In case the complete disconnect of paper selling from physical hand-over-fist buying (see this chart [6]to explain all the gold activity in Q1 which can be summarized in two words: paper liquidation) were not enough to send the price of precious metals to zero, then news that quite soon gold mining companies in one of the world's largest producers of gold may be going out of business, leading to a collapse in physical product, should be sufficient to really send precious metals well into negative territory. The only question will be if the GDX gets there first. Reuters reports [7]that South Africa's National Union of Mineworkers said it would seek pay rises of up to 60 percent from gold and coal producers, raising the prospect of fresh strikes as firms battle higher costs and falling prices in an already heated labor climate.
We wish the mineworker union godspeed, and the best of luck, as in the current full retard gold supply/demand environment, only a complete halt in South African mining production will accelerate gold's price plunging to sub-extraction costs, as miner after miner mothball operations, only to see even further paper liquidation taking the price to laughably low levels (and why not negative?) yet making purchases of physical product completely impossible as there simply will be none left in the supply channel.
More from Reuters [7]:
Africa's biggest economy is hoping to avoid the 2012 wildcat strike action at platinum and gold mines that cost billions in lost revenue and production and killed over 50 people.
Mineworkers are mobilizing to assert themselves, with the NUM fighting a challenge to its once near monopoly in the shafts from the Association of Mineworkers and Construction Union (AMCU), which has poached tens of thousands of platinum miners from it in a violent struggle for members.
NUM said it was seeking an entry-level minimum monthly wage of 7,000 rand ($750) for gold and coal surface workers and 8,000 rand for those underground in a submission to the country's Chamber of Mines, a copy of which was seen by Reuters.
Elize Strydom, the industrial relations adviser at the Chamber of Mines, said the minimum wage for surface workers is currently 4,700 rand and for underground miners it is 5,000 rand, so the demands for the latter are a 60 percent increase. NUM also said it wanted 15 percent increases for "all other wage categories," or more experienced and skilled workers.
The chamber of mines said in a statement it had received the "proposals" from NUM and urged all parties to compromise in the talks which will begin around the middle of June.
"We appeal to all parties to explore every option in trying to reach settlement without resorting to damaging industrial action, and to reach agreements that will strike a balance between what is affordable to the companies and meets the expectations of the employees," the chamber said in a statement.
Sliding precious metals prices have raised the pressure on miners as they ready for pay talks. Spot platinum on Friday closed at $1,450 an ounce, down around 35 percent from a record high of $2,240 hit in March 2008, and most South African shafts are losing money at this price.
Needless to say, miners can't afford said hikes, and the most likely result will be a repeat of last year's mining violence when many workers were killed, while mine production of platinum and other PMs collapsed. This year it appears the target will be gold.
The rivalry between the two unions triggered violence that killed over 50 people last year and tensions are running high. An AMCU organizer was murdered last weekend, prompting a 2-day strike at platinum producer Lonmin.
Anglo American Platinum (AMSJ.J), the world's top producer, now plans to cut 6,000 jobs from an initial target of 14,000 as it seeks to restore profits after falling into a loss last year. It is hardly in a position to give big pay rises after scaling back its original plan under government pressure.
Gold and coal producers negotiate through the country's chamber of mines. South African gold companies include AngloGold Ashanti (ANGJ.J), Africa's top bullion producer, Gold Fields (GFIJ.J), Harmony (HARJ.J) and Sibanye (SGLJ.J). Coal producers include Anglo American (AAL.L) and Exxaro (EXXJ.J).
At last check, gold was once more sliding as the silver margin liquidation has woken up correlation algos taking down the entire PM complex lower. Which only means that margins at miners, already razor thin, are about to turn negative, leading to inevitable mothballing and eventually, bankruptcies and permanent shutdowns. Which in a new normal should mean even lower prices, until such time as all paper liquidation is exhausted. Until then enjoy the ride as gold miner after gold miner (because the South African mining union's demands will certainly be noticed everywhere else gold is mined) goes out of business.
For the sake of completeness, below is the gold cost curve of the world's largest mines.
[8]