South Africa’s gold industry, like its economy, is crumbling – Washington Post

South Africa’s gold industry, like its economy, is crumbling – Washington Post

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Just off the highway and behind a yellow auto repair shop, Andile Jeremiah slipped into a hole in the ground, descending into an abandoned 100-year-old mine that had helped make South Africa rich.

For a poor man in a country with a slumping economy, it was time to look for whatever had been left behind.

South Africa was once the world’s biggest gold producer, with more than 75 percent of all global reserves in 1970. That iconic industry created wealth that attracted immigrants from around the world, paid for the construction of roads and railroads and made South Africa’s economy the largest on the continent.

Now, its rubble has become a new kind of symbol — of desperation.

Economic growth has stalled. The rand has fallen by 30 percent against the dollar in the past two years. China’s once-voracious demand for minerals has crashed. The mines where so many became rich closed down after reserves were depleted even faster than expected. A generation of poor South Africans and migrants now break into them and scavenge illegally to survive.

“A second gold rush,” said Niël Pretorius, chief executive of DRDGOLD, which shuttered the mine that Jeremiah now sneaks into every day.

The mine is called Durban Deep. Founded in 1896 and nicknamed the “Grand Old Lady,” it was one of the most profitable mines in the world, producing more than $20 billion worth of gold before it closed in 2001. At one point, it employed 18,000 people. Elton John wrote a song about it. “Going two miles down to the heart of Durban Deep,” he sang.

Then the reserves in the mine dwindled. The remaining gold was so inaccessible that, for a major company, it was prohibitively expensive and dangerous to extract. The mine was closed, its shafts sealed with concrete.

Now, to get inside Durban Deep means finding a tiny hole, usually created by an amateur’s dynamite blast. Even when the mine was a formal operation, carefully monitored and secured, the descent was dangerous. But today, the chances of death or injury are much higher. There is no maintenance, no safety equipment, no access to oxygen and no oversight from professional mining companies. In 2014, 21 illegal miners died in the mine on a single day. The miners say at least one person perishes every week, although there are no official figures.

A third of the gold industry’s 180,000 employees were fired between 2004 and 2015. Many returned to the mines on their own, this time illegally.

“When you close a mine, you’re leaving miners without a job — the guys who know the mine well, who know how to get inside,” said Lerato Legong, head of the legal department at South Africa’s Chamber of Mines.

As Jeremiah crawled downward into the earth on a recent day, he found a piece of a long hose once used to deliver oxygen into the mine, a relic from more profitable days.

“Left behind by the white people,” he said, and he kept crawling deeper.

Jeremiah, 31 and originally from Zimbabwe, was drawn here in 2005, when his own country’s economy contracted. He worked as a plumber in Johannesburg for a while, but finding work became too difficult. He looked for legal mining jobs. There were none.

Now, he and the other miners are the first link in a vast illegal network.

When he finishes after 24 hours underground, he brings whatever promising dust and rock he has found to a nearby neighborhood, where it is refined in vats of mercury and then stirred in old metal gas canisters. It will take hours before he knows exactly what he has found. Sometimes, a day is worth $3. Sometimes, it’s worth $50.

At the next step, there are middlemen such as John Mhofu, a lean man from northern South Africa who oversees an illegal refining process that, next to a main road, is hardly hidden from public view. Mhofu, who once operated a forklift in a warehouse, will sell the gold to another man who will, in turn, sell it again. Eventually, it makes its way into the pool of gold mined legally and sold around the world.

Even though the police are supposed to be cracking down on illegal mining and refining, Mhofu says that remaining in business is as simple as paying the right police officer, sometimes in small pieces of gold. While a Washington Post journalist waited for Mhofu, a police car drove up just yards from the refining operation but said nothing to the men handling the gold, even though it was obvious the business was unregulated. Meanwhile, the South African government is preparing to train a team of officers who will pursue illegal miners deep underground, Legong said.

South Africa’s formal gold sector still churns out about $4 billion in revenue every year. Along with platinum, coal and iron ore, it’s an important part of the economy. But with China’s construction boom slowing, commodity prices are sliding.

The economy has struggled recently, and not just because of falling prices for commodities, which constitute about 8 percent of gross domestic product. The country’s manufacturing sector has been hobbled by power constraints. Its agriculture sector has been hit by a historic drought.

Although gold is typically ­counter-cyclical — its value rising in times of economic uncertainty — South African gold reserves aren’t enough to offset the decline in the prices of other commodities. Gold output nationwide has fallen by about 85 percent since 1980, according to government statistics. South Africa now produces only 6 percent of the world’s gold, as recent exploration here has yielded little, while countries such as Brazil and Mongolia have found new deposits.

“Significant discoveries in South Africa pale in comparison to many other countries, reflecting the fact that most of the country’s mines are very old and very deep,” said Mark Ferguson, an analyst at SNL Financial.

The country has not faced an economic crisis of this magnitude since the apartheid era, when international sanctions threatened the South African economy.

International investors have long been critical of President Jacob Zuma’s handling of the economy, pointing to distortions including systemic corruption and the dramatic rise in public-sector employment. But the market was particularly upset when Zuma replaced his finance minister in December with a little-known lawmaker. Zuma was forced to reverse course and appoint Pravin Gordhan, who had held the post in 2014. But the damage was done.

Most economists say the country’s foreign debt will soon be given “junk” status by credit-
rating agencies.

“These head winds are still very much there,” said Michael Keenan, an economist at Barclays bank in Johannesburg. “I think policy has a huge bearing on the performance of assets and the way people look at economy over the medium- to long-term horizon.”

Jeremiah is vaguely aware of those problems, but mostly he is focused on his own struggle — looking for lightly discolored veins underground that might yield a big find. It’s the same quest that brought generations of southern Africans here. But this time, under much more dangerous conditions, the miner’s goal is subsistence, not wealth.

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South Africa’s gold industry, like its economy, is crumbling – Washington Post