDSAs), including
women, to enter the mining industry and will promote employment and
advance the social and economic welfare of all South Africans; and
• the applicant complies with the Mining Charter.
Once allocated, a mining right guarantees security
of tenure for up to 30 years...
Once the mining right is allocated, security of tenure is guaranteed for up to
30 years as long as the conditions under which the right was granted continue to
be met. The rights may be renewed for further periods of up to 30 years.
At the time of publication, one gold mining company, AngloGold Ashanti, had
converted all its old-order mineral rights to new-order rights. Another gold mining
company, Harmony, had converted old-order mineral rights for two of
its operations, subject to certain conditions to be fulfilled by Harmony.
118 GOLD IN SOUTH AFRICA

Prospecting and small-scale mining permits
In addition to the core new-order mining right, the following prospecting and smallscale
mining permits are provided for in the new legislation.
• Reconnaissance permissions allow the holder to carry out searches for minerals
by geological, geophysical and/or photogeological surveys, including remotesensing
techniques. They are valid for two years.
• Prospecting rights enable the holder to search for minerals by methods which
disturb the surface or subsurface. Prospecting rights confer exclusivity to apply
for a renewal, a mining right and the right to remove and dispose of any mineral
to which the right relates. The Minister of Minerals and Energy may, depending
on the type of mineral and extent of the project, request the applicant to
expand the opportunities for HDSAs to participate in management and
ownership. Prospecting rights are granted for a term of up to five years and may
be renewed once, if good reasons are provided, for a period not exceeding three
years.
• Mining permits are suitable for small-scale mining operations. They may be
issued if the mineral in question can be mined optimally within a period of two
years and the mining area does not exceed 1.5 hectares in area. A permit is valid
for a maximum period of two years, and may be renewed up to three times for
one year. It does not afford the holder any exclusivity, and cannot be transferred
or disposed of.
• Retention permits are granted for prospecting rights holders who can show that
mining is uneconomic due to market conditions at the time. The permit allows
prospecting rights to be extended for a period not exceeding three years. It can
be renewed once for two years and is not transferable.
CHAPTER 6
TRANSFORMING THE INDUSTRY: LEGISLATIVE, FISCAL AND FINANCIAL CONTEXT
6.2.3 The Broad-Based Socio-Economic Empowerment Charter for the
Mining Industry (The Mining Charter)
The Mining Charter, an integral part of the regulatory framework governing the
mining sector, provides a means by which the historical, social and economic
inequalities in South Africa’s mineral industry can be addressed. The explicit
objectives of the Mining Charter are to:
• promote equitable access of the nation’s mineral resources to all
South Africans;
• expand opportunities for HDSAs, including women, to enter the mining and
minerals industry and to benefit from the exploitation of the nation’s mineral
resources;
• utilise the existing skills base of the mining industry for the empowerment of
HDSAs;
• expand the skills base of HDSAs in order to serve the community;
• promote employment and advance the social and economic welfare of mining
communities and the major labour sending areas; and
• promote beneficiation of South Africa’s mineral commodities.
The Mining Charter, an integral part of the
regulatory framework governing the mining sector,
provides a means by which the historical, social and
economic inequalities in South Africa’s mineral
industry can be addressed...
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The Mining Charter scorecard sets targets and a
timetable for addressing these objectives...
The Mining Charter scorecard sets targets and a timetable for addressing these
objectives in seven core areas of activity. These seven areas and the relevant
scorecard undertakings in each area are summarised in the following table:
Human resource development
Employment equity
Migrant labour
Mine community and
rural development
Housing and living conditions
Procurement
Ownership and joint ventures
- Improving opportunities for employees
to become functionally literate and
numerate
- Implementation of career development
paths for HDSA employees, including skills
development
- Systems for mentoring empowerment
groups
- Publication of employment equity plans
and annual progress reports
- Establishment and implementation of a
plan to achieve 40% HDSA participation in
management within five years
- Identification and fast-tracking of a talent
pool
- Establishment and implementation of a
plan to achieve 10% participation of
women in mining within five years, and
15% within 10 years
- Agreements to ensure non-discrimination
against foreign migrant labour
- Formulation of integrated
development plans for communities
where mining takes place and
implementation of these plans in cooperation
with Government
- Improvement of standards of housing,
including upgrading of hostels, conversion
to family units and promotion of home
ownership for mine employees
- Improved nutrition for mine employees
- Preferred supplier status for HDSAs
- Identification of current levels of
procurement from HDSAs and
commitment to increase spend with
HDSA suppliers
- 15% HDSA ownership of equity or
attributable units of production in five
years and 26% in 10 years
The Mining Charter has two additional provisions, on beneficiation and reporting.
The provision on beneficiation is unique in that it is the only provision of the
Mining Charter which does not have to be met in full in order for mining
companies to qualify for conversion to new-order mining rights. It is also the only
provision of the Charter which can be used by mining companies to offset Mining
Charter commitments on HSDA ownership. Achievement of the beneficiation target
under the Mining Charter allows companies to offset a proportion of the 26%
10-year Mining Charter target on ownership and joint ventures. This provision also
states that companies have to identify current levels of beneficiation of product
and indicate the level to which this will have to be grown in order to qualify for
offset. At the time of publication of this review, neither the extent of the
beneficiation offset nor the beneficiation levels to be achieved by mining
companies in order to qualify for offset had been determined.
The provision on reporting states that companies have to report annually on
compliance with the commitments of the Mining Charter.
120 GOLD IN SOUTH AFRICA

6.2.4 The Mineral and Petroleum Royalty Bill
The National Treasury announced in 2004 that the Mineral and Petroleum Royalty Bill
(introduced to the Assembly as the Money Bill) would become effective from 2009.
CHAPTER 6
TRANSFORMING THE INDUSTRY: LEGISLATIVE, FISCAL AND FINANCIAL CONTEXT
The Bill is based on the principle that South Africa’s mineral resources are
non-renewable and that they belong to the nation, with the State as custodian.
The objective is to tax the depletion of the country’s mineral resources.
The Bill is based on the principle that South Africa’s
mineral resources are non-renewable and that they
belong to the nation, with the State as custodian...
It proposes that mineral producers (including gold) pay a royalty on mineral
production. Royalties may be fixed at different levels in order to take account of the
relative profitability of the different industries.
A fundamental criticism of the Bill is that the proposed royalty is to be levied on
revenue and not profit. It is argued that this reduces the value of mineral assets that
can be mined econimically. Supporters of a royalty on revenue maintain that a revenue
focus is necessary as mineral producers might otherwise state profit figures in a way
which would enable the company to reduce or avoid royalty payments.
Critics of the proposals also claim that a structure which fixes the level of royalty
payments according to the type of mineral to be mined is too simplistic. They argue
that it should not be assumed that all diamond mining is more profitable than all
platinum mining, and all platinum mining than all gold mining.
In February 2005, the Minister of Finance told Parliament that a second draft of
the bill would retain the principle of a royalty on revenues but would include
‘substantial refinements’ based on comments received from interested parties.
It would also accommodate key concerns relating to mineral beneficiation and
small-scale mining.
If passed, royalties will be levied from 2009 in order to dovetail with the mining
companies’ conversion to the new-order mineral rights regime as laid out by
the MPRDA.
6.3 TRANSFORMING THE INDUSTRY: BLACK ECONOMIC EMPOWERMENT,
EMPLOYMENT EQUITY AND SKILLS DEVELOPMENT
Prior to 1994, much of South Africa’s economic wealth was concentrated in the
hands of white South Africans. Post apartheid, government has developed policies
to promote the more equitable distribution of wealth in a free market context, by
actively supporting and favouring the economic empowerment of HDSAs.
6.3.1 Black Economic Empowerment (BEE)
A BEE Commission was established in May 1997 under the auspices of the Black
Business Council (now merged into Business Unity South Africa), a body
representing 17 black business and professional organisations.
The concept of the BEE Commission arose from a resolution taken at the Black
Management Forum National Conference, held in 1997. The prevailing view was
that HDSAs themselves should direct and take charge of a new vision for BEE, a
process that, until then, had been controlled by the private sector. The Commission
was not established as a legal entity and had no legislative powers. Its main role
was to co-ordinate the consultative process out of which its recommendations are
submitted to government.
At the end of 2001, the Commission submitted a report to the government in
which it recommended that a national, integrated, BEE strategy should:
• be a coherent socio-economic process;
• be established in the context of the country’s then Reconstruction and
Development Programme;
• be aimed at addressing the imbalances of the past by seeking to substantially
and equitably transfer and confer the ownership, management and control of
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TRANSFORMING THE INDUSTRY: LEGISLATIVE, FISCAL AND FINANCIAL CONTEXT
South Africa’s financial and economic resources to the majority of its citizens;
and
• seek to ensure broader and meaningful participation in the economy by black
people to achieve sustainable development and prosperity.
The Commission’s report and recommendations were adopted by the Government’s
Economic and Transformation Committee (ETC) on 3 March 2001 and specific
targets were set for BEE for the 10-year period to 2011.
The Broad-Based Black Economic Empowerment Act of 2003 and its associated
codes of good practice were published in two phases, the first of which was
released on 1 November 2005. The Act is the key item of legislation introduced by
Government to effect its empowerment objectives. The Act and its associated codes
will apply to the refining, manufacturing and retail aspects of the gold value chain.
The mining industry including the gold mining sector, however, will not be subject
to the codes initially, but will be expected to align itself to the codes ahead of the
expiry of the mining charter in 2014.
Two other items of legislation which were put in place in order to facilitate
achievement of Government’s BEE targets are:
- the Employment Equity Act 55 of 1998; and
- the Skills Development Act 97 of 1998.
These are described in detail below, as they have a significant impact on the South
African gold industry.
The purpose of the Employment Equity Act is to
achieve equity in the workplace by promoting equal
opportunity and fair treatment in employment by
eliminating discrimination...
6.3.2 The Employment Equity Act 55 of 1998
The purpose of the Employment Equity Act is to achieve equity in the workplace by
promoting equal opportunity and fair treatment in employment by eliminating
discrimination. The Act prohibits unfair discrimination on the grounds of race,
gender, pregnancy, marital status, family responsibility, ethnic or social origin,
colour, sexual orientation, age, disability, religion, HIV status, conscience, belief,
political opinion, culture, language or birth.
The Act further serves to implement affirmative action to redress the disadvantages
in employment experienced by designated groups and to ensure their fair
representation in all occupations and levels in the workforce. Designated groups are
black, coloured or Indian people, women, or people with disabilities.
Affirmative action is defined as measures intended to ensure that suitably qualified
employees from designated groups have equal employment opportunities and are
equitably represented in all occupations and levels in the workforce.
The Act identifies designated employers as those who employ 50 people or more or
those whose turnover is above a certain threshold (R7.5 million in the case of
mining and R10 million in the case of manufacturing). It includes municipalities and
state organisations, although the defence force, national intelligence and revenue
services are exempt.
The Act therefore applies to most South African gold mining companies and both of
the primary refiners. It also applies to medium and large jewellery retailers and
manufacturers. Most of the small manufacturers and retailers, and some of the
secondary refiners, are exempt by virtue of the size of their payrolls and turnover.
The Act stipulates that designated employers shall promote affirmative action
within their organisations in accordance with an employment equity plan.
Each employment equity plan must set out the steps the designated employer
intends taking to achieve employment equity over the next one to five years. To do
this, the designated employer needs to analyse its workforce profile, as well as its
employment practices and policies. In drawing up the plan, the employer must
consult with unions and employees to gain consensus with respect to its contents.
122 GOLD IN SOUTH AFRICA

Employment equity plans must be submitted to the Department of Labour on an
annual basis.
Each employment equity plan must:
• have annual objectives;
• include affirmative action measures;
• have numerical goals for achieving equitable representation of the appropriate
demographics among employees;
• have an annual timetable;
• have internal monitoring and evaluation procedures including dispute resolution
mechanisms; and
• identify persons to monitor the plan.
The Labour Court has the power to make appropriate orders, award compensation
or impose fines for non-compliance with the terms of the Act. The Act provided for
the establishment of a Commission of Employment Equity on 14 May 1999. The
eight members of this Commission are nominated by voting members of Nedlac 4
who represent organised labour, commercial entities, the State and entities of
community and development interests in the Development Chamber of Nedlac.
The Commission oversees the implementation of employment equity on a national
level, reporting annually on emerging trends, progress on implementation of the
employment equity legislation and the challenges faced by government, employers
and employees in dealing with equity issues in the workplace.
CHAPTER 6
TRANSFORMING THE INDUSTRY: LEGISLATIVE, FISCAL AND FINANCIAL CONTEXT
6.3.3 The Skills Development Act 97 of 1998
The Act is aimed at developing and improving the skills of employees in the
workplace.
The Act sets out to:
• provide a framework for the development of skills in the workplace;
• build development strategies into the National Qualifications Framework
(NQF);
• provide for learnerships that lead to recognised qualifications; and
• provide for the financing of skills development by means of a levy-grant scheme
and National Skills Fund.
The Skills Development Act is aimed at developing
and improving the skills of employees in the
workplace...
The NQF forms the overall structure for education and training within the country.
It came into being through the South African Qualifications Authority Act (SAQA)
58 of 1995. As a government body, it sets out how different education and training
standards and qualifications must be achieved and how courses should be
accredited. The NQF is implemented via the following structures:
• SAQA which is responsible for overseeing the development and implementation
of the NQF. It is accountable to the Departments of Labour and Education;
• National Standards Bodies (NSBs), which set standards in education in
particular industrial sectors or fields. There are 12 such bodies, of which the
Mining Qualifications Authority (MQA) is one;
• Education and Training Quality Assayers (ETQA), which oversee the quality of
education and training. Any provider of educational services must be registered
with the ETQA;
• Sector Education and Training Authorities (SETAs) covering each sector of the
South African economy. Members of a SETA are drawn from trade unions,
government and bargaining councils. SETAs replace the old industry training
boards; and
• the Skills Development Fund, which funds projects identified in the national
skills development strategy as national priorities or other projects related to the
achievement of the purposes of the Skills Development Act as determined by
the Director-General.
4
National Economic Development and Labour Council.
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The Skills Development Act applies to all employers except for the public service,
religious organisations or charities, public entities that receive more than 80% of
their funding from Parliament and employers whose total payroll is less than
R250,000 per annum, or those who do not have to register in terms of the Income
Tax Act. Affected employers must pay an amount equal to 1% of their workers’
gross pay as a skills development levy 5 . This levy is paid to the SETA and the Skills
Development Fund to be redistributed back to individual companies in the form of
training grants and associated finance.
SETAs are the recipients of 80% of the revenue and the Skills Development Fund
receives the remaining 20%. SETA programmes pay grants directly to employers in
the sectors in which they operate. The Skills Development Fund finances training
programmes identified as priorities on a national level.
For more information on the role of SETAs and training and skills transfer in the
gold industry, refer to Appendix 3.
6.4 TAXATION
There are various categories of taxation applicable to South African business and
commercial entities. This section deals with corporate tax and Value-Added Tax
(VAT), as they relate to the gold industry.
6.4.1 Corporate tax
Corporate tax is levied on income derived by South African resident companies on
their worldwide income. Dividends received from foreign companies are exempt.
For tax rate purposes, a distinction is made between gold mining companies and
non-gold mining companies. Mining income derived from gold is taxed at different
tax rates from non-gold mining income.
Non-gold mining companies are taxed at the basic rate of 29% 6 on gross income
less deductions (as per the Income Tax Act). In addition to the basic rate, a
secondary tax on companies (STC) of 12.5% is payable on the net amount of
dividends declared by the company.
With respect to branches of foreign-owned companies conducting mining activities
in South Africa, a tax rate of 35% is payable on non-gold mining income.
In the case of gold mining companies, mining income is taxed on a mine-by-mine
basis at a sliding rate, which increases and decreases in line with that particular
mine’s profitability.
The origin of a distinct taxation formula for gold mining companies lies in the
following circumstances:
- the capital-intensive nature of the South African gold mining industry, as
described in chapter 2;
- the deep level mining associated with South African gold deposits means that
there is generally a long lead time between inception of a gold mining project
and first production;
- the nature of individual orebodies, which means that there are significant
variances in the relative potential profitability of each mine.
5
Including overtime payments, leave pay, bonuses, commissions and lump sum payments.
6
Reduced from 30% in the budget of February 2005.
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The formula used to determine the rate of income tax which a gold mining
company pays on its taxable income is known as the ‘gold tax formula’. For the tax
year 2005/6, it is as follows:
Gold tax formula as at 2005/06
Profit to
revenue ratio Average tax rate %
5 0.00
10 22.50
15 30.00
20 33.75
25 36.00
30 37.50
35 38.57
40 39.38
45 40.00
50 40.50
Data source: AngloGold Ashanti.
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This rule means that each mine’s tax rate is calculated separately and applied to
the taxable mining income derived from that particular gold mine.
In the case of all gold mining income, capital expenditure is deductible in full from
gold mining income in the year in which it is incurred. This contrasts with the rule
applicable to capital expenditure incurred in the manufacturing sector where it is
deductible over five years or over an agreed period of depreciation.
This rule means that each gold mine’s tax rate is
calculated separately and applied to the taxable
mining income derived from that particular gold
mine...
Capital expenditure may only be deducted from the mine for which the expenditure
was incurred. Any capital expenditure in excess of taxable profits may be carried
forward to subsequent years of assessment, but can still only be set off against the
taxable income of the particular mine for which it was incurred.
This rule is relaxed when a taxpayer has more than one mine to the extent that
excess capital expenditure can be set off against 25% of the taxable income of
another mine in the same year.
6.4.2 Value-Added Tax (VAT)
The Value-Added Tax Act 89 was introduced in 1991 and amended in 2004.
VAT is levied on all goods and services at a standard rate of 14% or at a zero rate.
The latter rate applies to the export of goods and services, the sale of a business as
a going concern, international transportation and the supply of certain unprepared
foodstuffs.
Any business with a turnover exceeding R300,000 per annum must register for VAT.
A registered business is required to charge VAT on sales, account for value-added
tax on all goods and services supplied, complete and submit VAT returns regularly,
keep proper accounting records for inspection and issue VAT invoices.
VAT payments and refunds operate on a two-month cycle 7 - a factor cited by the
jewellery manufacturers, especially the smaller ones, as adding to cash-flow
problems in their companies.
7
In other parts of the world, for example the UK, VAT operates on a 3-month cycle.
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The mining industry does not pay VAT on export sales and is entitled to a refund in
respect of all value-added taxes paid by it on, for example, raw materials and stores.
Bullion coins are exempt from VAT but all other products - for example finished
jewellery, jewellery alloys and semi-fabricated jewellery - are subject to VAT, at the
standard rate.
6.5 FINANCING THE SOUTH AFRICAN GOLD BUSINESS
6.5.1 The mining and refining sector
Mining and refining of gold are capital-intensive processes that require substantial
financing. Mining projects are associated with long lead times, and because of the
deep level, hard-rock nature of South African gold mining, local gold mining is
particularly capital-intensive.
These projects are normally funded internally by the company itself, or by raising
capital on the equity market, or by a combination of both. Where banks approve
loans, it is common for those banks to expect the mining company to put in place
some form of gold price hedging programme 8 in order to protect the viability of the
project in the event of lower gold prices in future. Gold hedging programmes are
explained more fully in Appendix 4.
One of the constraints on growth of the South
African gold jewellery manufacturing sector has
been the absence of cost-competitive facilities for
the financing of precious metals in the fabrication
pipeline...
6.5.2 The jewellery sector
One of the constraints on growth of the South African gold jewellery manufacturing
sector has been the absence of cost-competitive facilities for the financing of
precious metals in the fabrication pipeline.
Financing of gold working capital in jewellery manufacturing is a problematic issue
for manufacturers worldwide. Unlike other manufacturing industries (such as
textiles for example), gold jewellery manufacturers have to deal with the high cost
of working capital, over and above other conventional financial outlays necessary in
establishing a business. The high cost of gold and the periodic volatile nature of its
price render it particularly expensive and potentially risky for a manufacturer to
have financial exposure to the gold tied up in the manufacturing process, in finished
product or in inventory.
This issue is not therefore unique to the South African jewellery manufacturing
sector. There are two reasons, however, why financing of gold working inventory
poses a particular problem for South African gold jewellery manufacturers.
In established gold manufacturing countries such as Italy, the commercial banking
sector typically has an active bullion lending business. Long-standing relationships
exist between the local banks and the jewellery industry. The local commercial
bank will complete a credit rating of the local jewellery manufacturer and based on
these results will issue a letter of credit or guarantee against the metal loan. The
bullion bank or the local commercial bank will then lend the gold to the
manufacturer.
This kind of lending scheme has not developed in South Africa. One of the reasons
for this, as highlighted earlier in this chapter, has been the absence of private gold
holdings in the South African economy, a result of the prohibition on private gold
ownership. Such schemes allow manufacturing jewellers to benefit from gold
lending rates based on the gold lease rate, which is typically lower than monetary
interest rates.
8
Hedging to minimise price risk involves locking in the price the producers receive or the consumer pays for future settlement.
See Appendix 4 for a more detailed explanation.
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South African manufacturers therefore have to rely on standard bank loan
agreements for financing working gold inventory. South Africa is a high interest rate
environment and South African manufacturers are therefore also penalised by the
interest rate environment in which they operate relative to manufacturers in other
parts of the world.
The graph illustrates the difference between gold lease rates, the basis for gold
lending schemes in established jewellery manufacturing economies such as Italy
and Dubai, and South African monetary interest rates.
Loan costs
The cost of financing gold in process to South African manufacturers is at a
substantial premium to overseas competitors. South African jewellery manufacturers
pay prime interest rates plus a 2% to 3% risk premium. As at mid-2005, the prime
overdraft interest rate in South Africa stood at 10.5%, implying a total loan cost of
between 12.5% and 13.5%.
In very limited instances and specific to the large and medium-sized manufacturers,
financing mechanisms which are more comparable to – although not exactly the
same as – international methods of financing are in place.
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The details are confidential to those local manufacturing jewellers but it is believed
that gold can be borrowed (against a guarantee of up to 120%) for between 2%
and 7% with an additional 1.5% to 3% fee to the lending financial institution to
cover the provided guarantee. Access to this type of finance is by far the exception,
and it does not apply to the small and micro manufacturers. It should be noted,
however, that it is equally unlikely that small and micro gold jewellery
manufacturers, for example in Italy and Turkey, would have access to this type of
financing.
Quotable quotes:
“Credit is the key. If a manufacturer cannot get
credit, he cannot grow his business. And the key to
credit is reputation.”
International bullion banker
Collateral requirements
Many South African jewellery manufacturers report that, in order to finance the
purchase of gold, local banks require them to lodge collateral equivalent to 120% of
the value of the loan. This collateral covers possible fluctuations in the value of the
gold price, and hence in the value of the metal borrowed, as well as the Rand/Dollar
exchange rate.
International gold loans also require collateral cover to protect the lender from gold
price volatility. Details of this are decided between the parties concerned, but
interviews revealed that a cover ratio of 110% to 120% is common practice.
The issue of collateral is, however, dependent on the bank’s credit rating of the
jewellery manufacturer and on the quality of their business relationship. Since this
is confidential between the parties, there is no norm that can be cited for the
jewellery manufacturing industry.
In February 2005, Standard Bank in the UK announced its intention to launch a new
gold financing scheme targeted at the jewellery market in Dubai. The bank noted
that there would be no cash margin requirements, variation or margin calls. At the
time of writing this report, full details of the new scheme had yet to be made
public.
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Insurance
Full insurance coverage of metal in stock and in the fabricating pipeline is a prerequisite
for any gold loan internationally. Those South African jewellery fabricators
interviewed noted that while they had insurance cover for third party liability and
stock in transit, the premiums associated with insuring jewellery inventories and
metal in the manufacturing pipeline make such insurance prohibitive. The absence
of insurance has implications for a fabricator’s ability to participate in gold
financing schemes.
The Rand Refinery has in place a consignment
agreement through which jewellery manufacturers
can borrow fine gold...
The Rand Refinery Gold Consignment Agreement
The Rand Refinery has in place a consignment agreement through which jewellery
manufacturers can borrow fine gold. This gold consignment agreement is not a
scheme designed to fund working gold inventory but facilitates the funding of
inventory of finished goods, enabling manufacturers to produce jewellery in
anticipation of future demand.
Features specific to this financing include:
• gold can only be used for the manufacture of jewellery;
• the manufacturer undertakes not to source gold from any other supplier for the
duration of the loan, unless Rand Refinery is unable to act as supplier;
• the loan carries a four-month notice period and is reviewed annually on the
anniversary of signature;
• the manufacturer is responsible for insurance from the time of delivery of the
gold;
• the manufacturer must give 24 hours’ notice of intention to purchase the gold
and Rand Refinery will invoice for the gold valued at the Dollar per troy ounce
gold price based on the London fix of the day of invoice. VAT is then added in
terms of South African regulations;
• the manufacturer is bound to keep full records covering the date of delivery,
serial numbers of the consignments, quantities delivered and will give anyone
authorised by Rand Refinery access to these records;
• the collateral for gold borrowed is finished product lodged with Rand Refinery
for the term of the loan; and
• any amount falling due for payment by either of the parties bears interest at
the prime rate plus 2% calculated on the due date until date of payment in full.
The AngloGold Ashanti/Gold Fields/BAE Systems/Saab Gold Advance Scheme
AngloGold Ashanti, Gold Fields, BAE Systems and Saab have developed a Gold
Advance Scheme intended to assist gold jewellery manufacturers with financing.
The objectives of the Scheme are to:
• reduce the costs to South African jewellery manufacturers of funding inventory,
thereby enabling them to compete more effectively with international
manufacturers;
• significantly increase the volume and value of South African jewellery
manufacture and exports; and
• attract new investors and entrants into the jewellery manufacturing sector in
South Africa.
The initial intention is that the Gold Loan Scheme
shall have sufficient collateral to lend up to 1,000kg
of fine gold...
The initial intention is that the Gold Loan Scheme shall have sufficient collateral to
lend up to 1,000kg of fine gold, but this may be increased as the capacity of the
local jewellery manufacturing industry to absorb this lending and to provide
guarantees develops.
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The participants are:
• BAE Systems/Saab, large multi-national technology companies focusing on
defence, aviation and space and with offset obligations under the DTI’s National
Industrial Participation programme;
• AngloGold Ashanti, South Africa’s largest gold mining company;
• Gold Fields Limited, the second largest gold mining company in South Africa; and
• Standard Bank, one of the largest four banks in South Africa with established
international subsidiaries.
The role of the participants is as follows:
• BAE Systems/Saab, AngloGold Ashanti and Gold Fields will act as underwriters; and
• Standard Bank will act as manager of the scheme.
A scheme committee, consisting of the underwriters and the scheme manager will
approve gold loan applications and oversee the Scheme.
The structure and mechanism of the gold loan is as follows:
• collateral is required to 120% of the value of the gold advanced;
• the underwriters will collectively underwrite two-thirds of the value of the
collateral required in the form of a Dollar guarantee from BAE Systems/Saab
and a South African Rand guarantee from the two mining companies;
• the borrowing jeweller will be required to provide security for the remaining
one-third of the collateral required in the form of non-gold security;
• Standard Bank will lend the gold to the jewellery manufacturer from its own
balance sheet;
• once a due diligence has been completed on the borrower by Standard Bank, as
manager of the scheme, and the criteria met, the application will be submitted
to the scheme committee for approval. The pricing of each loan will be
determined on a case-by-case basis;
• once approved by the scheme committee, Standard Bank will manage the loan
and operate a margining mechanism to ensure that the value of the collateral
advanced to the manufacturer does not fall below a level that significantly
increases the risk profile of the loan. If, as a result of either gold price or Rand/
Dollar exchange rate movements, the cover ratio of the loan falls to 110%, the
jeweller will need to advance sufficient funds to restore the value of the
collateral to the original cover ratio; and
• administrative costs of the loan including the costs of the due diligence (credit
evaluation and physical/insurance audit), the cost of legal documentation and
ongoing monitoring and administration of the loan, are for the account of the
jewellers.
6.6 THE ROLE OF GOVERNMENT MINISTRIES AND ASSOCIATED ENTITIES
IN THE GOLD INDUSTRY
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6.6.1 Department of Trade and Industry (DTI)
Since 1994, the DTI has had as a core objective the re-integration of South Africa
into the global economy. To achieve this, the DTI actively seeks to:
• encourage higher levels of foreign and domestic investment in the South African
economy;
• increase market access for South African products and services world-wide; and
• encourage a fair, efficient and competitive marketplace for domestic and foreign
investors, consumers and businesses.
Since 1994, the DTI has had as a core objective the
re-integration of South Africa into the global
economy...
Central to the DTI’s policies are the development of small, medium and micro
enterprises (SMMEs). To this end, the DTI runs a number of other investment
schemes, classified broadly into those that offer:
• investment support;
• small business development;
• increasing competitiveness;
• training and skills transfer ;
• innovation and technology; and
• export assistance.
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A number of these incentive schemes are open to the various sectors of the local
gold industry, and are suited to the jewellery manufacturers. In general, however,
uptake of these incentive schemes on the part of the jewellery manufacturing
sector is low.
The various programmes run by the Department of Trade and Industry are as
follows:
The Small Medium Enterprise Development
Programme (SMEDP) is open to local and foreign
companies, close corporations, co-operatives, sole
proprietorships and partnerships investing up to
R100 million in land, buildings, plant and equipment
for new projects or in expanding existing
businesses...
Small, Medium Enterprise Development Programme (SMEDP)
The Small Medium Enterprise Development Programme (SMEDP) is open to local
and foreign companies, close corporations, co-operatives, sole proprietorships and
partnerships investing up to R100 million in land, buildings, plant and equipment for
new projects or in expanding existing businesses.
The programme offers cash incentives for small- or medium-sized businesses in
South Africa, especially those relating to manufacturing. It aims to encourage the
establishment of new projects and the expansion of existing projects, by subsidising
the cost of the fixed assets. It also aims to create wealth and generate employment,
encourage entrepreneurial development and promote empowerment.
The incentive package is made up of an investment grant which is applicable for the
first two years of an acquisition of specified assets calculated on a sliding scale. An
additional investment grant is payable in the third year provided that wages
amount to at least 30% of the manufacturing costs. All incentives under this
scheme are tax-exempt.
A survey of 383 companies in Ekurhuleni Metro in mid-2003 by the Corporate
Strategy and Industrial Development research project at the University of the
Witwatersrand found that the SMEDP was the most widely-used incentive
programme, at 7% of firms. It also found firms using it were 27% more likely to
have recorded employment growth and 55% more likely to have high output
growth than those not taking advantage of the programme. This research did not
establish what proportion of uptake was associated with the gold industry.
The Foreign Investment Grant encourages foreign
entrepreneurs to invest in new manufacturing
entities in South Africa...
Foreign Investment Grant
The Foreign Investment Grant encourages foreign entrepreneurs to invest in new
manufacturing entities in South Africa. Grants are extended for the qualifying costs
of moving machinery and equipment from abroad into South Africa. It is
supplementary to the investment grant of the SMEDP.
To qualify, foreign companies must be registered as incorporated legal entities in
South Africa. The scheme specifically excludes investors from the Southern African
Development Community (SADC) and the South African Customs Union (SACU).
The grant is limited in that it excludes used or second-hand machinery and
equipment, as well as new machinery and existing technology.
Grants of up to a maximum of R3 million per project are considered and are offered
as a one-off to a foreign entity entering the South African market. The grant cannot
exceed the actual cost of relocating the machinery, or of 15% of the value of the
relocated machinery, whichever is the lower.
The level of up-take by the gold business of these investment grants is not certain.
The skills support programme makes available
grants for training and development and the
increase of skills levels among employees...
Skills support programme
Managed jointly by the DTI and the Department of Labour, this programme makes
available grants for training and development and the increase of skills levels among
employees. 50% of the training costs are subsidised, up to a maximum of 30% of
the company’s total wage bill.
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The programme is designed to enhance other incentive schemes such as the SMEDP
and companies that qualify for that programme automatically qualify for the Skills
Support Programme.
The grant is payable to new projects or to the expansion of existing ones. There are
no restrictions on the type of training that can be offered. All grants under this
scheme are payable for up to three years and are tax-exempt. The level of up-take
by the gold business of this support programme is not certain.
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National Empowerment Fund (NEF)
The National Empowerment Fund was established in 1998 to promote, through
grants, economic equality and transformation in the South African economy. It
commenced operating in 2001.
The Fund has three components:
• the Generator component aims to assist with investment in black-owned
businesses ranging in size from R0.25 million to R1 million;
• the Accelerator component normally targets investment in a range of R1
million to R3 million; and
• the Transformer component looks at investments in the range of R3 million
to R10 million. In certain instances, investments rising up to R20 million may
be considered.
The National Empowerment Fund was established in
1998 to promote, through grants, economic
equality and transformation in the South African
economy...
The recipients of funding include new enterprises, businesses that are expanding
and the BEE transformation of existing businesses.
After initial difficulties and criticism over the slow disbursement of funds, (only
R5 million had been spent by 2004), the Government announced in August 2004
that this initiative would be boosted over the following 12 to 18 months with the
capitalisation of the NEF to R2 billion.
The level of uptake of this funding by the gold business is uncertain.
6.6.2 Industrial Development Corporation (IDC)
The IDC is a self-financing national development finance institution whose primary
objectives are to contribute to the generation of balanced, sustainable economic
growth in Africa and to the economic empowerment of the South African
population, thereby promoting economic prosperity for all citizens. The IDC achieves
this by promoting entrepreneurship through the building of competitive industries
and enterprises based on sound business principles.
Corporate Profile and Vision
The Industrial Development Corporation of South Africa (the IDC):
• is a self-financing, state-owned national development finance institution;
• provides financing to entrepreneurs engaged in competitive industries;
• follows normal company policies and procedures in its operations;
• pays income tax at corporate rates and dividends to its shareholder; and
• reports on a consolidated basis, with its Annual Report freely available to
the public.
The IDC is a self-financing national development
finance institution whose primary objectives are to
contribute to the generation of balanced,
sustainable economic growth in South Africa and to
the economic empowerment of the South African
population, thereby promoting economic prosperity
for all citizens...
The vision of the IDC is to be the primary source of commercially sustainable,
industrial development and innovation to the benefit of South Africa and the rest of
the African continent.
Key to the IDC’s activities are the following:
• providing risk capital to the widest range of industrial projects;
• identifying and supporting opportunities not yet addressed by the market;
• maintaining financial independence;
• building upon and investing in human capital in ways that systematically and
increasingly reflect the diversity of our society; and
• establishing local and global involvement and partnerships in projects that are
rooted in or benefit South Africa and the rest of Africa.
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The aims of the IDC with respect to the sector are to
provide funding to small and medium-sized mining,
mineral beneficiation and jewellery manufacturing
enterprises...
Financing
The aims of the IDC with respect to the sector are to provide funding to small and
medium-sized mining, mineral beneficiation and jewellery manufacturing
enterprises and to play a leading role in the development of commercially
sustainable mining and beneficiation projects in South Africa and the rest of Africa.
The IDC’s financing terms include:
• unique financing packages that suit the requirements of each project;
• financing structured to take into account cash flow, normally including a capital
repayment moratorium of one year; and
• a repayment period of between three and five years.
The minimum amount that can be invested is R1 million and the maximum is
R500 million.
Financing instruments used include:
• equity;
• quasi-equity 9 ;
• limited recourse finance 10 ;
• commercial loans;
• wholesale finance;
• share warehousing 11 ;
• export/import finance;
• short-term trade finance; and
• guarantees.
The procedures adopted by the IDC are as follows:
Initial screening
Basic assessment
Feasibility completed
Term sheet
Feasibility not fully investigated
*MOU/Co-operation agreement
Due diligence
Feasibility study
Decision-making (Investment committee)
Legal agreements
Disbursement
* Memorandum of understanding
Post-investment management
9
Financing which has characteristics of both debt and equity.
10
Project financing, where the money lent is done so on the basis of the project’s financial viability, not that of the company.
11
Loans against shares.
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On receipt of an application, an initial screening will be undertaken to ensure that
all the required basic information has been submitted to enable the IDC to fully
assess the application. This basic assessment establishes whether the IDC norms
regarding economic merit, financial structure and IDC exposure have been met.
A team of professional staff, covering the disciplines of marketing,
production/technical and finance will then visit the applicant to evaluate the
application. The duration of this visit will normally be between three and five
working days. With respect to decision-making, applications of up to R10 million
are considered weekly by a Credit Committee. The Executive Management meets
weekly to consider applications above R10 million up to R60 million. The IDC’s
Board of Directors generally meet on a monthly basis to consider applications for
larger amounts.
An agreement will be forwarded to the applicant for signature after the application
has been approved. After all conditions precedent to the loan (which could include
the registration of bonds) and other formalities of the loan agreement have been
complied with, the loan may be drawn down, usually against proof of expenditure.
The period following the termination of the project will be managed according to a
mutually agreed plan, to include Board representation, relationship maintenance
and strategic value-added support.
Support for the Mining and Jewellery Sectors
Support for the gold industry at the IDC was initially facilitated by two Strategic
Business Units (SBUs) namely the Resources and Beneficiation SBU and the
Entrepreneurial Mining and Jewellery SBU. These two SBUs merged in
July 2005 to form the Mining SBU.
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The focus of the Mining SBU is firstly on larger projects with greater involvement
from IDC staff, mainly equity type transactions augmented by other financial
instruments. The IDC becomes involved in project development, typically at the
end of feasibility, and includes mining projects as well as large-scale mineral
beneficiation projects.
Secondly, the SBU is involved in small, medium and large scale mining and jewellery
projects that are already in or beyond the implementation phase and include the
transfer of ownership to black economic empowerment (BEE) parties, preferential
procurement to BEE and SME service providers to the mining industry.
The primary focus of the Mining SBU is on larger
projects with greater involvement from IDC staff...
Secondly, the SBU is involved in small, medium and
large scale mining and jewellery projects that are
already in or beyond the implementation phase...
According to the IDC, the entity’s total mining exposure, as at June 2005, was as
follows:
Mining exposure as at June 2005
Rand
Sector value %
Mining: coal and lignite 69,166,284 1.2
Mining: gold and uranium 721,330,952 12.7
Mining: non-ferrous metals 1,335,199,262 23.6
Stone quarrying, clay, sand 53,194,403 0.9
Mining: diamonds (including alluvial) 66,629,090 1.2
Mining and quarrying n.e.c. 153,081,847 2.7
Services incidental to mining 167,944,442 3.0
Manufacture: basic iron and steel 487,360,526 8.6
Basic precious and non-ferrous 1,610,060,811 28.4
Other fabricated metal products 93,9759,189 16.6
Manufacturing n.e.c. 46,456,270 0.8
Other 10,484,339 0.2
Total 5,660,667,415 100.0
Source: Industrial Development Corporation
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The IDC’s approval rate for gold jewellery projects (measured in terms of the
number of applications approved relative to the total applications received) is about
20%. Finance was mainly provided for working capital and a small portion for plant
and equipment.
The challenges faced by the IDC in dealing with gold jewellery financing
applications, by order of importance, include:
• inadequate loan security;
• incomplete business concepts;
• lack of an adequate marketing plan; and
• lack of sufficient management expertise.
The inability of the jewellery manufacturer to provide sufficient loan security is
neither new nor specific to the IDC. The IDC requires a minimum of 40% of the
loan to be secured.
With respect to incomplete business concepts, the IDC gives applicants the
opportunity to address areas of the business plan which have not met IDC criteria
after the initial business plan has been assessed.
Of concern to the IDC is the fact that applications for jewellery manufacturing
loans frequently fail to show full enough appreciation of the required marketing of
the final product. While the business plans may address the product and the
manufacturing component, some of the applications fail to demonstrate full
understanding of the targeted market and the necessary strategies which need to
be implemented in order to achieve the envisaged market share.
In terms of management, the IDC reports that potential newcomers to jewellery
manufacturing need to demonstrate sufficient management skills (technical,
financial and marketing) and understanding of the jewellery industry in order to
successfully implement a jewellery project.
South Africa’s central bank, the South African
Reserve Bank (SARB), was originally the sole
purchaser and marketer of local gold production. In
recent years, especially with the partial lifting of
exchange controls, the Reserve Bank has withdrawn
from this role in the gold market...
6.6.3 The South African Reserve Bank (SARB)
South Africa’s central bank, the South African Reserve Bank (SARB), was originally
the sole purchaser and marketer of local gold production. In recent years, especially
with the partial lifting of exchange controls, the Reserve Bank has withdrawn from
this role in the gold market.
In terms of the Reserve Bank Act of 1989, SARB still has the following powers and
functions relating to precious metals:
• the buying, selling, trading and holding for itself and others in safe custody all
financial instruments including precious metals. Gold traded is for the profit or
loss of the Government;
• striking precious metal coins through its subsidiary, the South African Mint;
• the determination, in consultation with the Ministry of Finance, of the price of
gold at which any gold held by SARB is valued; and
• the management of gold held by SARB as part of South Africa’s reserves.
134 GOLD IN SOUTH AFRICA

Until December 1997, SARB was the sole marketer of all South African gold
production. Prior to that date, all mine output was offered to the SARB via
Rand Refinery within 30 days of production. In 1998, SARB granted local gold
miners permission to sell all their output in the open international markets and
gradually withdrew from its role as the purchaser of South African gold production.
This had the effect of greatly reducing the presence of the SARB in the
international gold market.
To date, the SARB still purchases and markets limited amounts of production from
the smaller mines, and continues to manage the country’s reserve position. This
stood at 124t at the end of June 2004.
South African gold holdings as a percentage of total reserves have fallen sharply
since 1997, in line with the increase in the country’s non-gold reserves, which are
predominantly held in Dollars.
The increase in gold reserves in June 2000 was the result of a $500 million golddenominated
syndicated loan facility put in place internationally by the SARB and
drawn down over a period of three years.
SARB is also permitted to place limited amounts of gold on deposit with
commercial banks. The volume of gold varies but does not exceed 10t (320,000oz).
Given that total gold lending internationally (national central banks and official
institutions such as the Bank for International Settlements) currently amounts to
3,770t, South Africa’s contribution to the gold deposit market is less than 1%.
Most recently, SARB has allocated 500,000oz (approximately 15.6t) of fine gold for
sale through NewGold Issuer Limited, the public company issuing the gold
Exchange Traded Fund (ETF) 12 recently launched by Absa in the country. This
tonnage defines the current maximum potential size of the initial South African ETF.
All gold coins struck and offered by the South African Mint are legal tender. By far
the most famous is the Krugerrand but also on offer are the Protea series and the
Natura series. Details of these coins can be found in Chapter 5.
CHAPTER 6
TRANSFORMING THE INDUSTRY: LEGISLATIVE, FISCAL AND FINANCIAL CONTEXT
12
See Chapter 5 for a full description of NewGold and an analysis of all Exchange Traded Funds.
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CHAPTER 7
Contents:
7.1 TRADE 138
7.1.1 South Africa as an international trading partner 138
7.1.2 Customs and excise and the imports of gold to and
from South Africa 138
7.1.3 Results of the customs data analysis 140
7.1.4 Export considerations and structural initiatives 143
7.2 TOURISM 148
7
Photograph courtesy: AngloGold Ashanti Limited
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South Africa, as a major importer and exporter of
goods, has long-standing trade relationships with a
number of countries...
South Africa is a major importer and exporter of a wide range of goods and services
and consequently has long-standing trade relationships with a number of countries.
As the world’s largest miner of gold, (14% of global production in 2004) 1 , South
Africa is an important participant in the international gold market.
7.1 TRADE
Since 1994, the value of South Africa’s exports has
on average risen by 12% per year...
In value terms, the contribution of mining to South
African exports has fallen from 50% in 1994 to 32%
in 2004...
7.1.1 South Africa as an international trading partner
Since the first democratic elections in 1994, the value of South Africa’s total
exports has on average risen by 12% per year, while the value of total imports has
risen by 15% on average per year.
In value terms, the contribution of mining to South African exports has fallen from
50% in 1994 to 32% in 2004. In contrast, the importance of the manufacturing
sector to exports (in value terms) has increased over the same period from 40%
to 60%.
By region, Europe and Asia account for 60% of the value of all South African
exports. The proportion of exports to Asia, currently 24%, can be expected to rise
with increased demand for raw materials from China.
The United States, United Kingdom and Japan are the top importers of South
African goods and services in value terms, representing collectively 33% of the total
of the country’s global exports in 2004.
The largest source of South African imports is Germany, which accounted for 14.6%
of the value of imports into the country in 2004. These imports are mainly
heavy-duty equipment and machinery.
By region, South African imports on a value basis are even more consolidated than
exports, with Asia and Europe accounting for 80% of goods imported in 2004.
7.1.2 Customs and excise and the import and export of gold to and from
South Africa
The analysis of gold imports and exports into and from South Africa differentiates
between the authorities’ definitions of ‘monetary gold’ (bars), ‘coin’ and ‘other fine
gold products’ that refer to jewellery either in finished or semi-fabricated form.
Before presenting the analysis, some comments on the data are warranted.
South Africa conforms to and uses the international Harmonised Commodity
Description and Coding System (HCDCS or HC) in the recording and reporting of all
trade data.
1
See Chapter 2 for details.
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The HCDCS codes relevant to the gold industry are shown in the following table:
Harmonised commodity description and coding system (gold)
71.08 Gold Unwrought, semi-fabricated
or powder form
71.08.10 Non-monetary
71.08.11 Powder
71.08.12 Other unwrought
71.08.13 Other semi-manufactured form
71.08.13.1 Bars, rods, plates, sheets and strip
71.08.13.2 Foil
71.08.13.9 Other
71.08.20 Monetary
71.13 Jewellery
71.18 Coin
Data source: Department of Trade and Industry
To collate a summary of imports and exports of fine gold into and out of South
Africa, the trade figures associated with the above HCDCS codes going back to
1999 were analysed. In each year, analytical anomalies with the official data were
encountered. These are listed below and it should be noted that they are in no way
unique to South Africa. Similar anomalies are encountered in the analysis of trade
statistics of other countries:
• there were instances where clear typographical errors had been made, as
tonnage figures bore no relation to quoted Rand values;
• there are a number of sub-codes, and it is unclear from their definitions exactly
to which precious metals they refer and the form of the precious metals; and
• there were instances where the units of measurement had been confused. For
example, the volume figures were in grams when they ought to have been in
kilograms or vice versa. Further, there were instances where there were no
tonnage figures, only Rand values, in the category covering 99% of gold exports
(defined as ‘country unknown’ or ‘origin of goods unknown’).
The table below was extracted from the DTI’s website and demonstrates the
situation. Examining the more detailed statistical database provided by Customs
and Excise still left a number of unanswered questions:
2004 DTI trade data
Gold exports Code 7108 Rand value %
Origin of goods unknown 28,053,783 99.9
India 24,496 0.1
UK 3,439 0.0
Hong Kong 271 0.0
US 58 0.0
Total 28,082,047 100.0
Data source: Department of Trade and Industry website.
• there were instances of South Africa importing metal to itself, with no clear
explanation for this. These figures may have represented semi-fabricated
jewellery exported for finishing and then re-imported into the country for sale,
but this is only conjecture; and
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• while Customs and Excise appear to collate the data on a monthly basis, the
data is only published on an annual basis. Due to concerns about accuracy, and
lack of data with respect to the volumes as described above, analysis of
volumes was therefore based on the Rand values. On an annual basis, the
analyst was then obliged to apply an average Rand gold price for the year,
taking into account the Rand/Dollar exchange rate and the international gold
price in Dollars.
Given these concerns, the analysis of trade figures has relied more on the value of
trade (in millions of Rand) than on the quoted volumes (in grams, kilograms or
tons).
This approach addresses the concerns about the volumes but raises other concerns
with respect to the interpretation of the values. Obviously, the exchange rate used
greatly affects the calculation of the final gold tonnages. Even using end-period
data as opposed to averages can greatly influence the outcome, particularly when
the currency has been subject to wide trading ranges during the year under review.
Accordingly, while we have made the best use possible of the data available, there is
the potential for a margin of error.
7.1.3 Results of the customs data analysis
Exports of gold from South Africa
According to the trade figures collated by Customs and Excise, annual exports of
fine gold from South Africa between 1999 and 2004 were as follows, expressed in
the calculated tonnages from the Rand values: 2
Fine gold exports from South Africa 1999-2004 (t)
Monetary gold Coin Jewellery
1999 452 1.07 1.81
2000 451 0.48 2.48
2001 414 0.47 2.84
2002 418 0.39 3.70
2003 408 0.42 4.50
2004 421 0.72 5.07
Data Source: Virtual Metals’ Analysis of Customs and Excise data.
Exports of fine gold in bars totalled 421t in 2004...
Fine gold exports in the form of jewellery have risen
over the past five years...
Exports of fine gold in bars (monetary gold) totalled 421t in 2004, up from 408t in
2003. Exports of fine gold coins and medallions totalled 0.72t, up from 0.42t the
previous year.
Fine gold exports in the form of jewellery product have risen over the past five
years at an annual average of 23%, albeit from a very low base in 1999 of the
calculated Rand value equivalent of 1.81t.
This increase in exports of gold jewellery has occurred despite a volatile Rand, with
the exchange rate against the Dollar depreciating by 20% annually between January
1999 and December 2001, before appreciating by 24% a year between January
2002 and December 2004 (see the accompanying chart).
2
The methodology used for the calculation of the tonnages from the Rand value in all cases was as follows: Virtual Metals used the
appropriate HCDCS code which gives an annual value in billions of Rand. This was divided by the average Rand gold price in the
respective year to give a tonnage figure. Allowance was then made for the mark-up on the various gold products where appropriate.
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The stronger Rand has made South African gold jewellery exports more expensive.
Interviews with the gold jewellery manufacturers who produce primarily for the
export market confirmed that, in recent years, the strong currency has affected
their ability to export final product. 3 As manufacturing costs became more
expensive in the wake of the stronger Rand against the Dollar, these manufacturers
adjusted their marketing to recapture more of the local market in the face of
declining overseas market share.
In effect, the strong Rand also placed pressure on domestically-focused local
fabricators as they now have to compete with local manufacturers who were
previously targeting the export market.
The strong Rand has placed pressure on local
manufacturers targeting the South African market...
The effect of the strong Rand aside, the increase in the levels of fine gold exports of
jewellery reveals some potential for local fabricators to break into the overseas
markets, although from a low base.
Details gained from the interviews with the primary manufacturers tied in closely
with the Customs and Excise figures. Cumulatively, the 20 fabricators interviewed
reported exporting at least 4.1t of fine gold in 2004. In addition, according to the
research, another 0.5t is believed to be for indirect export via tourism. Furthermore,
this research acknowledges that there must be some exports of gold product by
manufacturers who were not interviewed although, given the fabrication sample
covered by the interviews, this volume is considered to be relatively small.
The chart on the right shows the country destination of this exported jewellery.
In considering the growth potential of jewellery exports, there are two important
considerations.
• South Africa enjoys favoured nation status with the USA via the African Growth
and Opportunity Act of 2002 (AGOA) 4 , which allows South African gold
jewellery fabricators to export their finished product to the USA free of import
duties. This gives South African jewellery manufacturers a 6% cost advantage
over their European and Far Eastern competitors, on whom the 6% duty is
levied for jewellery product destined for the USA. The predominance of the
United States as an importer of manufactured jewellery (62% of the total
amount of jewellery exported from South Africa in 2004) is partly a function of
South Africa benefiting from AGOA status with that country.
• Under the South African/European Trade Development and Co-operation
Agreement (TDCS) 5 , a Free Trade Area (FTA) between South Africa and the
European Union is being developed through the gradual abolition of import and
export tariffs between the two trading partners. Import and export duties are
gradually being removed from their maximum of 20% in 2003 to zero by 2012.
This implies that the country will be able to export local gold jewellery dutyfree
into Europe. Therefore, over the next six years, the European market will
gradually open up to South African jewellery manufacturers at an increasingly
attractive fiscal rate.
This reciprocal removal of trade duties between South Africa and the European
Union is, however, a double-edged sword. It implies that European jewellery
manufacturers will, in turn, be able to import their products into South Africa,
ultimately duty-free. This will gradually remove the 20% fiscal protection currently
in place for South African manufacturers with predominantly local target markets.
3
See Chapter 4 for further comments.
4
AGOA is discussed in more detail later in this chapter.
5
TDCS is discussed in more detail later in this chapter.
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The following table details the proposed reciprocal reduction in import and export
tariffs agreed between the European Union and South Africa:
Phase-down between the European Union and South Africa
Reciprocal tariff Import/export tariff %
2004 20.0
2005 17.6
2006 15.0
2007 12.6
2008 10.0
2009 7.6
2010 5.0
2011 2.6
2012 0.0
Data source: TDCS.
Increasing trend for jewellery manufacturers to seek
trade outlets outside traditional markets...
The reduction of tariffs applies to jewellery fabricated from gold, silver and PGMs. 6
The implication is that locally produced precious metal jewellery will eventually
enjoy access to this market, free of import duties.
Apart from South Africa’s traditional major trading partners, there is an increasing
trend for jewellery manufacturers to seek trade outlets with other markets. Sub-
Saharan Africa has been cited as a potential market with manufacturers
investigating possible business opportunities in countries such as Nigeria, Ghana
and Mali. The reasons given for this interest in other African countries are largely
associated with increased levels of overall business being conducted and jewellery
being perceived as one of many opportunities for increased trade. Although
manufacturers intend to consider other African markets as a potential destination
for their jewellery product, little in the way of business in these areas appears to
have been generated to date.
Imports of fine gold to South Africa
Trade figures collated by Customs and Excise indicate that annual imports of fine
gold by product, between 1994 and 2004, were as follows, expressed in the
calculated tonnages from the Rand values:
Fine gold imports to South Africa 1994-2004 (t)
Monetary gold Coin Jewellery
1999 0.00 2.68 0.85
2000 0.03 1.67 1.16
2001 0.01 0.96 0.87
2002 0.07 0.71 0.67
2003 0.00 0.46 0.74
2004 0.00 0.32 1.28
Data source: Virtual Metals Analysis of Customs and Excise data.
It should be noted that no data was available on imports of non-South African gold
production known to be refined in South Africa. This is because ownership of mine
production remains with the mine and is not passed on to the refinery when the
doré is delivered for refining. However, once manufactured (mainly into bars), these
products are recorded as exports from South Africa, irrespective of the country of
origin of the gold.
Imports of fine gold coins in 2004 were recorded at 0.32t and imports of gold
jewellery in 2004 totalled a calculated Rand-value-equivalent of 1.28t of fine gold.
Gold jewellery imports have not shown the same growth as the gold jewellery
exports, as the accompanying chart shows:
The chart on the left shows the Rand value of jewellery imports into South Africa.
In calculated tonnages of fine gold, the imports show a similar profile. Between
6
Platinum group metals
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TRADE
2001 and 2003, these imports varied between 0.67t and 0.87t of fine gold. In 2004,
they increased to the calculated tonnage equivalent of 1.28t.
As the accompanying chart shows, much of this increase in imports of gold
jewellery 7 came from Hong Kong and China, which accounted for one third of total
imports.
This increase in imports of jewellery product from China and Hong Kong appears to
be a combination of three factors:
• increased trade and imports of a wide range of products from these countries;
• finished product that is cheaper to manufacture in these countries because of
lower labour costs relative to South Africa; and
• the strengthening Rand, especially between 2002 and 2004, which reduced the
cost of importing goods into South Africa.
Interviews confirmed that the level of imports of gold jewellery is highly subject to
fluctuations in the Rand/Dollar exchange rate, rising in times of Rand strength and
falling when the Rand weakens against the Dollar.
With the stronger Rand, especially between 2002 and 2004, the trade reported a
sharp increase in the number of commercial entities importing finished jewellery
into the country. More seriously, many claimed that the strength of the Rand was
encouraging a high level of smuggling of finished jewellery into the country,
avoiding both the 20% import tax and 14% VAT. This is obviously not reflected in
the official trade statistics and it must be assumed that the official figures that are
presented here understate the true levels of gold jewellery entering the country,
possibly by a wide but unverifiable margin.
7.1.4 Export considerations and structural initiatives
The South African/European Trade Development and Co-operation
agreement (TDCS)
The South African/European Trade Development and Co-operation Fund (TDCS)
provides for the creation of an FTA between the European Union and South Africa
by no later than 31 December 2012. By this date, 90% of all trade between the two
partners will be free of customs duties. The European Union will remove duties on
95% of South Africa’s exports to the European Union over 10 years. Similarly, South
Africa will remove duties on 86% of the European Union’s exports to South Africa
over a 12-year period.
It should be noted that the phase-out of the duties takes place over a different
time horizon – the reduction of duties as they apply to South African fabricated
goods for export to Europe takes place more quickly than the reduction of duties
on European manufactured goods for export into South Africa. The implication here
is that South Africa will have a limited window of opportunity during which local
manufacturers will benefit from being able to export to Europe at a lower rate of
tax compared to European manufacturers exporting to South Africa. From 2012,
however, the zero-rate tax rate will apply to both trading partners.
Quotable quotes:
“I reckon at least another 50% over over the official
import figures is being brought in through the green
channel in suitcases. It is killing the local
manufacturer who has overheads to pay.”
Jeweller manufacturer
”Smuggling can be an individual coming into the
country wearing 10 tennis bracelets or it can be more
organised in which case the volumes are huge.”
Jewellery manufacturer
Quotable quotes:
“I “I reckon am importing at least another finished 50% product. over over Even the official
with
import duties, figures VAT and is being a clearance brought cost, in through I can land the very
green
channel similar goods in suitcases. in South It is Africa killing cheaper the local
than I can
manufacturer make the stuff.”
who has overheads to pay.”
Jewellery manufacturer
Goods to which the FTA protocol will apply need to:
• be produced in their entirety from products grown or mined in South Africa or
the European Union or derived from these products or their by-products; or
• contain manufacturing inputs imported from outside South Africa or the EU, but
which conform to the specific processing rules pre-described for each tariff
heading.
The duty phase-out allowed for by the TDCS has important implications for the
local jewellery industry and a table of the phase-down was presented earlier in this
chapter.
Duty phase-out as a result of TDCS has important
implications for the local jewellery industry...
7
According to the trade codes and definitions, this gold jewellery may contain set or mounted stones. However, it is clear
that it excludes unset or loose diamonds, which have a separate coding category.
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The African Growth and Opportunity Act of 2000 (AGOA)
AGOA was signed into law in the USA on 18 May 2000 as Title 1 of The Trade and
Development Act of 2000. Since then the Act has been amended twice – on 6
August 2002 and 12 July 2004 – extending the terms and tenure of the Act.
AGOA offers incentives for African countries to continue their efforts to open their
economies and build free markets. These incentives are in the form of trade
between the country and the USA free of duties, and quotas on specified product
lines. It provides reforming African countries with the most liberal access to the
American market available to any country with which the USA does not have a Free
Trade Agreement.
AGOA originally covered the eight-year period from October 2000 to September
2008, but amendments signed into the law by President George Bush in July 2004
further extend AGOA to 2015. AGOA builds on existing USA trade programmes by
expanding the duty-free benefits previously available only under the Generalised
System of Preferences (GSP) programme. Duty-free access to the United States
market under the combined AGOA/GSP programme now stands at approximately
7,000 product tariff lines.
AGOA allows access to the USA market, free of import duty, for the 37 African
countries designated as eligible, South Africa included. Those qualifying are chosen
according to various pre-defined criteria, including evidence of progress towards the
following:
• market-based economies;
• development of political pluralism and the rule of law;
• elimination of barriers to trade and investment;
• adherence to legal infrastructure;
• commitment to democratic principles and human rights issues;
• protection of intellectual property;
• increased availability of health care and education;
• protection of workers’ rights; and
• efforts to combat corruption.
The USA is one of South Africa’s major trading
partners...
The USA is one of South Africa’s major trading partners: exports from the USA to
South Africa greatly exceed USA exports to other Sub-Saharan countries.
Between 2001 and 2003, the percentage of South African exports to the USA
covered by AGOA or the GSP provisions rose steadily from 21% in 2001 to 32% in
2002 and 34% in 2003. In 2004 it fell back to 30%. However, in value, it continues
to rise, from $1.69bn in 2001 to $1.78bn in 2004.
In terms of African exports to the United States, South Africa ranked second only to
Nigeria. While exports from Nigeria were heavily weighted in favour of oil and oilrelated
products, exports from South Africa comprised a diverse range of products
of which jewellery was but one, accounting for 1% of the total. However, this total
does not include monetary gold exports to the US, as South African Customs do
not break this data series down by country of destination.
By sector, minerals and metals were the largest single category of exports to the
USA under AGOA, comprising 36% of exports by value. This share is, however
somewhat smaller than the minerals and metals sector’s share of the total South
African exports (including AGOA and non-AGOA).
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Value 000 $ 2004
Total Exports Total
exports under imports
to USA AGOA from USA
Minerals and metals:
excluding monetary gold 3,874,580 639,845 111,320
Transportation 649,459 539,144 867,566
Chemicals 394,724 219,428 501,563
Agricultural products 224,955 148,976 189,052
Machinery 192,044 16,630 381,997
Textiles and apparel 180,505 119,622 31,612
Misc. manufactures 87,064 57,648 56,774
Forest products 81,951 24,615 96,648
Energy 55,282 – 113,402
Electronics 47,434 14,237 474,776
Footwear 1,024 890 1,460
Data Source: AGOA.
Dollars
ATA Carnet
The ATA Carnet system is an internationally operated and recognised means of
facilitating trade and streamlining customs procedures for temporary export of a
variety of products. The system operates under the international customs
conventions administered by the World Customs Organisation (WCO).
In 2000, some 200,000 carnets were issued globally covering goods valued at
$12 billion. ATA stands for ‘Admission Temporaire/Temporary Admission’ and covers
commercial samples, professional equipment and goods for exhibit and return to
the country of origin.
In 2000, some 200,000 carnets were issued globally,
valued at $12 billion...
In practice, and specific to the local jewellery industry, the ATA carnet is issued by
the South African Chamber of Business (SACOB) to South African exhibitors of
jewellery prior to leaving the country to exhibit at one or several foreign venues.
This ensures that the exhibitor is exempt from paying provisional duties and taxes
for temporary importation purposes in the country of destination. The exhibitor, in
order to be issued with the appropriate ATA carnet, has to comply with SACOB
regulations by photographing, tagging, weighing and valuing each item of jewellery
and each piece being taken out of South Africa for exhibition purposes.
South Africa is one of 59 countries in which ATA carnets are issued and accepted.
For South African jewellers, this facilitates exhibiting in countries such as the USA,
Israel, China, Japan, Australia and throughout Europe.
South Africa is one of 59 countries in which ATA
carnets are issued and accepted...
For local jewellers wishing to export their goods temporarily, the ATA Carnet
eliminates VAT payments and customs duties on their return. Carnet holders also do
not have to post any securities at customs. Holders can make customs
arrangements ahead of travel, visit more than one country on the same carnet and
use the carnet for multiple trips through its annual validity.
Fees vary according to the country and are determined by the value of the goods,
the number of countries to be visited plus any additional security, insurance or
other services. In South Africa, SACOB charge the following:
• for goods valued at R100,000 or less there is a flat-rate fee of R1,300 per
carnet;
• for goods valued in excess of R100,000 the flat-rate fee is R1,900 per carnet;
and
• express services for the issuing of carnets attract a further R300 charge. If the
exporter wants SACOB to complete all the paperwork, there is an additional fee
of R500.
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In addition, the temporary exporter must lodge a cheque or bank guarantee for
50% of the value of the goods for export. This is fully refundable on re-importation
of the goods. While the ATA carnet system assists jewellers who intend to exhibit
overseas as temporary exporters, the requirement for a cheque or bank guarantee
to the value of 50% of the value of the goods for export still poses a problem,
especially for small and micro manufacturers.
SACOB is the country’s only issuing and granting
association...
TISA concentrates on the manufacturing sector and
the development of small, medium and micro
enterprises...
SACOB is the country’s only issuing and granting association, acting in accordance
with international customs conventions. The fees paid to SACOB as a Section 21
Company 8 for the service go to covering the costs of printing and issuing the
carnets, as well as to the associated insurance of the goods and administrative fees.
SACOB does make an undisclosed profit on issuing carnets.
Trade and Investment South Africa (TISA)
Trade and Investment South Africa, (TISA), is an agency working under the auspices
of the Department of Trade and Industry (DTI). It is designed to provide a ‘one-stop
shop’ for investors and exporters at a national level.
As a service delivery agency that combines trade and investment promotion, TISA is
positioned to assist the DTI so that it may maximise the synergies between
investment and export. TISA operates out of the DTI in South Africa and out of 50
diplomatic offices globally, providing core market information and identifying
marketing and investment opportunities.
TISA’s strategy is threefold:
• the development of Industrial Development Zones (IDZs);
• the development of special investment packages to match those being offered
by competing countries; and
• the development of policy for the creation of investor-friendly environments.
TISA concentrates on the manufacturing sector (including jewellery fabrication) and
the development of small, medium and micro enterprises (SMMEs). TISA also coordinates
provincial development initiatives.
While TISA appears to have made progress in encouraging South African presence
internationally via trade exhibitions, the overall concept has some way to go before
its stated objectives are met. As yet, the local jewellery industry is not fully aware
of the incentives offered through TISA. This lack of awareness is not confined to
TISA services but also extends to those training incentives which are offered, for
example, by the MQA.
In this regard, South Africa is competing with initiatives such as the DMCC 9 in Dubai
which was established in 2002. The DMCC is an industrial development zone
offering one-stop refining and trading facilities for the precious metals and diamond
industries. The DMCC offers investors a number of incentives, the most relevant of
which for this discussion is a 50-year tax free status for investors with respect to
both personal and income tax, no foreign exchange controls and no restrictions on
capital repatriation.
Industrial Development Zones (IDZs)
The DTI’s Industrial Development Zone (IDZ) Programme is designed to encourage
international competitiveness in South Africa’s manufacturing sector. The IDZ
programme was established under the Manufacturing Development Act No 187 of
1993 as amended in 2000.
An IDZ is a purpose-built industrial area...
An IDZ is a purpose-built industrial estate linked to an international airport or port
that contains a Controlled Secured Area (CSA). A CSA is exempt from duties, VAT
and import duties on machinery and assets.
8
A company established not for profit.
9
Dubai Metals & Commodities Centre.
146 GOLD IN SOUTH AFRICA

CHAPTER 7
TRADE
Each IDZ is designed to:
• provide a location for the establishment of strategic manufacturing
investments;
• promote and develop links between domestic and zone-based industries,
maximise existing infrastructure, generate employment and encourage the
transfer of technology; and
• allow for the exploitation of resource-intensive industries.
The primary intended characteristics of an IDZ are that, ultimately, it should:
• have direct links to international gateways;
• be geared towards production for export;
• have dedicated customs support;
• have access to duty-free importation of raw materials and inputs;
• have a zero VAT rating on supplies procured from within South Africa;
• have import status on finished goods sold locally; and
• have the ability to qualify for government incentive schemes.
There are four IDZs at different stages of
development...
There are currently four IDZs at different stages of development.
The first IDZ is the Coega Industrial Development Zone near Port Elizabeth which
took its first tenant in May 2005. While it is operational, it is too early to evaluate
its success. The second is in Richards Bay and is under development. The third is
ELIDZ, the East London Industrial Development Zone, which was first granted a
licence to operate in March 2003. In July 2005 it was announced that the ELIDZ
was finalising the first phase of its infrastructural development and had attracted
three investors, the largest of which was a glass manufacturer. This IDZ is focusing
on the automotive, agricultural and pharmaceutical sectors and not on the precious
metals industries. The fourth is a proposed IDZ at Johannesburg International
Airport, the details of which are given below, since the proposal relates directly to
the local gold industry.
The Proposed Johannesburg International Airport (JIA) IDZ
A consortium led by Mintek, the Airports Company of South Africa (ACSA), Blue IQ
and Rand Refinery, has been set up to establish a Precious Metals/Jewellery
Manufacturing Precinct. The precinct would be designated as an IDZ and consist of
two centres – one at JIA within the High Security Zone on a five hectare plot; the
other at Rand Refinery on the 2.5 hectare Gold Zone site. This IDZ is specifically
designed for the manufacture and export of jewellery products.
The proposed IDZ at Johannesburg International
Airport relates directly to the local gold industry...
The purpose and objectives of this IDZ are to:
• achieve national beneficiation objectives by building South Africa’s export
capacity in jewellery and related industrial sectors;
• create an integrated centre linking production, beneficiation, retail, and export
of precious metals;
• create a regulatory fiscal environment (ie. zero VAT on export related
transactions) for the manufacture and export of South African produced
jewellery;
• establish an export centre for the trading and cutting of diamonds;
• establish a global centre for national and international applied research and
development, utilising precious minerals and metals primarily for jewellery
related applications;
• administer gold, platinum and diamond loans; and
• allow for the phased implementation of a mineral/metal exchange – initially to
support working capital for jewellery production and industrial production of
precious metal/mineral product, as well as the exchange of scrap and refined
product.
As at the time of wriring, construction is scheduled to begin in February 2006.
GOLD IN SOUTH AFRICA 147

CHAPTER 7
TRADE
7.2 TOURISM
South Africa had 6,677,839 visitors in 2004; this industry is still relatively small in
global terms. The vast majority of those who arrived in the country were from
within Africa to seek employment and therefore cannot be considered tourists.
The country is ranked by The Economist (World in Figures, 2006) as the 25th most
popular holiday destination. In international terms this may seem small. According
to The Economist, tourist numbers amount to only 1/12th of the numbers visiting
France and one-third of the numbers visiting Germany.
Tourist arrivals 2004 % change on
000’s 2003
1 France 76,056 1.4%
2 Spain 52,477 1.8%
3 USA 40,356 7.0%
4 China 34,356 5.1%
5 Italy 33,477 0.0%
6 UK 25,854 3.9%
7 Russia 20,737 1.4%
8 Austria 20,059 5.1%
9 Mexico 19,726 3.3%
10 Germany 19,588 6.3%
32 South Africa 6,677 2.7%
Data Source: South African Tourism Strategy Unit.
A more comparable data set for South Africa might be other ‘long-haul’ destinations
such as the USA, Australia or Thailand. South Africa receives more visitors than
Australia or Brazil, but fewer than Thailand, Mexico or the USA. In reviewing data on
South African tourist arrivals, it needs to be borne in mind that many visitors to
South Africa are from neighbouring countries, and visit South Africa with the
intention of purchasing basic commodities and white goods, rather than for the
purpose of tourism.
Tourist arrivals 2004 % change on
000’s 2003
USA 40,356 7.0%
Mexico 19,726 3.3%
Thailand 11,231 11.4%
South Africa 6,677 2.7%
Australia 5,200 7.7%
Brazil 4,155 2.2%
Data Source: South African Tourism Strategy Unit.
The majority of visitors to South Africa from outside Africa come from countries
with historical connections with South Africa. The fact that the UK features high on
the list of countries of origin of visitors is a function of the colonial history of South
Africa and the continued close trade links between the countries and their people.
This relationship also has some bearing too on the local jewellery industry in that
the two markets show strong similarities.
148 GOLD IN SOUTH AFRICA

APPENDICES
APPENDICES
Contents:
APPENDIX 1: THE INTERVIEW LIST 150
APPENDIX 2: THE SOUTH AFRICAN ECONOMY IN AN
INTERNATIONAL CONTEXT 153
APPENDIX 3: TRAINING AND SKILLS TRANSFER 157
APPENDIX 4: THE INTERNATIONAL GOLD MARKET 172
8
GOLD SURVEY 2005 149

APPENDIX 1
THE INTERVIEW LIST
ACKNOWLEDGEMENTS
Many people have assisted with the compilation of
this review and their contribution and support is
gratefully appreciated. To all the industry players who
participated in the interview process – a very special
thank you!
Quotable quotes:
“Apart from the VM team, I would like to extend a
special thank you to the following who went the
extra mile with this review. Gwyn Fourie of VM,
Lebo Mogotsi of Lebone Resources, Claire Minnitt
of 9 Dots, Lynne La Croix of Alan Mair, Margot
Rudolf of the Foschini Group, Patrizia Tennent of
Musuku, Adél Botha of Rand Refinery and Cathy
Lapping of Ernst & Young.
In keeping with the rest of this Review, I completed
an analysis of this data sample noting that 100%
of those who went the extra mile were women.”
Primary researcher
Gold Review Interview List
Sector
Company/department
Banking/Finance
ABSA Bank Ltd
Banking/Finance
Industrial Development Corporation (IDC)
Banking/Finance
Standard Bank Plc (Dubai)
Coins
SA Mint Company/Coin World
Coins
Universal Mint
Consultants
9 Dots
Government
Department of Minerals and Energy
Government
Department of Trade and Industry
Government
South African Customs and Excise
Government
South African Revenue Service
Government South African Police Service -
Diamonds and Gold
Government
South African Reserve Bank
Hallmarking
Sheffield Assay Office UK
Industrial
Bosco Printed Circuits (Pty) Ltd
Industry Body
Chamber of Mines of South Africa
Industry Body
Jewellery Council of South Africa
Industry Body
SA Chamber of Business (SACOB)
Industry Body
South African Mining Development Association
(SAMDA)
Jewellery Manufacturing Alan Mair Manufacturing Jewellers
Jewellery Manufacturing Andreas Salver Manufacturing Jewellers
Jewellery Manufacturing Angelo's Manufacturing Jewellers
Jewellery Manufacturing Creative Gold Manufacturing Jewellers
Jewellery Manufacturing Daberon Manufacturing Jewellers
Jewellery Manufacturing Haglund Jewellers
Jewellery Manufacturing Michael's Designs cc
Jewellery Manufacturing OroAfrica (Pty) Ltd
Jewellery Manufacturing Orofino Gioielli
Jewellery Manufacturing Peter Scott Jewellers cc
Jewellery Manufacturing Piero G Manufacturing Jewellers
Jewellery Manufacturing Pneuma Jewellers
Jewellery Manufacturing Rob's Workshop
Jewellery Manufacturing Schwartz Jewellers
Jewellery Manufacturing Sid Forman Manufacturing Jewellers (Pty) Ltd
Jewellery Manufacturing Silmar Marketing SA (Pty) Ltd
Jewellery Manufacturing Simon Efune Manufacturers
Jewellery Manufacturing Studio C Manufacturing Jewellers
Jewellery Manufacturing Subsaharan Livingstone
Jewellery Manufacturing/Retailing Galaxy Jewellers
Jewellery Manufacturing/Retailing Natal Wholesale Jewellers
Jewellery Manufacturing/Retailing Tourvest Group
Jewellery Retailing
Foschini Group
Jewellery Retailing
Mass Discounters
Labour Union
National Union of Mineworkers
Mining
AngloGold Ashanti Ltd
Mining
Gold Fields Ltd
Mining
Harmony Gold Mining Company Ltd
Museum/Cultural
Gold of Africa Museum
Museum/Cultural
Gold Reef City Mint
Primary Refining
Musuku Beneficiation Systems (Pty) Ltd
Primary Refining
Rand Refinery Ltd
Publications
Jewellers' Network
Retailing
Woolworths (Pty) Ltd
Secondary Recycling
Cape Precious Metals
Secondary Recycling
First Assay
Secondary Recycling
Metal Concentrators
Secondary Recycling
Perkins Metal Recovery
Technical
Council for Scientific and Industrial
Research (CSIR)
Technical
Mintek
Training
Tshwane University of Technology
Training
Vukani-Ubuntu Community Development
Projects
Training
Witwatersrand University of Technology
GOLD SURVEY 2005 150

APPENDIX 2
THE SOUTH AFRICAN ECONOMY IN AN
INTERNATIONAL CONTEXT
APPENDIX 2
Contents:
A2.1 ECONOMIC CENTRES, DEMOGRAPHICS AND
CONSUMER PROFILES 152
A2.2 LEGISLATIVE AND FINANCIAL INFRASTRUCTURE 153
A2.3 THE ECONOMY IN MORE DETAIL 154
8
GOLD IN SOUTH AFRICA 151

APPENDIX 2
THE SOUTH AFRICAN ECONOMY IN AN INTERNATIONAL CONTEXT
South Africa’s lead economic indicators are as follows:
Basic Economic Indicators
2003 2004
GNI per capita ($) 2,780 3,630
GNI per capita ($ PPP) n/a 10,960
Economic Growth GDP 2.8% 3.7%
Household cons. expenditure (year-on-year growth) 3.4% 6.0%
Consumer Price Inflation 5.8% 1.4%
Prime Overdraft Rate (end-year) 11.5% 11.0%
Rand/Dollar Exchange Rate (average) 7.56 6.45
Balance of Payments deficit (% of GDP) 2.0% 3.0%
Data Source: World Bank, South Africa at a Glance, DTI, Reserve Bank, June 2005 Quarterly Report.
A2.1 ECONOMIC CENTRES, DEMOGRAPHICS AND CONSUMER PROFILES
South Africa is the ninth largest country in Africa, and the 25th largest in the world
by land area. At 1.22 million square kilometres, it is just under one-eighth the size
of the USA but more than twice the size of France and five times larger than the
UK. In terms of population, it is the fourth largest country in Africa, and the 26th
largest country in the world.
South Africa’s population density is 37.2 people per square kilometre, compared
with 134 for China and 245 for the UK. 1
Urbanisation has been a characteristic of demographic flows, especially over the
past decade, resulting in distinct urban metropoles that dominate commercial,
social, political and fiscal activities.
These are:
• Greater Johannesburg - financial and commercial centre;
• Tshwane (formerly Pretoria) – executive and administrative capital;
• Cape Town – legislative capital and seat of parliament;
• Bloemfontein – judicial capital;
• Durban;
• Port Elizabeth; and
• East London.
Demographics at a glance (2004 unless stated)
Population 44.8m
Annual growth rate 2.0%
Population/Sq Km 37.2
Population under 15 34%
Birth Rate/1,000 22.6
Death Rate/1,000 16.9
Unemployment (2002) 29.5%
Urban Population 57.7%
Life expectancy
Men
45.1 yrs
Women
50.7 yrs
Adult Literacy
Male 87%
Female 85%
Source: United Nations.
1
Data Source: CIA World Fact Book, 2003.
GOLD IN SOUTH AFRICA 152

The unemployment rate, measured using the official expanded definitions 2 , has
tended to increase since 1995, although it fell slightly in 2004. In September 2004 3
(the latest available data), the official rate was 26.2%, or 4.1 million people. Women
have a slightly higher official unemployment rate of 30.2% compared to 23.1% for
men. There is little difference, however, in the official unemployment rate for urban
and non-urban areas. The official expanded rate, which includes ‘discouraged
workers’ 4 , was 41%.
Unemployment by racial breakdown is as follows:
• black people have the highest official unemployment rate of 31.3%; and
• the corresponding figure is 21.8% for Coloureds, 13.4% for Indians and
5.4% for Whites.
Formal sector employment has decreased from 79% of total employment in 1995
to 71% in 2004, while employment in the informal sector has grown from 14% of
total employment in 1995 to 20% in 2001. In the absence of formal sector
employment growth, the burden of absorbing the country’s expanding labour force
falls on the informal sector.
While there are no statistics to shed reliable light on the size of the informal
sector and the contribution it makes to the South African economy, discussions
with academics, commerce and government suggest that its contribution is
considerable and increasing.
Household expenditure
% of total 2000 1995
Food 20% 22%
Housing 16% 14%
Income Tax 14% 9%
Transport 10% 10%
Clothing/Footwear 5% 4%
Furniture 4% 3%
Health 4% 4%
Insurance 3% 4%
Drinks/Tobacco 3% 3%
Personal Care 3% 3%
Communication 3% 3%
Recreation/Holidays 2% 1%
Investments/Savings 2% 4%
Education 2% 4%
Household 2% 2%
Pensions 2% 3%
Domestic workers 2% 3%
Fuel/power 1% 1%
Other 1% 3%
Total 100% 100%
Data Source: Income and Expenditure Surveys, Statistics South Africa.
A2.2 LEGISLATIVE AND FINANCIAL INFRASTRUCTURE
South Africa has in place a modern and democratic constitution. It also has a longestablished
judicial system operating within first world financial and commercial
infrastructures.
At the end of 2003, South Africa had the 18th largest stock market in the world in
terms of capitalisation, and the largest in Africa.
The country still has exchange controls in place although, since 1994, certain of
these controls have been relaxed and further market liberalisation is anticipated.
APPENDIX 2
THE SOUTH AFRICAN ECONOMY IN AN INTERNATIONAL CONTEXT
2
Unemployment (official definition) includes all persons who during a specified reference period were: (i) without work, ie.
were not in paid employment or self-employment; (ii) currently available for work, and (iii) seeking work, ie. had taken specific
steps, in a specified recent period, to seek paid employment or self-employment.
3
Stats SA – OHS 1995 and LFS, 2004.
4
This is the standard rate plus ‘persons that did not take active steps to find employment in the month prior to the survey
interview’. It should be noted that the measure is controversial and will no longer be reported, although it will be possible to
calculate it from the underlying data.
GOLD IN SOUTH AFRICA 153

APPENDIX 2
THE SOUTH AFRICAN ECONOMY IN AN INTERNATIONAL CONTEXT
Stock market capitalization
$bn
US 14,266
UK 2,412
China 681
Italy 615
Australia 586
India 279
South Africa 268
Mexico 123
Turkey 68
Austria 55
Poland 37
Zimbabwe 24
Data source: The Economist World in Figures.
A2.3 THE ECONOMY IN MORE DETAIL
The formal South African economy, with the exception of 1998, has seen
reasonably solid GDP growth over the last 10 years. In 2004 it recorded a GDP
growth rate of 3.7% (see chart on previous page).
Despite relatively robust economic growth, the fiscal authorities have kept inflation
under control, as the chart on the previous page reveals, for both consumer and
producer prices. This was achieved largely through the management of interest
rates.
The country’s foreign reserves are currently at record highs, in part as a
consequence of the strong Rand. Reserves have increased since 1997 and by mid-
2005 stood at more than $15 billion. Nevertheless, fast rising imports mean that
the number of months’ imports covered by reserves has remained essentially
unchanged at between two and three months.
The South African economy still operates in a high interest rate environment,
certainly relative to the USA and Europe. Interest rates were at 7% in July, the
lowest they have been since 1981. Real interest rates, in other words after adjusting
for inflation, are 2.8% (CPI-X 5 is 4.2%) as at July 2005.
In recent years, the South African Rand has been volatile against most currencies,
particularly the Dollar. Against the Dollar, it has seen record lows and multi-year
highs in a space of only four years (see chart at left).
The Rand’s weak point came in December 2001 when it fell to R12.1 to the Dollar
before rebounding to highs of R5.6 in December 2004. It currently (September
2005) trades at R6.7 to the Dollar.
While the movements in the Rand were influenced by the fortunes of the Dollar
itself, some of the Rand’s performance can be attributed to internal financial and
economic circumstances specific to South Africa.
These currency movements have had an impact on the local gold industry. The
strength of the Rand has placed a number of gold mining companies under pressure
despite substantially higher Dollar-denominated spot gold prices. While the Dollar
gold price has increased steadily from May 2000, the strengthening of the Rand
against the Dollar has entirely offset those Dollar-denominated gains.
Thus, the gold price in Rands received by the local gold mining industry since early
2003 has made serious inroads into the revenues earned, threatening the future of
a number of operations. This is discussed in more detail in Chapter 2.
5
CPI-X is the measure of inflation the South African Reserve Bank targets.
GOLD IN SOUTH AFRICA 154

APPENDIX 3
TRAINING AND SKILLS TRANSFER
APPENDIX 3
Contents:
A3.1 LEGISLATION 156
A3.2 AUTHORITIES INVOLVED WITH TRAINING 156
A3.2.1 Sector Education and Training Authorities 156
A3.2.2 Mining Qualifications Authority 157
A3.3 JEWELLERY TRAINING AND SKILLS TRANSFER 158
A3.4 ISSUES FACING THE JEWELLERY INDUSTRY WITH
RESPECT TO TRAINING AND SKILLS TRANSFER 158
A3.5 TRAINING INSTITUTIONS 160
A3.5.1 Community-based training programmes 161
A3.6 JEWELLERY COMPETITIONS 165
8
Photograph courtesy: AngloGold Ashanti
GOLD IN SOUTH AFRICA 155

APPENDIX 3
TRAINING AND SKILLS TRANSFER
A3.1 LEGISLATION
The Government has put legislation in place to ensure training, development of
skills and skills transfer in South Africa. The legislation applies to all sectors of the
gold value chain. The Skills Development Act of 1998 and the Skills Development
Levies Act of 1999 address skills development in South Africa in a structured
manner.
The Skills Development Act aims to equip South Africans with the skills to succeed
in the global market and to offer opportunities to individuals and communities for
self-advancement to enable them to play a productive role in society while the
Skills Levies Act provides the infrastructure to fund the necessary training and skills
development.
Together, these acts provide a framework for the collection of funds through
training levies payable by employers in South Africa (see Chapter 6 for details) and
the disbursement of the funds via two mechanisms - Sector Education and Training
Authorities (SETAs) and the National Skills Fund (NSF) which account for 80% and
20% respectively of the disbursement of funds.
The beneficiaries of the Skills Development Act are all South Africans who require
training, with a focus on unemployed or under-employed South Africans who are 16
years of age or older, or Historically Disadvantaged South Africans (HDSAs). Training
projects funded by the NSF focus on national training priorities and usually target
HDSA individuals but the Department of Labour notes that the emphasis should be
as follows:
• women;
• HDSAs; and
• people with disabilities.
A3.2 AUTHORITIES INVOLVED WITH TRAINING
A3.2.1 Sector Education and Training Authorities (SETAs)
As a consequence of the skills development legislation, 27 SETAs 1 have been
established to administer the scheme’s funds and to manage national skills
development.
The SETAs, established in March 2000, are managed by the Department of Labour
and are responsible for the distribution of funds accumulated from the training
levies paid by employers in the specific sectors in which they operate. SETAs are
also tasked to oversee the quality assurance of training provided within their sector
and the accreditation of training providers. All SETA qualifications are accredited by
the South African Qualifications Authority 2 (SAQA), and must be reflected on the
National Qualifications Framework (NQF). This framework plots all the available
qualifications in South Africa and identifies them in terms of requirements and level
of qualification.
Each sector in the economy has its own SETA, including Government departments.
Participants in SETAs are representatives from trade unions, Government and
industry representative bodies from the specified sector (stakeholders).
The South African government recognises the need to have industry related
qualifications. As an integral part of the process, SETAs oversee Standards
Generating Bodies (SGBs). The SGBs are representative groups tasked with the
creation of standards according to which training must be undertaken. These bodies
include industry representatives, organised labour and government. The SGBs create
structures for the necessary qualifications and then present them through their
relevant SETA to SAQA to be verified and registered.
1
This number has been reduced recently. After an initial period, some of the SETAs who failed to perform merged with
others who did better in their delivery.
2
Hence the term ‘SETA-accredited’ as it applies to training programmes.
GOLD IN SOUTH AFRICA 156

APPENDIX 3
TRAINING AND SKILLS TRANSFER
Within its sector, a SETA must develop and implement a skills development plan, be
responsible for quality controls of SETA projects and of training provided by its
accredited training providers and for paying out development grants. Combined,
they are responsible for R2.5 billion per annum of funding across the economy,
although it is not clear whether the full amount of this funding has been spent on
training programmes. The skills development levies paid by employers are
distributed as follows:
• NSF projects receive and distribute 20% of the total skills levies through projects
deemed of national strategic importance;
• SETAs utilise the remaining 80% as follows;
• 10% - Administrative and operational costs;
• 10% - Provided to constituents on the presentation of a workplace skills plan
(a document detailing the training to be conducted by or through the
employer with its staff) 3 ;
• 50% - Provided to constituents after proof has been provided of the training
delivered; and
• 10% - Discretionary grants such as learnerships, apprenticeship training etc.
Contributions to skills development through the training levy on the part of
employers in the private sector became compulsory on 1 April 2000. This
requirement applies to employers who are registered with the South African
Revenue Services (SARS) for tax purposes, or to employers with a payroll in excess
of R250,000 annually 4 . The levy rate is equivalent to 1% of the total payroll and the
collection of the funds is administered by SARS.
Skills development levies are held in a separate fund from which 80% is distributed
to the different SETAs and the remaining 20% is paid to the NSF. The SETAs then
pay grants to employers who appoint Skills Development Facilitators who have to
meet specified criteria 5 . Thus the private sector can recoup part of its contribution
to the skills levy through these grants.
A3.2.2 Mining Qualifications Authority (MQA)
The MQA is a statutory body consisting of the State, employer and employee
organisations in the mining industry. It was established as an outcome of the
South African Qualifications Authority (SAQA) Act, (Act No. 58 of 1995) and the
Mine Health and Safety Act, (Act No. 29 of 1996).
The MQA’s key function is to promote the objectives of the Skill Development Act
through implementation of the National Qualifications Framework (NQF) 6 and
advise the Minister of Minerals and Energy on matters relating to education and
training, standards and qualifications in the mining industry. To perform this
function, the MQA undertakes the following:
• the development and facilitation of the implementation of a Sector Skills Plan
(SSP);
• the generation of Unit Standards and Qualifications;
• the establishment, administration and promotion of learnerships
and skills programmes;
• the maintenance of the quality of training provided; and
• the disbursement of skills grants from training levies.
The SETA identifies the need for a learnership. A qualification and its associated unit
standards are registered with the SAQA, under which the MQA is governed. The
SETA then submits an application for learnership registration to SAQA.
3
This 10% fell away in the 2005 revision of the act and employers can now only claim back 5% of their contribution. A Workplace Skills Plan is,
however, still a requirement.
4
Revision of the act now allows a cut-off point of R500,000. Public service employees in the national or provincial sphere of government are
excluded from this.
5
The revision of the act no longer stipulates the requirement of a skills development facilitator, but a workplace skills plan and annual training
report are still required.
6
The National Qualifications Framework is a framework structuring qualifications and making it possible to find synergies between qualifications.
It also allows for the redressing of past inequalities through a process called RPL or recognition of prior learning.
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APPENDIX 3
TRAINING AND SKILLS TRANSFER
Once SAQA has registered the learnership, skills programme or qualification, the
SETA is then mandated to fund structured training programmes. To enter into a
learnership, each learner must sign a three-way agreement with a workplace
provider and an accredited training provider. This agreement forms a contract
between the training provider, employer and learner and is lodged with the MQA
before any funds are provided.
Quotable quotes:
“We were not given any choice with respect to our
student and I was apprehensive. As it turns out, his
attitude is very positive – he is willing to learn and
we are careful to build up his confidence when
teaching him. While he is not fully qualified, he is
certainly able to take his place at my workbench
and be productive without ruining my equipment.”
Micro jewellery manufacturer
The contract details the responsibilities of each party and amongst others defines
the minimum payment a learner must receive during training. This new structure
provides full payment for the training, and the payment to the learner allows the
learner the necessary means to attend the training. If the learner is unemployed, he
or she will also need to sign a fixed-term employment contract with the workplace
provider in accordance to South African labour law.
Learnerships are primarily workplace learning programmes, supported by structured
institutional learning, which result in a qualification.
When learners have successfully been assessed against all the unit standards that
make up a particular qualification, the MQA is responsible for issuing a qualification
certificate to that learner. This certificate is only issued for qualifications that have
been registered by SAQA and identified on the NQF.
There is a low level of uptake of MQA grants on part of the small and medium
jewellery enterprises. Of the 20 jewellery manufacturers interviewed, only seven
noted that they had MQA-financed students. Four of these were micro or small
jewellery manufacturers as defined in this review. Many of the jewellery
manufacturers are unaware of the learnership programme offered by the MQA.
Of the seven jewellery manufacturers that have had MQA learnership experience,
four noted particular success. These jewellery manufacturers commented that they
would continue with the learnership programme.
A3.3 JEWELLERY TRAINING AND SKILLS TRANSFER
Training in the design and manufacture of jewellery is formally provided via
certificates, diplomas and degrees by a number of institutions in South Africa.
Training courses are also offered by private organisations and through internal skills
transfer by employees within the jewellery manufacturing sector. This section
reviews these sources of skills and training.
A3.4 ISSUES FACING THE JEWELLERY INDUSTRY WITH RESPECT TO TRAINING
AND SKILLS TRANSFER
Research revealed a number of concerns with respect to what the industry expects
from the training institutions and what the training institutions deliver in terms of
graduate competency.
Quotable quotes:
“We ask newcomers to make a plain but perfect
wedding band. I then evaluate them firstly on their
attitude, then on the product and finally on the time
it took them to make it. Few seem to understand that
if you cannot produce a perfect band you cannot be
capable of more intricate work.”
Manufacturing jeweller
Throughout the interviews conducted for this review, a lack of understanding and
communication between the training institutions and jewellery manufacturers was
detected. This was particularly true with regard to the respective expectations of
these two constituents regarding what training should be offered, the quality and
standard of the training, the course content, levels of anticipated expertise from
graduates and students, as well as how the industry should perceive future training
needs and how it should be positioning itself to address identified training
priorities.
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Many jewellery manufacturers are critical of the standard and skill of graduates of
the training institutions, their level of competency on the workbench and their
attitude towards their work.
The institutions themselves raised concerns about what the industry expects from
their graduates. This they deem unrealistically high and consider that criticism from
the industry – that students are not fully tutored to take their place productively
on a workbench – is unwarranted.
The institutions argue that jewellery-making is a combination of taught technical
skills, artistic flair and experience. In addition, while they could train a student to a
reasonable level of competency on a workbench, only a limited number of students
each year would excel, particularly in the field of jewellery design.
The institutions also argue that manufacturers fail to consider the structure of the
jewellery courses and that the industry fails to understand the lead times required
in adjusting course content to meet industry requirements.
The MQA report of May 2003 7 noted that the most requested skill from the
jewellery industry was design. In late 2004, interviews for this review revealed that
jewellery manufacturers were calling for practical applications and skills on the
bench. There appears to be a lack of consensus on what the jewellery industry
needs.
As discussed in Chapter 4, the training institutions also raised a concern that the
jewellery manufacturers were unwilling to acknowledge the certificates, diplomas
and degrees held by their students. They suggested that the real reason behind this
was a financial one in that, by not acknowledging the qualifications, the jewellers
were not obliged to pay these graduates the appropriate salaries. While many
jewellery manufacturers denied this, others noted that there was an element of
truth in the concern raised.
The training reportedly provided by the jewellery manufacturers, in some cases,
raised two additional concerns on the part of the training institutions.
The first concern is that ‘training’ is used in a broad generic sense by the
manufacturers. While the manufacturers provide the workbench experience and
mentor staff on the workbench, employees do not necessarily receive formalised or
structured tuition on the workbench. Mentoring on the benches is necessary and a
vital component of gaining the experience needed to become a manufacturing
jeweller. However, the process should not be confused with ‘training’ which implies
more formal, structured course work as defined by the training institutions.
Quotable quotes:
“How can I spend time with an institution helping
their students when I am battling to keep my own
company above water I am so tied up with
management issues, mainly financial worries that I
don’t even have the time to do what I was
originally trained to do – design jewellery.”
Jewellery manufacturer
Quotable quotes:
“Some years back the industry said it needed
emphasis on design. Now it is calling for more
practical work. When it asks for something it wants
it immediately, without realising it takes years for
us to be able to respond to these requests. The
industry has no understanding of what goes into
the planning and structuring of an academic course
and there is no co-ordinated long-term planning or
vision as to what the industry should be aspiring to
in the long term. Therefore, there can be no
consensus about training needs.”
Formal training institution
Secondly, mentoring that takes place in-house among the jewellery manufacturers
appears to be very narrow. For example, a staff member might gain experience in
casting or polishing, but receive no holistic exposure to the entire manufacturing
and financial process within that business. As a result these employees are poorly
equipped to start a business in their own right, or would be limited to performing
the same function in another company.
7
A Skills Analysis of the Jewellery Manufacturing and Gemstone Processing Industries in South African By the Human Science
Research Council and Povey Mulvenna & Associates, pg 23.
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A3.5 TRAINING INSTITUTIONS
Six educational facilities offer formal courses in jewellery design and manufacture.
Five of these were formerly known as technikons but have now been renamed as
Higher Educational and Training Institutions (HETs) or universities of technology.
Apart from these training institutions, there are a number of community-based
organisations that offer training courses in jewellery manufacturing. A number offer
courses in gemmology, diamond sorting and cutting and watch-making. These
training courses have been excluded from this analysis, which concentrates on gold.
Finally, the jewellery manufacturers themselves maintain that they offer in-house
training for employees.
The six training institutions are:
• the Cape Peninsula University of Technology, formerly the Cape Technikon;
• the Tshwane University of Technology, formerly the Pretoria Technikon;
• Witwatersrand University of Technology, formerly the Witwatersrand Technikon;
• the Central University of Technology in Virginia, Free State;
• Durban Institute of Technology, formerly the Durban Technikon; and
• the University of Stellenbosch.
The first five offer diplomas and technical degrees in jewellery design and
manufacture while the University of Stellenbosch offers a Bachelor of Arts degree in
jewellery design. 8
In addition to these institutions, there are three SETA-accredited colleges that offer
courses in jewellery design, manufacturing and gemmology.
These are:
• the Cape College;
• the Port Elizabeth College; and
• the Bloemfontein College.
All nine training institutions offer combinations of the following course work 9 :
• design of jewellery;
• model making for casting of jewellery;
• making rubber moulds and casting moulds;
• making waxes for rubber moulds and mould trees 10 ;
• injecting metal into moulds (for casting);
• casting and cutting mould trees;
• cleaning castings;
• soldering and joining seams in items of jewellery;
• polishing of finished product; and
• electroplating to yield final finish.
The fees to the student for a three- or four-year course in jewellery are
approximately R14,000 annually, although the total cost for first year students is
higher as they need to buy a jewellery tool box of basic tools and equipment, at a
cost of R5,000.
In 2004, 185 students were enrolled for the courses offered by these
nine institutions.
Enrolment numbers have been steady over the years, limited by capacity
constraints, specifically the number of workbenches available for training.
Graduates from these institutions have found employment within the jewellery
manufacturing sector and among the private institutions offering training, such as
Vukani-Ubuntu (see following page).
8
Diplomas are awarded by the universities of technology (formerly technikons) and degrees are awarded by universities.
9
Excludes course work related to stones
10
Wax tree: a structure on which casting moulds are suspended.
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A3.5.1 Community-based jewellery training programmes
There are a number of community-based jewellery training institutions and
programmes. These include:
• the Cullinan Jewellery School;
• Vukani-Ubuntu Community Development Projects
(Atteridgeville, Barberton/Umjindi and Galeshewe);
• Mintek’s Bopa Batho;
• Virginia Jewellery School;
• Kgabane Jewellery Training; and
• Imfundiso Skills Development Project.
These community initiatives are structured as Section 21 companies (companies
operating on a not for profit basis) and are funded by sponsorships.
These programmes have a number of objectives in common. These are:
• to fast-track basic training of unskilled, unemployed and inexperienced youth to
produce jewellery;
• to place emphasis on African art and culture and encourage this in the creation
of jewellery; and
• to promote beneficiation of the country’s natural resources.
Vukani-Ubuntu
In 1999, Vukani-Ubuntu established South Africa’s first goldsmith training
programme in a black township, Atteridgeville. The concept has been applied to
other areas of the country including Virginia in the Free State in 2000, Barberton,
Mpumalanga in 2000 and Galeshewe in the Northern Cape in 2005. 11 The company
has received the ‘Impumelelo Award’, awarded by the DTI, recognising Vukani as one
of the top 300 black empowerment companies in South Africa.
The three-year jewellery design course trains inexperienced people to produce
jewellery and other crafts of saleable quality in the shortest possible time. The
course is broken down into skills programmes covering the following functions:
• benchman;
• polisher;
• repairman;
• modelmaker; and
• setter.
It also includes jewellery design and small business management skills and is
industry focused.
The project has two divisions:
• the training division, which trains students from previously disadvantaged
communities; and
• the manufacturing division, which operates a hive 12 in all the Vukani-Ubuntu
projects, drawing trainees and craftspeople from the local community and
assisting them to produce finished product.
The hive represents an entire jewellery and crafts manufacturing infrastructure
provided by Vukani-Ubuntu.
11
Vukani-Ubuntu has also opened its first gemstone cutting and polishing programme at Galeshewe in Kimberley. This handbook
concentrates only on the first three projects which are directly involved with gold.
12
Hives: Co-operative associations of manufacturers of similar products operating collectively and usually cost-effectively via
the sharing of overheads and other fixed costs.
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The hive has the following characteristics:
• it affords people the opportunity to operate without needing to purchase
expensive equipment and materials;
• it alleviates the need for participants to finance the formation of a small
business and negates start-up costs;
• it offers participants a safe, secure working environment;
• it offers the participants a shareholding in the hive;
• it assists with marketing of finished product to enable the participants to focus
solely on their chosen profession; and
• it provides experiential training to its trainees in a manufacturing environment
where they work side-by-side with qualified jewellers.
Details of the Vukani-Ubuntu projects are as follows:
The Atteridgeville Jewellery Project
Date Established January 1999
Sponsors
AngloGold Ashanti
Nelson Mandela Children’s Fund
De Beers
Pick & Pay Foundation
National Development Agency
Academy International
Atteridgeville College
Nedcor
South African Breweries Inc
National Lotteries Fund
Jewellery Council of South Africa
Management
Vukani-Ubuntu
Capacity
1st Year 20
2nd Year 15
Hive 10
Location
Atteridgeville, Gauteng
Premised by
Atteridgeville College
Sustainable by 2006
1st Intake
January 1999 – 20 learners
Data source: Vukani-Ubuntu
The Atteridgeville Jewellery Project has achieved a 98% employment rate for its
qualifying graduates. A number of graduates have started their own jewellery
manufacturing businesses.
The Harmony Jewellery School
Date Established September 2000
Sponsors
UNOPS-SEHD*
Harmony Gold
Cooperazione Italiana
DTI
Management
Harmony Gold (originally Vukani-Ubuntu)
Capacity
1st Year 20
2nd Year 20
Hive 20
Location
Virginia, Free State
Premised by
Harmony Gold Mining
Sustainable by 2005
1st Intake
September 2000 – 20 learners
*United Nations Office for Projects - Small Enterprise and Human Development.
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The Harmony Jewellery School (previously the Virginia Jewellery Project) is
managed by Harmony Gold Mining Company. The project was initially co-funded by
UNOPS-SEHD and Harmony Gold Mining. Since then, the UNOPS-SEHD funding
has expired and Harmony Gold Mining is now the primary funder. To date,
Harmony Gold Mining has spent R5.3 million on the jewellery school, which
includes refurbishment of the premises, the purchase of tools and equipment and
the cost of course design and management. Harmony Gold Mining also subsidises
the students’ travel costs and makes funding available for bursaries.
Two courses are offered:
• the three-year National Diploma Course in Jewellery Manufacturing and Design;
and
• the one-year Further Education Training learnership programme.
The learnership programme often but not always serves as a bridging course in
preparing students for the diploma.
The school operates as a satellite of the Central University of Technology of the
Free State. The University of Technology provides the training diploma and
Harmony Gold Mining provides the funding, infrastructure and management of the
project, as well as designing the course content. As of 2005, a total of 32 students
were enrolled for the diploma and another 40 were enrolled for the learnership
programme, 12 of whom have MQA funding.
Four of the graduates are currently employed at the school as facilitators, assisting
with teaching and course development.
The Barberton Jewellery Project
Date Established May 2002
Sponsors
Umjindi Town Council
Local Economic Development Fund
African Pioneer Mining
Department of Economic Affairs and Tourism
(Mpumalanga Province)
Management
Vukani-Ubuntu
Capacity
1st Year 20
2nd Year 20
Hive 5
Location
Barberton, Mpumalanga
Premised by
Umjindi Town Council
Sustainable by 2006
1st Intake
February 2002 – 20 learners
Data Source: Vukani-Ubuntu.
In addition to its specific training programme, Vukani-Ubuntu is actively involved
with the communities in the vicinity of its projects. In Baberton, the project
includes a jewellery retail facility and an African art gallery actively promoting the
work of 33 local artists.
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The Galeshewe Jewellery Project
Date Established January 2005
Sponsors
Nelson Mandela Children’s Fund
Northern Cape Urban FET College
Management
Vukani-Ubuntu
Capacity
1st Year 13
Location
Galeshewe, Kimberley
Premised by
Northern Cape Urban FET College
Sustainable by 2008
1st Intake
April 2005 – 13 learners
Data source: Vukani-Ubuntu
Bopa Batho
Bopa Batho means ‘Building People’ and is aimed at developing and training people
from South Africa's previously disadvantaged communities for jobs in the mining,
minerals processing and minerals beneficiation industries.
Funded by Mintek, several programmes for technicians, technologists, engineers and
artisans are in place, covering skills in the mining industry as well as in jewellery
manufacturing.
Mintek is the lead service provider for this initiative and programmes cover schoolbased
teacher training through to skills development in conjunction with tertiary
educational institutions and industry. Programmes cover small-scale mining and
jewellery projects including the Kgabane Jewellery Training Programme (see below).
Bopa Batho is administered by a Board of Trustees, which comprises Mintek’s CEO,
Chairperson and General Manager of Research and Development, as well as
representatives of contributing organisations and institutions.
Bateman Africa has recently allocated five per cent of its shareholding to Bopa
Batho.
Kgabane Project
Kgabane, meaning ‘precious’, was initiated by the Department of Minerals and
Energy and is a partnership between Mintek, Harmony Gold Mining Company, the
MQA and the People's Bank. It is an accredited jewellery training initiative housed
at Mintek, giving HDSA women the opportunity to develop jewellery-making skills.
In 2002/3, the project trained 153 learners, 53 more than its target. It trained
265 learners in 2003/4. Information on the graduates’ employment history after
training was not available.
In terms of the contract entered into with the MQA, Kgabane is required to train
250 learners in 2004/2005, a majority of whom are to be rural women of
South Africa.
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Imfundiso Skills Development
The Imfundiso Skills Development project was established in 2001.
The project has four operating centres:
• at the Cullinan Diamond Mine (formerly Premier Mine), east of Pretoria, in
Gauteng Province (opened in 2001);
• at the Sekhukhune Education Multi-Purpose Centre, in the Sekhukhune District
Municipality area, south of Limpopo Province, (opened in 2003 but started
operating in January 2004);
• at the South West Gauteng College’s George Tabor Campus in Dube, Soweto,
(started operations in January 2004); and
• at the Thabamopo Education Multi-Purpose Centre, at Lebowakgomo, in the
Capricorn District Municipality of Limpopo Province (established in September,
2004).
The two-year jewellery design and manufacturing training course promotes African
design through:
• the creation of unique, locally influenced art and design;
• manufacture of indigenous jewellery, blending various materials including gold,
platinum, copper, brass, silver, wood and glass; and
• the marketing of finished products to tourists and industry.
The course covers the following subjects:
• jewellery-making techniques and practical goldsmithing;
• jewellery design and drawing; and
• gemmology, metallurgy and business management.
The course allows a student with no skills or formal education to:
• enrol at a university of technology or university for further studies in jewellery
manufacture;
• be employed by the formal jewellery industry; or
• be self-employed through entrepreneurship; and
• work towards the continuation of the project in the training school.
The course is geared to practical work, which makes up 80% of the curriculum.
Design, drawing and theory make up the balance. Students start by working with
brass and then move on to working in silver and gold as the course progresses. The
first graduation ceremony took place in Cullinan on 14 April 2004 and the course
was accredited by the MQA in the first quarter of 2005.
Graduates from the programme have found employment with Orofino and Sub-
Sahara Livingstone.
Students of Imfundiso have participated in AngloGold Ashanti's AuDITIONS Riches
of Africa jewellery design competitions 13 and in AngloGold Ashanti’s Traditional
African Goldsmith Training programmes. Several of the Imfundiso students have
won prizes and scholarships associated with these projects.
A3.6 JEWELLERY COMPETITIONS
In recent years, jewellery design competitions have been run in South Africa,
sponsored by local gold companies. The objectives of these competitions include
the recognition and encouragement of local talent and the promotion of public
awareness of local jewellery design. The following section describes each of the
competitions in more detail.
Quotable quotes:
“The industry should not underestimate the
importance of these competitions for our students.
They allow the students to have creative freedom
beyond the confines of their theoretical course
work. They really have fun but at the same time
they are gaining valuable design experience.”
Formal training institution
The Jewellery Council of South Africa’s Collection Awards Jewellery Competition
The Collection Awards jewellery design competition was founded and sponsored by
the Jewellery Council of South Africa in 1994. In this annual event, the judges
evaluate the jewellery in terms of its commercial viability. The criteria include
interpretation of an annual theme, wearability, manufacturing practicality and the
innovative use of materials.
13
See later for details.
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The competition is open to Southern Africa’s practising jewellers, apprentices and
students of jewellery design. The competition receives in excess of 1,000 entries
per annum.
The theme for the 2005 competition was ‘The Precious Palette’. Designers were
requested to draw their design from the world of colour.
Winners receive their awards at the Jewellex annual exhibition, after which the
collection is displayed at the International Jewellery London exhibition.
AngloGold Ashanti AuDITIONS Riches of Africa
In 1999 AngloGold Ashanti 14 established an annual South African gold jewellery
design competition called Riches of Africa, with the following objectives:
• to promote the beneficiation of gold in the South African jewellery industry;
• to promote excellence in South African gold jewellery design; and
• to provide education and skills development in the South African jewellery
industry.
In 2004, AngloGold Ashanti took the opportunity to re-launch Riches of Africa as
‘AngloGold Ashanti AuDITIONS Riches of Africa’, the gold jewellery design
competition. The table that follows lists the number of entrants in the competition
since its inception.
Riches of Africa (now AngloGold Ashanti AuDITIONS Riches of Africa)
Number of Entries
1999 2000 2001 2002 2003 2004
Entries 204 594 320 1,282 1,112 1,189
Finalists 17 17 20 25 26 24
Data source: AngloGold Ashanti.
Since its inception, a number of changes have been made to the competition with
the intention of increasing its scope and positive impact. Among these are:
• the sponsorship by AngloGold Ashanti of workshops for all the competition
entrants in design and goldsmithing techniques. These workshops are held in
the Western Cape, KwaZulu-Natal and Gauteng;
• the addition of international judges to the judging panel;
• the inclusion of white and rose gold into designs; and
• the inclusion of the Riches of Africa competition under the AuDITIONS brand.
From 2005/2006 onwards, AuDITIONS Riches of Africa will be held every two years.
Winners will benefit from the biennial format as their pieces will gain a longer
period of exposure.
AngloGold Ashanti provides the gold used by entrants in their jewellery designs. The
company owns the final pieces of jewellery but the competition entrants maintain
ownership of their design.
The prizes are:
• an overall winner's prize up to the value of R40,000;
• second prize to the value of R15,000;
• third prize to the value of R10,000;
• grant awards to students to the value of up to R45,000; and
• a merit award prize for the institution with the most winners.
14
At that stage still AngloGold.
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Once winners have been announced at the awards event, the winning pieces are
exhibited at events held throughout South Africa and internationally. A total of 137
events and exhibitions have been arranged both locally and internationally over the
past six years as the following table shows: 15
Riches of Africa (now AngloGold Ashanti AuDITIONS Riches of Africa)
Publicity and Promotions
Eastern & Durban Johannnes- Regional Inter- Total
Western burg within national
Cape & Pretoria South
Africa
1999 5 2 8 1 3 19
2000 3 1 11 1 4 20
2001 6 1 7 3 4 21
2002 8 2 4 2 4 20
2003 10 1 8 4 4 27
2004 7 4 9 5 5 30
Total 39 11 47 16 24 137
Data source: AngloGold Ashanti
Textures of Africa
In 2004, the SA Mint sponsored a competition, called ‘Textures of Africa’, aimed at
promoting jewellery designed specifically to incorporate the country’s 1/4 and
1/10th ounce gold and silver coins. The Mint is now in the process of organising the
2005 competition and intends to make this an annual event.
Participants submit a coin-related design in silver of no more than 80g. The reasons
behind the decision to ask entrants to work in silver were two-fold: the lower cost
of silver for the sponsor of the competition, and the fact that most entrants were
students who were still completing most of their practical work in silver and not
gold. Subsequent commercial orders for the winning designs have, however, been
in gold.
The SA Mint received 130 entries. It drew up a list of finalists, and a panel of
independent judges from the industry – including academics, marketers and
manufacturers – selected the winners. The pieces were judged on a number of
criteria including design, finish, craftsmanship, creativity and practicality.
15
In addition, AngloGold Ashanti have hosted gold jewellery shows and displays in Turkey, Italy, the United Kingdom,
Switzerland, Australia, Mali and Tanzania.
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APPENDIX 4
THE INTERNATIONAL GOLD MARKET
APPENDIX 4
Contents:
A4.1 THE OVER-THE-COUNTER MARKET 171
A4.2 THE FUTURES EXCHANGES 172
A4.3 GOLD HEDGING AND PRICE PROTECTION 173
8
Photograph courtesy: AngloGold Ashanti
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APPENDIX 4
THE INTERNATIONAL GOLD MARKET
Of the 445t 1 of gold refined in South Africa in 2004, 97% was fabricated into bars 2
and exported. These bars were destined either for direct export into India or were
shipped to international bullion banks 3 for sale into the global gold market.
The international gold market is a 24-hour market that covers the trading of gold
spot, gold forward contracts, over-the-counter derivative products and exchangetraded
futures and options contracts in gold 4 . Consumers and producers interact via
the exchanges that trade gold or over-the-counter (on a principal-to-principal basis,
via the bullion banks).
Business centres dominant in physical gold trading include London and Zurich, with
New York’s physical business being overshadowed by its gold futures trade. Other
important markets are to be found in Mumbai, Tokyo, Hong Kong, Istanbul,
Singapore, Dubai and Shanghai. Of the Asian centres, Tokyo is biggest in terms of
volumes. In the Middle East, Dubai has traditionally been a key gold trading centre,
much of its trade being with India.
The twice-daily London market price ‘fix’ 5 acts as an important indicator for gold
traders everywhere, providing a mechanism for daily price benchmarking.
Despite its name, this is close to an open auction process, with offers and bids
netted off throughout the market as part of a bidding process during the fix itself.
The five commercial banks which currently make up the members of the London
gold fixing are:
• Barclays Bank plc;
• The Bank of Nova Scotia – ScotiaMocatta;
• HSBC;
• Deutsche Bank AG; and
• Société Générale.
The fix is executed on a single price at which outstanding bids and offers are
transacted. Clients who wish to transact on the fix place orders with the bank or
bullion dealer, who will either be one of the fixing members themselves, or another
bullion dealer who will be in touch with a fixing member (and with the client, if
necessary) while the fixing proceeds.
The fixing members net all orders before communicating their individual net
interest at the fixing. The fix begins with the chairman suggesting a ‘trying price’,
reflecting the market price prevailing at the opening of the fix. The fixing members
then relay this to their dealing rooms which are themselves in touch with all
interested parties. Any market participant may enter the fixing process at any time,
or adjust or withdraw their order according to their view of the price as relayed to
them. The gold price is adjusted up or down until all the buy and sell orders are
matched and the price is declared fixed. The fix is therefore a full and fair
representation of all market interest at the time.
Outside the pricing mechanism of the London gold fixing, buying and selling
physical gold in major bullion markets is a straightforward process for any
established company in the gold business. Most transactions are by electronic or
telephonic means. Payment for bullion trades is usually required in full by the end
of the second working day after the spot contract has been executed. On receipt of
payment, the bullion may be delivered or held in the dealer’s vault on behalf of the
client. The latter is the most common practice apart from many Asian markets,
where physical possession is usually preferred.
Although the gold market is small compared to the stock and bond markets, it is a
relatively deep and liquid market. In addition, trading spreads (the difference
between the asking and the bidding prices) are narrow.
1
See Chapter 1 for a breakdown of the origin of this gold.
2
See Chapter 3 for a breakdown of the different types of gold bars manufactured.
3
Commericial banks that deal in bullion.
4
Each of these terms is defined in the glossary and discussed in more detail in this apendix
5
Which, from 5 May 2005, no longer happens in the London offices of N.M Rothschild but is now conducted via telephone.
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THE INTERNATIONAL GOLD MARKET
A4.1 THE OVER-THE-COUNTER MARKET (OTC)
The over-the-counter gold market (OTC) is a principal-to-principal market which
means trading occurs privately between the individual clients, free of the rigidity of
an exchange 6 . All risks, including those of credit, are between the two parties to a
transaction. The flexibility of the OTC market, in contrast to the relative rigidity of
transactions on the exchanges, means that OTC trading accounts for the greatest
portion of global trading in gold by far. It also provides confidentiality since
transactions are conducted solely between the two principals involved.
The main centres for OTC dealings are London, New York and Zurich, which are
wholesale markets, with the lowest transaction size typically not less than 1,000oz.
In general, mining companies and central banks tend to transact their business OTC
through counterparty banks in London and New York. These markets also service
manufacturers of jewellery and industrial products, as well as investment and
speculative business. Zurich specialises in supplying physical gold to manufacturers
of jewellery and industrial products. Centres such as Dubai and several cities in the
Far East also transact important OTC business, typically involving jewellery and
small bars (of one kilogram or less) for private investment in that region. A number
of bullion dealers have offices around the world. Most of the major bullion dealers
are either members or associate members of the London Bullion Market Association
(LBMA).
The LBMA, a collective organisation geared to meet the needs of the global bullion
industry, is at the centre of the OTC market. It has a number of functions. Primarily,
it applies requirements for the assay and quality control of gold bars and maintains
an inventory of gold and silver refiners that meet these standards, known as the
Good Delivery List 7 .
The LBMA has also developed and introduced a number of standard agreements for
transactions in gold. These cover the terms and conditions for forward, option and
gold interest rate derivative transactions in the OTC market. The major advantage
of standard documentation is that it defines market practice. Its utilisation by
members of the LBMA avoids the need to continually negotiate and agree terms
involved in bilateral agreements, and its broad acceptance also provides comfort to
clients of the market.
Additionally, the LBMA maintains statistics, issues gold-related publications and
runs an annual international gold conference.
The nine market-making bullion banks 8 are members of the LBMA. These are:
• The Bank of Nova Scotia – ScotiaMocatta;
• Barclays Bank PLC;
• Deutsche Bank AG;
• HSBC Bank USA London Branch;
• J Aron & Company;
• JP Morgan Chase Bank;
• Royal Bank of Canada;
• Société Générale; and
• UBS AG.
In recent years the amount of gold cleared per day by the LBMA has fallen (see
chart), although it remains the largest OTC market in the world. This decline has
been a function of many factors such as the reduction in producer hedging (which
is conducted on the OTC market), the declining profitability of bullion banking in
the bear market years and the withdrawal of several banks from this business.
Recently there has been a small upturn, reflecting the more positive mood in the
gold market, although it is too soon to say whether this is a trend that will
continue into the future.
6
See later for a full discussion of the exchange futures contract.
7
Refer to Chapter 3 on gold refining for further information on Good Delivery status and requirements.
8
Market-making bullion banks are those institutions which quote two-way prices of the metal to customers rather then being
merely price takers.
GOLD IN SOUTH AFRICA 171

APPENDIX 4
THE INTERNATIONAL GOLD MARKET
A4.2 THE FUTURES EXCHANGES
A gold futures contract is a standard agreement for a fixed amount of gold (usually
100oz), that allows the buyer or seller to establish a price for future
receipt/delivery. It is offered by an exchange and provides market participants with
a means of minimising transaction costs and maximising profit potential on
commodities. The exchanges are non-profit making and self-governing
organisations 9 that operate under a set of regulations which must be adhered to by
their members and by those who buy and sell their contracts. Membership is
limited and has to be purchased and renewed annually.
The exchanges do not trade in the commodities in which they offer contracts, but
instead provide market participants with the facilities and infrastructure to trade.
The exchange operates as a clearing-house, playing the role of the buyer when a
participant wants to sell and of the seller when he wants to buy. This eliminates the
risk of the other side to the transaction failing to meet his/her obligations (known
as ‘counterparty risk’). The exchange ensures that it is able to meet the obligations
by requiring margin deposits from participants and payments which cover a portion
of the outstanding obligations.
Each futures contract traded has a buyer and seller, and all trades must be matched,
processed and offset against each other – and with the trading members – before
dealing can start on the next day of trading.
A margin is payable on all open positions on an exchange as a deposit or security
against any adverse movement in the gold price during the life of the contract.
The exchange reports daily turnover and open interest, which is the total number of
futures contracts that have been entered into and are as yet not liquidated by an
offsetting transaction, or fulfilled by delivery.
As the accompanying chart shows, the largest gold futures trading exchange is the
Commodity Exchange in New York (COMEX), which began trading gold in
December 1974. COMEX merged with the New York Mercantile Exchange (Nymex)
in 1994. The next largest is the Tokyo Commodity Exchange (TOCOM) in Japan.
Some other mainly spot-trading exchanges, such as the Shanghai Gold Exchange
and the Istanbul Gold Exchange, offer limited futures contracts.
Note: The contract size on TOCOM is 1 kg, whereas
on COMEX/Nymex and CBOT it is 100 oz, equivalent
to over 3 kg. Hence the equivalent weight in gold of
contracts traded is larger for COMEX/Nymex and
CBOT than the number of contracts.
9
As at September 2005 Nymex/COMEX was considering an initial public offering.
GOLD IN SOUTH AFRICA 172

APPENDIX 4
THE INTERNATIONAL GOLD MARKET
A4.3 GOLD HEDGING AND PRICE PROTECTION
Mining companies in South Africa, as elsewhere, may use the futures or forwards
markets in their metals (derivatives markets) to ‘hedge’ prices for future production,
often for many years into the future. The primary motivation behind hedging is to
manage or reduce risk of unfavourable moves in revenue. By securing the price of
its gold production, a company achieves greater certainty of revenue for the
company, and avoids the risk of adverse gold price or currency movements.
Gold mining companies make use of a range of products provided by bullion banks,
including plain forward sales and exotic contracts.
The majority of future hedge commitments tend to be plain forward sales. In this,
the producer contractually agrees to sell a fixed amount of gold at a fixed price for
delivery on a fixed date in the future. In this way, therefore, the miner gains more
certainty over future revenues and/or cashflow.
Hedging is also put in place by mining companies, when required by a lending bank
to reduce risk in the development (and hence project financing) of a new mine or
expansion.
The practice of hedging is not universal, and often controversial. Many mining
companies do not hedge, arguing that their shareholders own gold mining shares
for their exposure to the gold price. This argument is strengthened in a bull market
(one of rising prices) as hedging’s advantage of reducing the risks of a low price also
works the other way, reducing the gains from a high price.
There have been well-publicised cases (though not in South Africa) where a
company’s hedge book has increased risk, by extending the company’s exposure to
credit beyond its capacity to service or manage that credit exposure in times of
gold price or interest rate votality.
For these reasons and others, the extent of gold hedging globally and in South
Africa has reduced significantly in the past four years 10 . In global terms, total global
hedge exposures/commitments decreased from a peak of 3,175t in the third
quarter of 2003 (2.2 years of global production) to 1,651t in second quarter of
2005 (1.1 years of production). Similarly, South African miners’ hedging has declined
over the same time period from 848t to 385t.
10
According to data from Virtual Metals/Mitsui Precious Metals/Haliburton Mineral Services
GOLD IN SOUTH AFRICA 173

RESEARCH DIRECTORY
DIRECTORY
RESEARCH
FACT SHEETS ON MAJOR INDUSTRY PARTICIPANTS
8
Photograph courtesy: AngloGold Ashanti
GOLD IN SOUTH AFRICA 175

RESEARCH DIRECTORY
LARGE PUBLICLY LISTED GOLD PRODUCERS
AngloGold Ashanti Ltd
MANAGEMENT
Chairman
Chief Executive Officer
P R Edey
R M Godsell
LISTINGS
JSE Limited, London Stock Exchange, New York Stock
Exchange, Australian Stock Exchange, Ghana Stock
Exchange, Euronext Brussels, Euronext Paris
CONTACT DETAILS
Address
Physical:
Postal:
11 Diagonal St. PO Box 62117
Johannesburg
Marshalltown
2001 2107
South Africa
South Africa
Phone +27 11 637 6000
Facsimile +27 11 637 6108
E-mail
investors@anglogold.com
Web
www.anglogoldashanti.com
COMPANY
AngloGold Ashanti Limited was formed following the merger of AngloGold Limited
and Ashanti Goldfields Limited, which was completed on 26 April 2004. The
combined company has 20 operations in 10 countries. AngloGold Limited was
formed in June 1998 through the combination of the gold assets of Anglo American
Corporation of South Africa and its associated companies. AngloGold Limited then
underwent a major phase of restructuring. This involved the sale of more than half
of its South African shafts that did not fit in with the company’s long-term
objectives; it also involved the acquisition of interests offshore - in Australia, North
and South America and Africa. The merger with Ashanti Goldfields, a Ghanaian
company, allowed AngloGold Limited to further diversify its interests in Africa with
substantial ore reserves in sub-Saharan Africa. Ashanti Goldfields operated six mines
in Ghana, Guinea, Tanzania and Zimbabwe. Subsequent to the merger, the Freda
Rebecca mine in Zimbabwe has been sold.
COMPANY OPERATING STATISTICS
PRODUCTION
2003 2004
South Africa 3.281 Moz 3.079 Moz
Rest of the world 2.335 Moz 2.973 Moz
Total 5.616 Moz 6.052 Moz
RESERVES AND RESOURCES as at 31 December 2004
Reserves
79 Moz
Resources
218 Moz
Mineral Resources and Ore Reserves are reprinted in accordance with the
Australasian Code for reprinting of Mineral Resources and Ore Reserves (JORC
2004) together with the South African Code for the reprinting.
COSTS AND EXPENDITURES
2003 2004
Total cash costs $214/oz $268/oz
Exploration expenditure $38m $44m
Capital expenditure $449m $585m
Data Source: AngloGold Ashanti FY2004 Annual Report, Human Equity Report
GOLD IN SOUTH AFRICA 176

RESEARCH DIRECTORY
LARGE PUBLICLY LISTED GOLD PRODUCERS
MINE OPERATING STATISTICS
Total cash costs
Production
South Africa 2003 2004 2003 2004
$/oz $/oz oz oz
Great Noligwa 213 260 812,000 795,000
Kopanang 249 317 497,000 486,000
Tau Lekoa 304 432 322,000 293,000
Savuka 467 523 187,000 158,000
Mponeng 269 386 499,000 438,000
TauTona 207 311 646,000 568,000
Ergo* 373 436 203,000 222,000
*Closed in March 2005
Other operations
Argentina 143 157 209,000 211,000
Australia 243 271 432,000 410,000
Brazil 131 130 323,000 334,000
Ghana - 293 - 485,000
Guinea - 443 - 83,000
Mali 158 211 577,000 475,000
Namibia 274 348 73,000 67,000
Tanzania 183 225 331,000 570,000
USA 223 225 390,000 329,000
AngloGold Ashanti Ltd
DEMOGRAPHIC PROFILE – SOUTH AFRICA
FY2004 Total % HDSA % Female
Senior management 193 12 5
Professionals 981 24 12
Technicians 1,979 42 21
Clerks 1,373 84 30
Craft & related trades workers 3,852 58 13
Machinery operators 9,814 99 4
Elementary occupations 19,599 99 3
Permanent 37,791 89 6
Non-permanent 8,328 89 2
Total staff 46,119 89 6
Total numbers employed at AngloGold Ashanti post business combination with
Ashanti: 65,400, of which 50,737 are employees and 14,663 are contractors.
Data Source: AngloGold Ashanti FY2004 Annual Report, Human Equity Report
GOLD IN SOUTH AFRICA 177

RESEARCH DIRECTORY
LARGE PUBLICLY LISTED GOLD PRODUCERS
DRDGOLD Ltd
MANAGEMENT
Non-executive Chairman
Chief Executive Officer
Paseka Ncholo
Mark Wellesley-Wood
LISTINGS
JSE Limited, London Stock Exchange, New York
Stock Exchange, Australian Stock Exchange, Ghana
Stock Exchange, Euronext Brussels, Euronext Paris
Shareholders (%)
12
1
2 85
Bank of New York (ADRs)
Soges Dewaay SA
JP Morgan Chase
Other
CONTACT DETAILS
Address
Physical:
Postal:
EBSCO House 4 PO Box 390
299 Pendoring Avenue Maraisburg
Blackheath 1700
Johannesburg
South Africa
South Africa
Phone +27 11 219 8700
Facsimile +27 11 476 2637
E-mail
Ilja.graulich.za.drdgold.com
Web
www.drdgold.com
COMPANY
DRDGOLD Limited (formerly Durban Roodepoort Deep Limited) was established in
1895. It owns and operates the Blyvooruitzicht mine in South Africa. The company’s
NorthWest operations, which comprised the Buffelsfontein and Hartebeestfontein
mines, were closed during 2005. The Blyvooruitzicht mine is located in the
Carletonville goldfield in the Witwatersrand area and has been in operation since
1942. The company is also involved in a black economic empowerment partnership:
it holds a 40% stake in Crown Gold Recoveries and East Rand Proprietary Mines
(ERPM) together with Khumo Bathong Holdings (a deal that has been announced
gives KBH a 15% stake in DRDGold and DRDGold an 85% stake in ERPM and CGR).
Outside South Africa, DRDGold owns the Tolukuma mine and has a 20% interest in
the Porgera joint venture with Placer Dome, both of which are located in Papua
New Guinea. The company also holds a 45.33% stake in Emperor Mines Ltd which
owns and operates the Vatukoula underground mine in Fiji, as well as a number of
prospective gold exploration areas.
OPERATING STATISTICS
PRODUCTION FY2005
South Africa 0.362 Moz 53%
Australasia 0.317 Moz 46%
CGR 0.09 Moz 0.01%
Total 679 Moz 100%
CGR figures represent the Group’s 40% attributable portion of Crown Gold
Recoveries Ltd.
RESERVES AND RESOURCES as at 30 June 2005
Reserves
Resources
6.553 Moz
36.611 Moz
COSTS AND EXPENDITURES
FY2005 FY2004
Total cash costs $379/oz $349/oz
Exploration expenditure – $1.65m
Capital expenditure 22.7m $26.9m
Data Source: DRDGOLD Ltd, FY2004/2005 Annual Report
GOLD IN SOUTH AFRICA 178

RESEARCH DIRECTORY
LARGE PUBLICLY LISTED GOLD PRODUCERS
MINE OPERATING STATISTICS
Total cash costs
Production
FY2004 FY2005 FY2004 FY2005
$/oz $/oz oz oz
South Africa
Blyvooruitzicht 453 453 233,094 161,878
Northwest 400 508 341,561 199,850
Crown (40% attributable) 343 395 51,982 45,424
ERPM (40% attributable) 367 411 44,896 44,600
Other Operations:
Australasia
Porgera (20% of the joint venture) 196 186 147,475 195,394
Tolukuma 259 348 85,715 76,314
Emperor (45.33% attributable) – 431 – 45,426
DEMOGRAPHIC PROFILE
FY2005 % HDSA % Female
Corporate 35% 25%
Crown operations 30% 4.9%
ERPM operations 27% 3.2%
Blyvoor operations 15.6% 1.6%
Total Staff 28.6% 2.7%
Regional production profile (%)
26
South Africa
Australasia
74
DRDGOLD Ltd
Source: DRDGOLD Annual Report 2005
Data Source: DRDGOLD Ltd, FY2004/2005 Annual Report
GOLD IN SOUTH AFRICA 179

RESEARCH DIRECTORY
LARGE PUBLICLY LISTED GOLD PRODUCERS
Gold Fields Ltd
MANAGEMENT
Chairman
Chief Executive Officer
C Thompson
I Cockerill
LISTINGS
JSE Limited, London Stock Exchange, New York
Stock Exchange, Euronext Brussels, Euronext Paris,
Swiss Exchange
Shareholders (%)
19
20
6
5
Norilsk Nickel
Bank of New York
(unrestricted DRs)
Old Mutual Group
Public Investment
Commissioner
Other Shareholders
50
CONTACT DETAILS
Address
Physical:
Postal:
24 St Andrew’s Rd Postnet Suite 252
Parktown
Private Bag X30500
2193 Houghton, 2041
South Africa
South Africa
Phone +27 11 644 2400
Facsimile +27 11 484 0626
E-mail
williej@goldfields.co.za
Web
www.goldfields.co.za
COMPANY
Gold Fields was formed in 1998 following the merger of the assets of Gold Fields
South Africa Ltd and Gencor Ltd. The company has operations in Africa and
Australia. In South Africa, Gold Fields owns and operates the Driefontein, Kloof and
Beatrix mines. Driefontein is Gold Fields’ largest operation producing more than
1.3 Moz of gold annually, whilst Kloof produces more than 1 Moz of gold annually.
Both mines are situated in the western region of the Witwatersrand area. Beatrix is
situated in the Free State province on the southern part of the Witwatersrand Basin
and produces more than 650,000oz of gold annually.
In Ghana, Gold Fields has a 71.1% interest in the Tarkwa and Damang opencast and
heap leach operations. Together these low cost operations produce more than
830,000oz of gold annually. Another 650,000 oz of gold are produced in Australia at
Gold Fields’ 100% owned St Ives and Agnew operations.
OPERATING STATISTICS
PRODUCTION FY2005
South Africa 2.804 Moz 67%
Rest of world 1.354 Moz 33%
Total 4.158 Moz 100%
RESERVES AND RESOURCES as at 30 June 2005
Reserves
Resources
64.8 Moz
174.5 Moz
COSTS AND EXPENDITURES
FY2004 FY2005
Total cash costs $302/oz $331/oz
Exploration expenditure $29m $32m
Capital expenditure $419m $324m
Data Source: Gold Fields Ltd FY2004/2005 Annual Report
GOLD IN SOUTH AFRICA 180

RESEARCH DIRECTORY
LARGE PUBLICLY LISTED GOLD PRODUCERS
MINE OPERATING STATISTICS
Total cash costs
Production
FY2004 FY2005 FY2004 FY2005
South Africa $/oz $/oz oz oz
Driefontein 311 330 1,141,000 1,163,000
Kloof 341 379 1,038,000 1,037,000
Beatrix 356 406 625,000 642,000
Other operations
Ghana:
Tarkwa 194 230 540,000 550,000
Damang 243 222 299,000 308,000
Gold Fields Ltd
Regional production profile (%)
17
19 64
Australia:
St Ives 188 297 513,000 543,000
Agnew 255 226 144,000 202,000
DEMOGRAPHIC PROFILE
FY2005
% HDSA
Senior management 15
Professionals 57
Technicians 50
Clerks 96
Service & sales 96
Craft & related trades 57
Machinery operators 100
South Africa
Ghana
Australia
Total Staff: 43,000
Data Source: Gold Fields Ltd FY2004/2005 Annual Report
GOLD IN SOUTH AFRICA 181

RESEARCH DIRECTORY
LARGE PUBLICLY LISTED GOLD PRODUCERS
Harmony Gold Mining Company Ltd
MANAGEMENT
Chairman
Chief Executive Officer
P Motsepe
B Swanepoel
LISTINGS
JSE Limited, London Stock Exchange, New York
Stock Exchange, Euronext Brussels, Euronext Paris,
Berlin Stock Exchange
Shareholders (%)
CONTACT DETAILS
Address
Physical:
Postal:
First Floor Suite No. 1
4 The High Street Private Bag X1
Melrose Arch
Melrose Arch
Johannesburg
Johannesburg
Phone +27 11 684 0140
Facsimile +27 11 684 0188
E-mail
corporate@harmony.co.za
Web
www.harmonygold.co.za
14
5
2
COMPANY
Harmony Gold Mining Company was formed in 1950 as a Rand Mines managed
company to exploit the single Harmony mine lease. In 1995, the company was
established as a seperate entity following the demise of Rand Mines.
20
African Rainbow Minerals
Alan Gray
Merrill Lynch
Sanlam
Other
59
Harmony’s operations are primarily situated in South Africa in the Free State,
Evander, Randfontein and West Rand regions of the Witwatersrand Basin. Harmony
also has a number of operations and exploration prospects in Australia and Papua
New Guinea.
OPERATING STATISTICS
PRODUCTION FY2005
South Africa 2.978 Moz 90%
Rest of world 0.338 Moz 10%
Total 2.965 Moz 100%
RESERVES AND RESOURCES as at 30 June 2005
Reserves
54.14 Moz
Resources*
521.4 Moz
*Reported in FY2005 Annual Report
COSTS AND EXPENDITURES
FY2005 FY2004
Total cash costs $412/oz $360/oz
Exploration expenditure $12m $15m
Capital expenditure R140.8m $126.7m
Data Source: Harmony Gold Mining Limited FY2004/2005 Annual Report
GOLD IN SOUTH AFRICA 182

RESEARCH DIRECTORY
LARGE PUBLICLY LISTED GOLD PRODUCERS
MINE OPERATING STATISTICS
FY2004
FY2005
Cash costs
Cash costs
Prod (oz) ($/oz) Prod (oz) ($/oz)
Target 53,434 215 209,847 273
Tshepong 390,474 264 380,695 309
Masimong 234,307 326 159,981 452
Evander 2 86,172 376 48,764 635
Evander 5 48,103 335 47,093 411
Evander 7 92,505 356 130,009 284
Evander 8 109,513 363 151,936 304
Cooke 1 104,168 304 79,101 426
Cooke 2 90,761 789 54,441 122
Cooke 3 134,003 374 116,300 435
Leveraged shafts 1,295,315 400 841,280 511
Elandsrand 250,581 402 207,371 478
Doornkop 65,234 353 52,695 512
Surface operations 208,744 343 188,904 449
11
Harmony Gold Mining Company Ltd
Regional production profile (%)
South Africa
Australasia
89
Australasian
operations 338,288 327 296,848 337
Note: Leveraged shafts comprise: Bambanani, Evander 9, Joel, Kudu/Sable, West Shaft, Nyala, Eland,
DeelKraal, St Helena, Harmony 2, Harmony 4, Merriespruit 1, 3, Unisel, Brand 3, 5, Virginia, Orkney 1, 2, 3, 4,
6, 7, Saaiplaas 3, Welkom 1, 2, 3, 4, 6, 7
DEMOGRAPHIC PROFILE
FY2005 Total % HDSA % Female
Senior management 234 18 8
Professionals 1,028 39 6
Technicians 7,165 66 6
Clerks 1,635 93 32
Machinery operators 17,898 99 1
Semi-skilled 25,032 97 4
Total staff 52,992 92 4
Data Source: Harmony Gold Mining Limited FY2004/2005 Annual Report
GOLD IN SOUTH AFRICA 183

RESEARCH DIRECTORY
LARGE PUBLICLY LISTED GOLD PRODUCERS
Western Areas Ltd
MANAGEMENT
Chief Executive Officer
(Acting)
LISTINGS
JSE Limited
Shareholders (%)
JC Lamprecht
CONTACT DETAILS
Address
Physical:
Postal:
28 Harrison Street PO Box 61719
Johannesburg
Marshalltown
2001 2107
South Africa
South Africa
Phone +27 11 688 5000
Facsimile +27 11 834 9195
E-mail
gibson@jci.co.za
Web
http://www.westernareas.co.za
12
20
38
COMPANY
Western Areas is a South African incorporated mining company with one principal
gold mining asset, which is a 50% interest in the South Deep joint venture in the
Witwatersrand basin. South Deep’s other 50% partner is Placer Dome SA, a South
African subsidiary of Canadian miner Placer Dome.
OPERATING STATISTICS
30
JCI Gold Ltd
Standard Bank Nominees
Anglo South Africa (Pty) Ltd
Other
PRODUCTION FY2004
South Africa
RESERVES AND RESOURCES as at 31 December 2004
Reserves
Resources
COSTS AND EXPENDITURES
Total cash costs
Exploration expenditure
Capital expenditure
0.224 Moz
28.9 Moz
48.5 Moz
FY2004
$301/oz
$1.5 m
$110.6 m
DEMOGRAPHIC PROFILE
FY2004 Total % HDSA
Senior management 16 6%
Professionals 62 6%
Technicians 154 36%
Clerks 175 90%
Service & sales 238 94%
Craft & related trades 404 76%
Machine operators 2,155 99%
Semi skilled 1,710 97%
Total Staff 4,914 93%
Data Source: Western Areas Ltd FY2004 Annual Report
GOLD IN SOUTH AFRICA 184

RESEARCH DIRECTORY
Other Producers (

RESEARCH DIRECTORY
Other Producers (

RESEARCH DIRECTORY
Other Producers (

RESEARCH DIRECTORY
PRIMARY REFINERS
Rand Refinery Ltd
MANAGEMENT
Non-Executive Chairman
Managing Director
Director Global Markets
Director Business Services
T M L Setiloane
A M Muir
C J Kenny
G L Millet
CONTACT DETAILS
Address
Physical:
Postal:
Refinery road PO Box 565
Industries West
Germiston
Germiston 1401 1400
South Africa
South Africa
Phone +27 11 418 9000
Facsimile +27 11 418 9234
E-mail
marketing@gold.co.za
Web
www.gold.co.za
COMPANY
Rand Refinery was established in 1921 and is the largest single site gold and silver
refinery in the world. The refinery processes newly mined gold ore annually from
both local and international sources and treats precious metals scrap from
electronic waste, dental alloys, medical waste, jewellery process scrap and recycled
jewellery. Rand Refinery markets and generates a number of products primarily bars
for the international gold market, jewellery alloys for the local gold jewellery
fabricators, and coin blanks for South Africa's legal tender coin programmes.
GOODS DELIVERY STATUS
London Bullion Market Association (LBMA) Good
Delivery Status.
One of five refineries in the world to have been
appointed by the LBMA as a Good Delivery Referee,
responsible for the testing of samples from Good
Delivery refiners in support of the LBMA's Good
Delivery system.
SERVICES
Refining: uses the Miller Chlorination Process to
promote mine gold bullion to London 'Good
Delivery' standards.
Refining Feed: Doré from gold mines in South
Africa, West and East Africa and South America.
Smelting: treats primary and secondary low-grade
gold bearing by-product material to recover gold,
silver and platinum group metals.
Electrolytic refining: Rand Refinery is able to
produce high purity products using this process.
Processes include carbon incineration, silver
electro-refining.
Other: Rand Refinery offers an assaying service in
addition to secure storage facilities and onward
freighting of gold and other precious metals and
stones.
The Rand Refinery quotes Rand-denominated prices
for the refinery's gold products to its local
customers, set on a twice-daily basis. The Rand
Refinery price is used by the secondary recyclers as
a benchmark by which the recyclers calculate their
own prices to customers.
PRODUCT RANGE
GOLD BARS
Mass
Fineness
Gold bars 400oz >995/999.9
1,000g >995
100oz >995
100g 999
10 tola 999
5 tola 999
10 tael 9999
5 tael 9999
Minted bars 10g 999.9
50g 999.9
100g 999.9
Silver bars 1,000 oz 999
COINS
Coin blanks Size (mm) 32.77, 27.07,
22.06, 16.55
Carat/Fineness 9, 18, 22 & 24
999 (pure silver)
Other coins/
Manufactured to order
Medallions
Krugerrands Size (mm) 32.77, 27.07,
22.06, 16.55
Carat 22
GOLD ALLOY GRAIN
Carat Code Colour Melting Hardness
range °C
9ct 09DD Yellow 900-950 Semi-Soft
09J Yellow 880-960 Medium
090A5 Yellow 980-1000 Medium
09CW Med. White 980-1050 Medium
09LX White 950-1000 Semi-Soft
09RJ Rose 960-1000 Medium
14ct 14J Yellow 935-980 Medium
14LX White 980-1020 Semi-Soft
14RJ Rose 960-1000 Medium
18ct 18J Yellow 930-980 Medium
18D Yellow 970-1000 Semi-Soft
18SW Soft White 1100-1250 Soft
22ct 22J Yellow 950-980 Medium
OTHER
Wire and plate: manufactured to order from 9 to 24 carat.
GOLD IN SOUTH AFRICA 188

RESEARCH DIRECTORY
PRIMARY REFINERS
CONTACT DETAILS
Address
Physical:
Postal:
4 Peltier Drive Building 18
Sunninghill Park
Johannesburg
Sunninghill Office Park
Peltier Drive
Sunninghill, Sandton
Johannesburg
Phone +27 11 461 7800
Facsimile +27 11 461 7801
E-mail (General enquiries)
info@musuku.com
Web
www.musuku.com
PRODUCT RANGE
GOLD BARS
Mass
Fineness
Gold bars 100g 999
1kg 995
GOLD ALLOY GRAIN
Carat Colour Description
9ct Yellow Casting & Bench
White
Casting & Bench
Red
Casting & Bench
10ct Yellow Casting & Bench
White
Casting & Bench
Red
Casting & Bench
14ct Yellow Casting & Bench
18ct Yellow Casting & Bench
White
Casting & Bench
MANAGEMENT
Chief Executive Officer
Musuku Beneficiation systems
D Young
SHAREHOLDERS
Originally jointly owned by Harmony Gold Mining
Company and Mintek. Now 100% wholly-owned
subsidiary of Harmony.
GOODS DELIVERY STATUS
Awarded London Bullion Market Association Good
Delivery Status in September 2005.
SERVICES
Refining: The refinery uses the Mintek Minataur
refining process.
Refining feed: cathode slime. The refinery uses a
solvent extraction process which can also treat
silver refining anode slimes, doré and jewellery
scrap. All feed is sourced from South Africa.
Product sales: Musuku offers a range of bars,
jewellery alloys, semi-manufactured jewellery
products, gold and silver based industrial products,
5 9's gold and an extensive range of dental alloys.
Musuku does not produce coin blanks for the
striking of South African legal tender coins.
GOLD & SILVER PLATE, WIRE & STRIP
Product Width (mm) Thickness (mm) Purity
Plate 10 to 50 0.2 to 1.0 9-24ct
Strip 0.6 to 2.6 0.04 to 0.8 9-24ct
Wire 0.2 to 2.0 diam. 9-24ct
SOLDER BLOCKS & PASTES
Product Description
Silver
Easy, medium & hard
Gold 9ct Red Easy
9ct White Medium
9ct Yellow Extra easy, easy,
medium, hard
14ct yellow Easy, medium, hard
18ct White Easy, medium, hard
18ct Yellow Easy, medium, hard
960, 1020, 1200,
1300, 1400,
Platinum 1500, 1600 Easy, medium, hard, extra hard
9, 10, 14, 18 ct
Yellow
Easy, medium (65% & 80% alloy
content)
DENTAL RANGE
Product Description Purity
Dental Alloys: Casting & Bonding 2 % to 92 %
Star Range alloys, catering for gold content.
Aurex Range
all dental restoration
Musuku Range
work
Dental Wires Round and half round 17 and 20 ct
Dental Solders Wire pieces & reels. 49 to 74 % gold content
GOLD IN SOUTH AFRICA 189

RESEARCH DIRECTORY
RECYCLERS
CAPE PECIOUS METALS
MANAGEMENT
Managing Director
S Eades
CONTACT DETAILS
Address
Physical:
Postal:
Link Close PO Box 37128
Montague Gardens
Chempet
7441 7442
Phone +27 11 551 2066
Facsimile +27 11 552 1598
BUSINESS DESCRIPTION
Cape Precious Metals is an assayer and recycler of all precious metals including
silver from x-ray film, gold from the jewellery industry and platinum group metals
from industrial waste. The company has a well-established client base among the
jewellery manufacturers, and sources material from hospitals in the form of
x-ray scrap.
FIRST ASSAY (PETER STANLEY
ASSAYS (PTY) LTD)
MANAGEMENT
Managing Director
C Burger
CONTACT DETAILS
Address
Physical:
Postal:
87 Langerman Dr Postnet Suite 169
Kensington South
Private bag X19
Johannesburg 2094 Gardenview 2047
Phone +27 11 616-7210
Facsimile +27 11 622-8583
E-mail
firstassay@mweb.co.za
COMPANY BACKGROUND
Date established 1998
Number of outlets 1
Number of staff 4
BUSINESS DESCRIPTION
First Assay has two core businesses. The first offers a full assay service on a six-hour
turn around time. The second is recycling of precious metals waste, primarily from
the jewellery trade and supply to the trade of precious metals in return. The
company also refines mine output and dump retreatment material from small
mining ventures.
GOLD IN SOUTH AFRICA 190

RESEARCH DIRECTORY
RECYCLERS
MANAGEMENT
Managing Director
B Stern
METAL CONCENTRATORS (PTY) Ltd
CONTACT DETAILS
Address
Cape Town
Johannesburg
PO Box 1142 PO Box 699
Milnerton
Ifafi
7435 0260
Phone +27 12 305 3562
Facsimile +27 12 305 3574
E-mail
metcon@mweb.co.za
Web
COMPANY BACKGROUND
Date established 1990
Number of outlets 2
Outlet locations
Cape Town /North West Province
Number of staff 45
Ownership
Private, family-owned
BUSINESS DESCRIPTION
Deals only with the jewellery industry. A separate company supplies semimanufactured
products, alloys solders, gold potassium cyanide and rhodium plating
and solutions. Supplies capital equipment for the manufacture of jewellery. Has the
capacity to recycle autocatalysts.
PERKINS METALS RECOVERIES (PTY) LTD
MANAGEMENT
Managing Director
I Perkins
CONTACT DETAILS
Address
Physical:
Postal:
2nd Floor PO Box 15637
SA Jewellery Centre
Doornfontein
225 Main Street 2028
Johannesburg
Phone +27 11 334 6263/6
Facsimile +27 11 334 6947
E-mail
ianperkins@mail.telepac.pt
Web
COMPANY BACKGROUND
Date established 1990
Number of outlets 3
Outlet locations
Johannesburg, Cape Town and
Durban
BUSINESS DESCRIPTION
Perkins is one of the larger secondary refineries with collection networks in Cape
Town and Durban sending recycling material to the refinery in Johannesburg. The
company takes old jewellery scrap, filings and polishings, jewellery sweepings, wash
waters as well as material from dump treatment companies. The company's prices
are benchmarked against the Rand Refinery price.
GOLD IN SOUTH AFRICA 191

RESEARCH DIRECTORY
JEWELLERY MANUFACTURERS (>750KG ANNUAL GOLD USAGE)
ALAN MAIR MANUFACTURING JEWELLERS
MANAGEMENT
Chief Executive Officer/
Managing Director
A Mair
EMPLOYMENT DEMOGRAPHIC PROFILE
Male/female 40:60
Permanent/temporary 85:15
MANUFACTURING PROCESS
Cast 25%
Machine-made 70%
Hand-made 5%
CONTACT DETAILS
Address
Physical:
Postal:
Refinery Road PO Box 20
Germiston
Germiston
1400 1400
South Africa
South Africa
Phone +27 11 418 1660
Facsimile +27 11 825 4043
E-mail
bianca@ammj.co.za
Web
COMPANY BACKGROUND
Date established
Number of retail outlets
None
Distribution channels
Direct to trade
Number of staff 230-250
Ownership
51% A Mair
BUSINESS DESCRIPTION
One of the big three fabricators in the country producing machine made and mass
produced cast and pressed jewellery for both the local and export markets in a ratio
of 80:20 local to export. Exports are heavily dependent on the level of the Rand.
First manufacturer to move to the Gold Zone adjacent to Rand Refinery.
PRODUCT RANGE
RINGS
Plain bands
Signet rings
Stone set
EARRINGS AND PENDANTS
Hoops
Studs
Others
Cross
9 carat yellow gold
9 carat yellow gold
9 carat yellow gold
9 carat yellow gold
9 carat yellow gold
9 carat yellow gold
9 carat yellow gold
GOLD IN SOUTH AFRICA 192

RESEARCH DIRECTORY
JEWELLERY MANUFACTURERS (>750KG ANNUAL GOLD USAGE)
CONTACT DETAILS
Address
Physical:
Postal:
170 Buitengracht St. PO Box 16 552
Cape Town
Vlaeberg
8000 8018
South Africa
Phone +27 21 480 9860
Facsimile +27 21 423 5516
E-mail (General enquiries)
oroafrica@oroafrica.co.za
Web
www.oroafrica.com
MANAGEMENT
Chief Executive Officer
Managing Director
OROAFRICA (PTY) LTD
S Nathan
G Nathan
EMPLOYMENT DEMOGRAPHIC PROFILE
Permanent/temporary All permanent
MANUFACTURING PROCESS
Chain and stamped jewellery 100%
COMPANY BACKGROUND
Date established 1945
Number of retail outlets
None
Distribution channels
Direct to trade
Number of staff 160
Ownership Family 75%
AngloGold Ashanti 25%
BUSINESS DESCRIPTION
OroAfrica, meaning Gold of Africa, is South Africa's largest mechanised
manufacturer of gold chain and stamped gold jewellery. Based in Cape Town, the
partnership is the result of a management buyout. Subsequent to this buyout,
AngloGold Ashanti (AngloGold at that time) purchased a 25% stake in OroAfrica.
OroAfrica manufactures high quality gold chain, the company's largest market being
the USA, followed by the UK, Europe, Australia and sub-Saharan Africa. It also
supplies a range of jewellery, including earrings, pendants, necklaces, bracelets and
rings to the local market.
PRODUCTS
GOLD CHAINS
Caratage 9, 10, 14 and 18
Colour
Style
Various, including yellow and white
Domed, supreme, figaro, marina, Singapore
Valentino, Cuban, curb, id bracelets etc.
COMPANY BRANDS
OroAfrica has two company brands. The first is the Kwela range of jewellery aimed
at connecting the buyer with the spirit of Africa. Kwela is designed and produced in
Africa, and shows the continent's environment, animals and people.
The second is ‘AU79 Pure Chemistry’, a brand focusing on a younger clientele. Its
name comes from the chemical symbol of gold (AU) and gold's number (79) in the
periodic table. The jewellery range has symbols inserted on each piece; a process
that has been patented and all the designs are under copyright.
GOLD IN SOUTH AFRICA 193

RESEARCH DIRECTORY
JEWELLERY MANUFACTURERS (>750KG ANNUAL GOLD USAGE)
SILMAR
EMPLOYMENT DEMOGRAPHIC PROFILE
Male/female 25:75
Permanent/temporary
All permanent
MANUFACTURING PROCESS
Machine-made chain 100%
MANAGEMENT
Managing Director (RSA)
D Merkin
CONTACT DETAILS
Address
Physical:
Postal:
H304, 2nd Floor P.O Box 102
10 Melrose Boulevard Melrose Arch
Melrose Arch 2076
Atholl Oaklands Road
Melrose North
Johannesburg
2001
Phone +27 11 214 4100
Facsimile +27 11 214 4104
E-mail
silmar@icon.co.za
Web
www.silmar.it
COMPANY BACKGROUND
Number of retail outlets
None - supplier to the business
Distribution channels
Direct to trade
Number of staff 60
Ownership
Silmar SpA Italy
BUSINESS DESCRIPTION
Silmar Marketing SA is part of the larger Silmar SpA group based in Italy. The South
African company is the largest manufacturer of machine-made chain gold chain.
The company runs 150 chain-making machines all of which were imported into
South Africa. Silmar targets 50% to the local market and 50% for export mainly to
the USA under AGOA.
All 9 carat chain is sourced to local wholesalers and retailers, supplying all the major
retail chain stores. 10 carat and 14 carat is exported to the USA. The company
draws its own wire.
PRODUCTS
Gold chain of various styles and caratage.
GOLD IN SOUTH AFRICA 194

MANAGEMENT
Managing Director
A Salver
RESEARCH DIRECTORY
JEWELLERY MANUFACTURERS (

RESEARCH DIRECTORY
JEWELLERY MANUFACTURERS (

MANAGEMENT
Managing Director
M Maack
RESEARCH DIRECTORY
JEWELLERY MANUFACTURERS (

RESEARCH DIRECTORY
JEWELLERY MANUFACTURERS (

RESEARCH DIRECTORY
JEWELLERY MANUFACTURERS (

RESEARCH DIRECTORY
JEWELLERY MANUFACTURERS (

RESEARCH DIRECTORY
JEWELLERY MANUFACTURERS (

RESEARCH DIRECTORY
JEWELLERY MANUFACTURERS (

RESEARCH DIRECTORY
CONTACT DETAILS
Address
Physical:
Postal:
Old Johannesburg Road PO Box 8850
Gateway
Centurion
Centurion 0046 0046
Phone +27 12 677 2777
Facsimile +27 12 667 2828
E-mail
numismatics@samint.co.za
Web
www.samint.co.za/coinworld
COIN WORLD AT THE SOUTH AFRICAN
MINT COMPANY
MANAGEMENT
Managing Director
EMPLOYMENT DEMOGRAPHIC PROFILE
Male/female 28:72
Permanent/temporary 72:28
Managerial & sales/
technical 14:86
AM Mvinjelwa
COMPANY BACKGROUND
Date established 1996
Number of outlets 1
Outlet locations
Gauteng
Number of staff 7
Ownership
Wholly-owned by the SA Mint
BUSINESS DESCRIPTION
Coin World is a retail outlet and museum on the premises of the South African
Mint. With a complete display of South African coins, working machinery, works of
art, antique furniture and a trained guide, Coin World has become an active tourist
attraction. For sale are proof Krugerrands, jewellery, limited edition medallion
watches and other proof gold and silver coins.
Visitors can strike their own proof coin on one the world's oldest working mint
presses called ‘Oom Paul’ which began operating in 1891 when Paul Kruger, the
then President of the old Zuid-Afrikaansche Republiek, ordered two presses from
Ludwig Loewe & Co, in Berlin. The press is the only remaining one of its kind in the
world.
PRODUCT RANGE
KRUGERRANDS
Size Diameter mm Mass (g) Gold
1oz 32.69 33.931 22 carat
1/2oz 27.00 16.966 22 carat
1/4oz 22,00 8.483 22 carat
1/10thoz 16.50 3.393 22 carat
NATURA COIN SERIES
Size Diameter mm Mass (g) Gold
1 oz 32.69 31.107 24 carat
_ oz 27.00 15.553 24 carat
_ oz 22,00 7.777 24 carat
1/10th oz 16.50 3.110 24 carat
THE PROTEA COIN SERIES
Face Value Diameter mm Mass (g) Gold
R25 32.69 31.107 24 carat
R5 16.50 3.110 24 carat
R1 32.70 15.00 Silver
THE 2004 PROTEA SERIES CELEBRATING - 10 YEARS OF DEMOCRACY IN SOUTH AFRICA
Face value Number Issued Description
And Carat
R25 24 ct 5,000 Nelson Mandela with
Union Building
R5 24 ct 1,000 Constitution and Flag
R1 silver 6,000 National symbols
Proof Set 1,000 3 coin set
GOLD IN SOUTH AFRICA 203

RESEARCH DIRECTORY
GOLD OF AFRICA MUSEUM
MANAGEMENT
Museum Manager
K Price
CONTACT DETAILS
Address
Physical:
96 Strand Street
Cape Town, 8001
Phone +27 21 405 1540
Facsimile +27 21 405 1541
E-mail
info@goldofafrica.com
Web
www.goldofafrica.com
BACKGROUND
Date established 2001
Location
Cape Town
Number of staff 7
Ownership
AngloGold Ashanti
DESCRIPTION
The Gold of Africa Museum was established by AngloGold Ashanti as part of its
programme to preserve the artistry of African goldsmithing and inspire modern gold
jewellery design.
The museum contains a world-renowned collection of West African gold artefacts,
originally from the Barbier-Mueller Museum in Geneva, as well as artefacts from the
ancient gold civilisations of southern Africa.
The power and wealth of the gold-rich kingdoms of Africa is a little easier to
comprehend once the museum's artefacts have been viewed. But the collection
goes a step beyond the aesthetic; the visitor takes away insights into the values of
the people who created these objects through the symbolism surrounding each
piece.
The setting for the collection is in itself noteworthy. Restored in 2000, Martin Melck
House, built in 1783, is believed to be one of the finest remaining examples of old
Cape Town domestic architecture.
Alongside its permanent collection, the museum showcases temporary exhibitions
from countries as diverse as India, Brazil, Mali and Egypt.
The museum complex has a two hundred-year-old garden courtyard and wine cellar
that offer quality wines and light meals. It houses an auditorium and is available as
a venue for hire to both private and corporate clients.
A state-of-the-art gold jewellery workshop offers courses and demonstrations and
here visitors can see local goldsmiths using South African gold to design and
manufacture jewellery. Some of these pieces are sold in the museum shop, which
also offers a variety of gifts crafted by local workers.
THE HISTORY OF THE MUSEUM COLLECTION
The Gold of Africa Museum's collection was originally assembled by the Swiss art
lover, Josef Mueller, who collected African artwork and jewellery over a fifty-year
period. Josef's daughter and son-in-law, Jean Paul Barbier, continued to build the
collection which was displayed in Switzerland's Barbier-Mueller Museum until 2001
when it was returned to the African continent.
GOLD IN SOUTH AFRICA 204

START GLOSSERY OF TERMS HERE
GOLD IN SOUTH AFRICA 205

GLOSSARY OF TERMS AND ACRONYMS
GLOSSARY OF TERMS AND ACRONYMS
8
Photograph courtesy: AngloGold Ashanti
GOLD IN SOUTH AFRICA 205

GLOSSARY OF TERMS AND ACRONYMS
A
ABET
ACPs
ACSA
AGOA
Alloy Grain
ARM
Assaying
ASSMs
Adult Basic Education & Training
African, Caribbean and Pacific countries
(referred to in terms of the Lomé Convention)
Airports Company of South Africa
African Growth and Opportunity Act of the USA
Gold granules of varying caratage usually destined for the
jewellery industry
African Rainbow Minerals, a BEE mining company formed in
1997 and recently involved in a merger with Harmony Gold
Mining
In chemical analysis, the process of determining proportions
of metal, particularly precious metal, in ores and beneficiated
metal. The method known as ‘Fire Assay’ is the oldest known
method of assaying gold and continues to be the most
accurate and economical method of determining the purity
of gold
Artisinal Small Scale Mining project initiated by Mintek
B
BBC
BBSDP
BEE
BEE Codes
of Good Practice
BEECom
Bela-Bela
Bioxidation
Blanks
BTR
BUSA
Black Business Council
Black Business Supplier Development Programme
Black Economic Empowerment
Published by the Department of Trade and Industry to
inform companies and organisations on how best to meet
BEE targets
Black Economic Empowerment Commission
Formerly Warmbaths in Limpopo Province
A process developed in South Africa for the recovery of gold
from certain ores. It employs the use of naturally occurring
bio-organisms in a contained environment, with a specific
temperature, acidity and oxygen level, to recover gold from
sulphide rock
See Coin Blanks
Bilateral Trade Relations
Business Unity South Africa
GOLD IN SOUTH AFRICA 206

GLOSSARY OF TERMS AND ACRONYMS
C
Cast Bar
Casting
CBO
Chamber of Mines
of SA
CIBJO
CJMA
Cluster Studies
CMA
Coin Blanks
COSATU
Cost Curve
A cast bar is made by the basic process of forming a bar in
a mould (Contrast minted bar)
Jewellery manufacturing process in which gold and alloys
are extruded into moulds under vacuum
Community Based Organisation
Employers’ organisation serving the interests of the
South African mining industry
International Confederation of Jewellery, Silverware,
Diamonds, Pearls and Stones
Cape Jewellery Manufacturers Association
Initiatives launched as a process of accelerating expansion
of production capacities in certain sectors of industry
(e.g. agriculture, tourism, jewellery manufacturing)
Common Monetary Area (an alliance between South Africa,
Lesotho, Swaziland and Namibia) which replaced the RMA
(Rand Monetary Area) in 1986
Semi-fabricated stamped gold discs used to manufacture
numismatic or legal tender coins
Congress of South African Trade Unions
Graph of total cost of production as a function of the total
quantity produced
D
DDG
DEAT
Derivative
DMCC
DME
DOL
Doré
DRD
DTI
Deputy Director General
Department of Environmental Affairs and Tourism
Highly leveraged financial instrument the value of which is
based on an underlying asset, for example gold exchange
traded futures or options
The Dubai Metals and Commodities centre is an industrial
Development Zone offering one-stop refining and trading
facilities for the precious metals and diamond industries.
Department of Minerals and Energy
Department of Labour
Impure alloy of gold and silver produced at a mine to be
refined to a higher purity, usually consists of 85% gold on
average
Durban Roodepoort Deep (now known as DRDGOLD)
Department of Trade & Industry
GOLD IN SOUTH AFRICA 207

GLOSSARY OF TERMS AND ACRONYMS
E
EEA Employment Equity Act (of 1998)
ETF
EFTA
ELIDZ
ETQA
EMIA
Exchange Traded Fund. Gold ETFs are funds whose sole
asset is physical gold and whose value is fully backed by
physical gold
European Free Trade Area
East London Industrial Development Zone
Education and Training Quality Assayers
Export Marketing and Investment Assistance
F
FTA
Finding
Fine Gold
Fleur de Coin
FRIDGE
Free Trade Area
A value-added small component (a clasp, clip or hook) that
forms part of the overall jewellery piece assembly
Pure gold of at least 995 parts per 1,000 gold. Distinguish
between fine gold and ‘fine gold jewellery’ which refers to
carat jewellery of a minimum of 9 carat to differentiate it
from costume jewellery which does not contain carat gold
An international term for a coin that is produced with no
blemishes and of the highest quality – e.g. a proof
Krugerrand
Fund for Research in Industrial Development Growth and
Equity
G
GATT
GEAR
GPC
GSP
General Agreement on Tariffs and Trade
Growth, Employment and Redistribution
Gold Producers Committee of the Chamber of Mines
Generalised System of Preferences
H
Hallmark
HDI
HETs
HDSA
Hives
HCDCS
Marking finished product of jewellery with a caratage stamp
or manufacturers’ insignia
Historically Disadvantaged Individual
Higher Education and Training Institutions
Historically Disadvantaged South African
Co-operative associations of manufacturers of similar
products operating collectively and usually cost-effectively
via the sharing of overheads and other fixed costs
Harmonised Commodity Description and Coding System
GOLD IN SOUTH AFRICA 208

GLOSSARY OF TERMS AND ACRONYMS
I
IDC
IDZ
IMF
ISO
Industrial Development Corporation of South Africa Limited
Industrial Development Zone
International Monetary Fund
International Standards Organisation
J
JASA
JAWDA
JCSA
JIAIDZ
JMA
JSE
Jewellery Association of South Africa
Jewellery and Watch Distributors Association
Jewellery Council of South Africa
Johannesburg International Airport Industrial Development
Zone
Jewellery Manufacturers’ Association
Johannesburg Securities Exchange
L
LBMA
Legal Tender
LIBOR
London Good
Delivery Referee
London Good
Delivery Status
London Bullion Market Association
(Coins) Bullion or other coins which are accepted for the
purchase of goods and services – e.g. Krugerrand
London Inter Bank Offered Rate, based on rates that
contributor banks in London offer each other for inter-bank
deposits
Refinery appointed by the LBMA, to monitor quality and
purity of refinery output
Awarded by the London Bullion Market Association to
refiners that meet certain criteria with respect to their
refining standards. This status gives refiners international
recognition for the quality and purity of their products.
(Termed London Good Delivery status accreditation).
M
Makhoda
Minted Bars
Mintek
Mokopane
Mookgophong
Formerly Louis Trichardt in Limpopo Province
A bar punched out of a strip of gold which has been
produced by continuous casting. The punched out bar is
then minted in a purpose-designed minting press, similar to
the process used to make coins. (Contrast cast bars)
Provider of minerals processing and metallurgical
engineering products and services to industry
Formerly Potgietersrus in Limpopo Province
Formerly Naboomspruit in Limpopo Province
GOLD IN SOUTH AFRICA 209

GLOSSARY OF TERMS AND ACRONYMS
MPRDA
MQA - SETA
Minerals and Petroleum Resources Development Act 28 of
2002
Mining Qualification Authority – Sector Education Training
Authority
N
NAFTA
NEDLAC
NEPAD
NSF
NEWGOLD
Gold Bullion
NGOs
NQF
NSBs
NSF
NUM
NYMEX
North American Free Trade Agreement
National Economic Development and Labour Council
New Partnerships for Africa’s Development
National Skills Fund
Gold Exchange Traded Fund launched by Absa Bank
Non-Governmental Organisations
National Qualifications Framework
National Standards Bodies set standards in education in
particular sectors or fields
National Skills Fund
National Union of Mineworkers
New York Mercantile Exchange
P
PGMs
Plate
Polokwane
Platinum Group Metals
Product created by the process of continuous casting which
allows a constant rectangular shape to be withdrawn from
the bottom of a mould. Solidifies into a long strip of metal
which can be rolled and reworked into different dimensions
Formerly Pietersburg in Limpopo Province
R
Ribbon
RMA
Plate which has been rolled into a thin strip, usually with a
thickness of less than 0.5mm
Rand Monetary Area replaced by CMA (Common Monetary
Area) in 1986
S
SACOB
SAMDA
SARS
South African Chamber of Business
South African Mining Development Association
South African Revenue Services
GOLD IN SOUTH AFRICA 210

GLOSSARY OF TERMS AND ACRONYMS
SAQA
SDF
SDFs
SDL
SDRs
South African Qualifications Authority
Skills Development Fund
Skills Development Facilitators
Skills Development Levy
Special Drawing Rights are a form of international reserve
whose creation was authorised by amendment to the
Articles of Agreement of the IMF
Section 21 Company A company registered in South Africa in terms of Section 21
of the Companies Act. Such companies are registered to
provide a service and do not intend to make or to be judged
by the profits they make. As such, they are ‘Not for Gain’
companies and are often funded by local and/or
international donations
SETA
Small Bars
SME
SMEDP
SMME
SSG
SSP
Sweep
Sector Education and Training Authority
Bars with a weight of less than 1kg generally of the cast
variety
Small and Medium Enterprises
Small and Medium Enterprise Development Programme
Small, Micro and Medium Enterprises
Support Services Group
Skills Support Programme
(Jewellers) – Floor sweepings sent to the recycler to recover
very low grade gold content
T
TEBA
TDCS
TISA
TOCOM
Tshwane
The Employment Bureau of Africa
The South African/European Trade Development &
Co-operation Fund
Trade and Investment South Africa
Tokyo Commodities Exchange
Formerly Pretoria, the administrative capital of South Africa
U
USGS
United States Geological Survey
V
VAT Value Added Tax (14%)
GOLD IN SOUTH AFRICA 211

GLOSSARY OF TERMS AND ACRONYMS
W
Washings
WGC
Wire
The wash water from the jewellery manufacturing process
which can contain anything from 4% - 5% gold (in weight)
which is sent for recycling
World Gold Council
Gold in wire form of varying diameter and alloy destined to
be manufactured into chain
GOLD IN SOUTH AFRICA 212