Gold in South Africa

GOLD INSOUTHAFRICA

MINING

REFINING

FABRICATION

TRADE

Photograph courtesy: Rand Refinery Limited

CONTENTS

CCHHAAPPTTEERR 11GOLD IN SOUTH AFRICA: INTRODUCTION AND OVERVIEW

CCHHAAPPTTEERR 22RESERVES TO DORÉ: THE GOLD MINING INDUSTRY

CCHHAAPPTTEERR 33DORÉ TO SEMI-FINISHED PRODUCT: REFINING AND RECYCLING

CCHHAAPPTTEERR 44FINAL PRODUCT: JEWELLERY

CCHHAAPPTTEERR 55FINAL PRODUCT: COINS, INDUSTRIAL END USES AND INVESTMENT

CCHHAAPPTTEERR 66TRANSFORMING THE INDUSTRY: LEGISLATIVE, FISCAL ANDFINANCIAL CONTEXT

CCHHAAPPTTEERR 77TRADE

AAPPPPEENNDDIICCEESS

APPENDIX 1: INTERVIEW LIST

APPENDIX 2: THE SOUTH AFRICAN ECONOMY IN AN

INTERNATIONAL CONTEXT

APPENDIX 3: TRAINING AND SKILLS TRANSFER

APPENDIX 4: THE INTERNATIONAL GOLD MARKET

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GOLD IN SOUTH AFRICA 1

Gold in South Africa was funded by AngloGold Ashanti Limited, the World GoldCouncil, the Department of Trade and Industry and the Industrial DevelopmentCorporation of South Africa Limited and researched by Virtual Metals Research &Consulting Limited.

The publication is protected by international copyright law. All rights are reserved.No part of this publication (text, data or graphic) may be reproduced, stored in adata retrieval system or transmitted, in any form whatsoever or by any means(electronic, mechanical, photocopying, recording or otherwise) without obtainingprior written consent from the funders. Unauthorised and/or unlicensed copying ofany part of this publication is a violation of copyright law. Violators may be subjectto legal proceedings and liable for substantial monetary damages per infringementas well as costs and legal fees.

While the funders and researcher have made all reasonable efforts to ensure thatinformation in this review is accurate at the time of publication, there may beinadvertent errors and omissions and a lack of accuracy or correctness. They makeno representation or warranty, express or implied, as to the accuracy orcompleteness of the review. The review is not and cannot be construed as an offerto sell, buy or trade any securities, equities, commodities or related derivativeproducts, and the review in no way offers investment advice.

The funders and researcher and their employees and office bearers therefore acceptno liability for any direct, special, indirect or consequential losses or damages, orany other losses or damages of whatever kind resulting from whatever action orcause through the use of any information obtained directly or indirectly from theseparate or joint sections contained in this review. The funders and researcher alsohave no obligation to inform recipients or readers if, in the future, they revise theiropinions 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. Clientsinclude world-class mining companies, for whom Virtual Metals specialises inproprietary 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 anddemand scenarios, costs analysis, derivative research and price forecasting.

Project management: Lebone Resources

Design and layout: Russell and Associates

GOLD IN SOUTH AFRICA

FOREWORD BY THE FUNDERS

The objective of the funders in commissioning the research described in thisdocument, Gold in South Africa, was to create a source of reference for the industryon the gold business in South Africa in its entirety. The scope of the research wasambitious; it aimed to cover the gold value chain from mining and refining throughto the use of gold in jewellery, bars, coins and other applications, encompassing allaspects of the business of gold. This is the first time that a project of this scopeand nature has been attempted in the South African context.

The research relied on primary sources of information where possible, engagingwith a broad spectrum of participants throughout the value chain to understandhow the gold business in South Africa operates and to gather data on the individualbusinesses which make up this industry. Existing data sources were analysed as wellas the legislative, social and economic framework in which the industry operates inSouth Africa.

It is the hope of the funders that this review will prove a worthwhile source ofreference to all those engaged in the gold industry in South Africa and that it willbe a tool for both South African and overseas investors to identify and defineopportunities for initiating or expanding business ventures in gold.

The funders of this research would like to thank both those involved in itscompilation and those who contributed to and supported the research by sharinginformation and insights during the course of the project.

Mandisi Mpahlwa (MP)Minister of Trade and IndustryDepartment of Trade and Industry

Kelvin WilliamsExecutive DirectorAngloGold Ashanti Limited

Geoffrey QhenaPresident/Chief Executive OfficerIndustrial Development Corporation of South Africa Limited

James BurtonChief Executive OfficerWorld Gold Council

2 GOLD IN SOUTH AFRICA

CCHHAAPPTTEERR 11GGOOLLDD IINN SSOOUUTTHH AAFFRRIICCAA::IINNTTRROODDUUCCTTIIOONN AANNDD OOVVEERRVVIIEEWW

CCoonntteennttss::

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

CCHH

AAPPTTEERR 11

11

Photographs: Courtesy of Gold Fields Limited



CHAPTER 1GGOOLLDD IINN SSOOUUTTHH AAFFRRIICCAA:: IINNTTRROODDUUCCTTIIOONN AANNDD OOVVEERRVVIIEEWW

11..11 IINNTTRROODDUUCCTTIIOONN AANNDD MMEETTHHOODDOOLLOOGGYYIn developing this review of the South African gold industry, research and analysiswere 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-oneinterviews were conducted with sectoral market participants, and with associatedgovernmental and commercial organisations. A list of entities interviewed appearsin Appendix 1.

The research directory included at the end of this review gives further details of themajor industry participants and many of the companies interviewed in the courseof compiling this review. Data on the smaller companies was in some cases eitherunavailable or uneven, and the focus of the research directory is therefore on thelarger industry participants where data was more readily available.

The research also entailed analysis of statistics that provide a context for thisinformation, for example, trade data, employment equity plans, retail jewellerydatabases, South African Police Services data covering gold licences and jewellerypermits 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 exampleregarding gold production stolen from the mines, finished gold jewellery smuggledinto the country to avoid import duties, or jewellery stolen locally. In theseinstances, reference is made to anecdotal evidence gleaned from industrydiscussions. The numbers have, however, been excluded from the statistics. Thereare 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.

Research and analysis were conducted into theproduction, processing and use of gold inSouth Africa...



11..22 OOVVEERRVVIIEEWW OOFF RREESSEEAARRCCHH FFIINNDDIINNGGSS Key participants in the gold industry in South Africa are shown in the followingtable, along with the chapter in which they are referenced or described.

PPaarrttiicciippaannttss iinn tthhee ggoolldd iinndduussttrryy iinn SSoouutthh AAffrriiccaaCChhaapptteerr

MMiinniinngg Large primary gold mining companies 2By-product gold mining companies 2

Small-scale miners 2Informal miners 2

Industry representatives 2Trade unions 2

RReeffiinniinngg Primary refiners 3Recyclers 3

JJeewweelllleerryy mmaannuuffaaccttuurriinngg Large manufacturers 4Medium sized manufacturers 4

Small manufacturers 4Micro manufacturers 4

JJeewweelllleerryy rreettaaiilliinngg Retail chains 4Discount stores 4

Dedicated local retailers 4Dedicated tourist retailers 4

Single outlet retailers 4Industry representatives 4

Trade publications 4

CCooiinnss,, Mints 5eelleeccttrroonniiccss aanndd Component fabricators 5ddeennttaall aallllooyyss Dental laboratories 5

GGoovveerrnnmmeenntt Department of Trade and Industry 6aanndd ooffffiicciiaallss Department of Minerals and Energy 2

South African Revenue Services 6South African Reserve Bank 6

Mintek 2Industrial Development Corporation 6

Mining Qualifications Authority Appendix 3

OOtthheerr JSE Limited 5Banks 5

TTrraaiinniinngg aanndd Universities of technology Appendix 3sskkiillllss ttrraannssffeerr Universities Appendix 3

Private and government initiatives Appendix 3



The following table summarises the main statistical findings pertaining to the goldvalue chain:

TThhee SSoouutthh AAffrriiccaann ggoolldd vvaalluuee cchhaaiinn iinn ffiinnee ggoolldd aanndd mmeettrriicc ttoonnss –– 22000044SSeeccttoorr//TTooppiicc && cchhaapptteerr DDeessccrriippttiioonn tt %%Gold production South African gold production from:Chapter 2 Primary gold producers 312.1 91.4

By-product producers 7.2 2.2Small-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 73.8Chapter 3 Other mine output (Non-RSA) 100.5 22.6

Dump retreatment (RSA) 13.1 2.9Recycling 2.8 0.7

Total 445.3 100.0

Gold fabrication Gold from refining to:Chapters 4 and 5 Bars1 432.7 97.2

Jewellery manufacture 9.6 2.2Coins2 2.9 0.7

Dental alloys 0.0 0.0Electronics 0.0 0.0

Total 445.3 100.0

Gold jewellery Jewellery imports 1.3Chapter 4 Jewellery exports 5.1

Domestic sales (includes imports) 5.9Domestic sales (locally manufactured) 4.6

Gold coin fabrication Krugerrand bullion 2.3 79.8Chapter 5 Krugerrand proofs 0.2 6.0

Proteas 0.2 6.6Naturas 0.2 6.3

R1 0.0 0.5R2 0.0 0.8

Medallions 0.0 0.1TToottaall 22..99 110000..00

Trade flows of gold Exports from South Africa3

Chapter 7 Bars 421.0Coins 0.7

Jewellery 5.1Total 426.8

Imports to South Africa3

Bars 0.0Coins 0.3

Jewellery 1.3Total 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.

In 2004, South Africa produced 342t of fine gold,contributing 14% to global primary output...



NNuummbbeerrss eemmppllooyyeedd iinn tthhee SSoouutthh AAffrriiccaann ggoolldd vvaalluuee cchhaaiinn –– 22000044SSeeccttoorr NNuummbbeerr ooff iinnddiivviidduuaallss eemmppllooyyeedd %%Gold production 187,039 96.6Refining and recycling 532 0.3Jewellery manufacturing 2,680 1.4Jewellery retailing 2,800 1.4Coin fabrication 82 0.0Other4 500 0.3Total employed in the South African gold business 193,633 100.0

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 tothe chapters in which they appear.

11..22..11 RReesseerrvveess ttoo ddoorréé:: tthhee ggoolldd mmiinniinngg iinndduussttrryy ((CChhaapptteerr 22))The discovery of the Witwatersrand Goldfields in 1886 led to the development ofSouth Africa’s world-class gold mining industry which has dominated the world’sgold mining scene for 120 years. In fact, the Witwatersrand Goldfields will probablyremain the greatest goldfield ever discovered, surpassing all others by several ordersof magnitude. Since records of production were first collected in 1884 until 2004the South African gold mining sector has produced 50,055t of gold which accountsfor some 33% of all the gold estimated above surface. The total remaining SouthAfrican gold ore resources are estimated to be some 40,000t, of which about 8,000to 10,000t are economically recoverable depending on the Rand gold price and costscenarios applied.

Close on 200,000 people employed in the goldbusiness in South Africa...

The Witwatersrand Basin

South Africa

Scale

Central Rand Group

West Rand Group

Granite Basement

Gold Fields



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 declinedto 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 overthe next five years.

GGlloobbaall ggoolldd pprroodduuccttiioonn –– 22000044CCoouunnttrryy ttSouth Africa 342USA 260Australia 253China 220Peru 173Russia 159Canada 129Indonesia 100Uzbekistan 90Papua New Guinea 71Ghana 60Tanzania 48Mali 40Chile 39Brazil 34Colombia 30Argentina 27Mexico 24Kazakhstan 22Kyrgyzstan 22Data source: Raw Materials Group, March 2005

Three of the six largest international gold mining companies in the world are SouthAfrican. 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 wereresponsible 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’slargest employer, accounting for 41% of all employment in mining.

By comparison, the USA and Australian gold mining sectors employ approximately14,300 and 6,300 people respectively, a function particularly of the type of miningin those countries in comparison with South Africa. (In both of these countries,mining tends to employ high levels of mechanisation.) Consequently, productivitylevels for South Africa are significantly lower than those in the USA and Australia; itis calculated that South Africa produces 55oz fine gold per employee, in comparisonwith 1,220oz per employee in the USA and 1,342oz per employee in Australia.



11..22..22 DDoorréé ttoo sseemmii--ffiinniisshheedd pprroodduucctt:: rreeffiinniinngg aanndd rreeccyycclliinngg ((CChhaapptteerr 33))In terms of both value and volume, gold refining in South Africa is concentrated inthe hands of its two primary refiners; Rand Refinery and Musuku BeneficiationSystems. In 2004, the primary refiners and the recyclers treated 445t of gold, ofwhich all but approximately 2t was treated by the two primary refiners.

PPrriimmaarryy rreeffiinneerrss:: Until very recently, Rand Refinery was the only South Africanoperation to be accredited by the London Bullion Market Association (LBMA). RandRefinery is also one of only five refineries in the world to have been appointed bythe LBMA as a Good Delivery Referee, responsible for the testing of samples fromGood Delivery refiners in support of the LBMA’s Good Delivery system. Establishedin 1921, Rand Refinery has a long history. As well as processing feed from the SouthAfrican 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. Musukuprocesses feed from all of Harmony’s South African gold operations. 98% of thisfeed is in the form of cathode slime. Musuku secured LBMA accreditation inSeptember 2005.

RReeccyycclleerrss:: In addition to the primary refiners, there are at least another sevenknown but very small recyclers operating in South Africa.

Global gold refining capacity utilisation in 2004 was estimated at 55%, indicativeof an industry in a state of over-capacity. Africa’s gold refining capacity utilisation(of which South Africa represents 98%) was 61%.

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 salesand 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.

AAnnaallyyssiiss ooff SSoouutthh AAffrriiccaann ggoolldd bbaarr ssaalleess –– 22000044tt %%

440000oozz bbaarrss::99.99 London Good Delivery 4.5 1.0599.5 London Good Delivery 193.7 44.77SSuubb--ttoottaall 119988..22 4455..8811

KKiilloobbaarrss::99.99 83.6 19.3299.5 138.0 31.90SSuubb--ttoottaall 222211..66 5511..2222

500g bars 99.5 0.3 0.08100g bars 99.9 12.0 2.7710 Tola bars 0.5 0.12SSuubb--ttoottaall 1122..88 22..9977TToottaall 443322..77 110000..0000Data Source: Rand Refinery Limited and Musuku Beneficiation Systems

Another 9.6t, or 2.2% of refining output was sold to the local gold jewellerymanufacturing sector, mainly in the form of semi-fabricated product such asgranules, 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 employeesin the South African gold value chain.

The gold refining sector employed 532 peoplein 2004...

Global refinery utilisation was estimated at 55%in 2004...



11..22..33 FFiinnaall pprroodduucctt:: jjeewweelllleerryy ((CChhaapptteerr 44))Jewellery manufacturing is the largest category of gold fabrication in South Africa,as it is worldwide. South African jewellery manufacturers used an identifiable 9.64tof fine gold in 2004, and exported 5.07t of fine gold in finished jewellery, primarilyto the USA and Europe. Official jewellery imports amounted to 1.28t. Localjewellery sales are therefore estimated at 5.85t, of which 4.57t is manufacturedlocally.

Jewellery manufacturers were classified into four categories of business, based onsize of manufacturing throughput. Data on a sample of 34 businesses, includingmanufacturers from all four categories, was analysed. These businesses accountedfor 8.4t of fine gold consumption in 2004, or 88% of the total.

CCllaassssiiffiiccaattiioonn ooff mmaannuuffaaccttuurreerrssMicro Manufacturers using 20kg or less per annumSmall Manufacturers using more than 20kg but less than 50kg per annumMedium Manufacturers using more than 50kg but less than 750kg per annumLarge 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 goldusage 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 10manufacturers account for 7.9t or 82% of total fine gold usage.

Jewellery manufacturing in South Africa is heavily concentrated in Johannesburgand 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 jewellery, with 95% ofgold jewellery sold in this format. The balance is sold as 14 or 18 carat.

Mark-ups in jewellery manufacturing vary from approximately 5% in mass-produced chain to between 15 and 20% for basic mass-produced product, and upto 40% for high caratage, hand-made or gem-set items.

Capacity utilisation is highly seasonal, peaking in the period September toDecember as retailers increase stock for Christmas sales. Jewellery manufacturingemploys an estimated 2,800 individuals, or 1.4% of those employed in the totalvalue 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 jewelleryand watches) totalled R2.4bn in 2003 (latest available data). In both value andvolume terms, the sector is characterised by a high level of consolidation, with fourcompanies accounting for an estimated 64% of jewellery sales at retail level. Thesefour companies own a total of 11 jewellery chains.

Retail mark-ups range from 20 to 50% for non-core products in discount stores to250% for core products in South African jewellery retailers, and up to 350% forspecialist and fast-moving items.

11..22..44 FFiinnaall pprroodduucctt:: ccooiinnss,, iinndduussttrriiaall eenndd uusseess aanndd iinnvveessttmmeenntt ((CChhaapptteerr 55))After jewellery manufacture, coin fabrication is the second largest category ofphysical gold usage, and the only other end use to show significant offtake in SouthAfrica, accounting for 2.93t of gold consumption in 2004. Consumption of gold indental alloys accounted for only 0.04t of consumption per annum and electronicsfor 0.01t. Consumption in these three categories remains small in relation to totalSouth African gold production, accounting for less than 1% of total production.

The bulk of jewellery purchases in South Africa are of9 carat gold...

Capacity utilisation is highly seasonal, peaking in theperiod September to December as retailers increasestock for Christmas sales...

After jewellery, coin fabrication is the second largestcategory of physical gold usage...

South African jewellery manufacturers used 9.64t offine gold in 2004...

Jewellery manufacturers are classified into fourcategories of business: micro, small, medium andlarge. Only three of the manufacturers can beclassified as large manufacturers (annual gold usagein excess of 750kg) and these account for 66.8% ofgold usage...



The SA Mint produces several legal tender coins. The best known and most widelysold 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.

SSoouutthh AAffrriiccaann ccooiinn ffaabbrriiccaattiioonn 22000022 ttoo 22000044 –– tt22000022 22000033 22000044

Krugerrand bullion 0.76 1.81 2.34Krugerrand proofs 0.22 0.19 0.18Proteas 0.09 0.02 0.19Naturas 0.18 0.15 0.18R1 0.01 0.02 0.01R2 0.03 0.02 0.03TToottaall 11..2299 22..2222 22..9933Data 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 amargin of 3 to 9%, depending on size. Approximately 50% of Krugerrands producedin South Africa are exported, although the ratio of local sales to exports is heavilyaffected by the gold price and the Rand/Dollar exchange rate. Margins on 24 caratcoins are approximately 30%.

There is little demand for gold for use in dental alloys in South Africa; its use is notencouraged by medical insurance providers, only one of which subsidises its use.

The use of gold in the electronics industry is insignificant, with only five SouthAfrican companies involved in the manufacture of gold electronic components.

Since the introduction of a gold Exchange Traded Fund (ETF) by Absa in November2005, 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 fullybacked by physical gold, on stock exchanges as easily as any other exchange-listedsecurity. The South African ETF is the smallest of the four gold ETFs launched thusfar (the others being in Australia, the UK and the USA), reflecting the small size ofthe potential market locally and the relatively short time for which it has traded. AKrugerrand futures contract is available, but this is very thinly traded.

11..22..55 TTrraannssffoorrmmiinngg tthhee iinndduussttrryy:: lleeggiissllaattiivvee,, ffiissccaall aanndd ffiinnaanncciiaall ccoonntteexxtt ((CChhaapptteerr 66))Chapter 6 reviews key legislation affecting the gold industry, as well as the fiscalenvironment in which the industry operates, the financing methods available to themining, refining and jewellery sectors, and the role played by Government andassociated entities.

Policy governing mining and mineral extraction vests primarily in the Deparment ofMinerals 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 inbusinesses making use of gold as a raw material. One of the distinguishingfeatures of the South African gold business, compared to other countries, is thatSouth Africans are effectively prohibited from owning gold other than in bullioncoins or jewellery1.

The Precious Metals Bill, currently in the process of parliamentary approval, willreduce these restrictions to some extent, although it stops short of totalderegulation 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.

Use of gold in electronics is insignificant...

Limited demand for gold Exchange TradedFund (ETF)...

Policy governing mining and mineral extraction vestsprimarily in the Deparment of Minerals and Energy...

Proof Krugerrands (limited edition, high qualitycoins) are sold at a high margin...

There is limited demand for gold in dental alloys...

The best-known and most widely sold coin producedby the SA Mint is the Krugerrand...



The policies underpinning the MPRDA were developed in consultation withgovernment, the formal and informal industry sector, labour and associatedcommunities, in recognition of the fact that the country’s existing mineral policiesrequired review to overcome the historical exclusion of the majority of thepopulation. The MPRDA is based on the principle of state custodianship of mineralresources and abolishes the previous regime of private mineral rights. Applicationsfor prospecting, exploration and mining rights must now be made to the state.Transitional provisions in the act allow for the conversion of existing rights, referredto as ‘old-order’ to ‘new-order’ prospecting and mining rights.

The Mining Charter is the framework for redressing the historical, social andeconomic inequalities inherent in South Africa’s minerals industry. It provides forcompanies in the mining idustry to set specific targets regarding human resourcedevelopment, employment equity, housing and community development,procurement and ownership.

The Mineral and Petroleum Royalty Bill, scheduled to become effective in 2009, willintroduce a royalty payable to the state by mineral producers. The structure of theproposed royalties (based on revenues rather than profits, with rates varyingaccording to sector) is the subject of continuing debate.

In the section of this chapter dealing with taxation, the impact of two categories oftaxation (corporate tax and Value-Added Tax or VAT) is analysed.

Mining income derived from gold is taxed on the basis of a formula, with moreprofitable mines paying tax at a higher rate. The effect of this is that each goldmine’s tax rate is calculated separately and (with certain exceptions, discussedmore 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 andservices at a standard rate of 14% (except for specified exclusions). VAT paymentsand refunds operate on a two-month cycle – a factor cited by jewellerymanufacturers, especially the smaller ones, as adding to cash-flow problems fortheir businesses.

The chapter concludes by analysing the various financing methods in place, and therole of the Department of Trade and Industry, the Industrial DevelopmentCorporation and the South African Reserve Bank (SARB).

Insofar as project finance is concerned, mining and refining are capital-intensiveprocesses that require long lead times and substantial financing. Projects in theseareas are normally funded internally or by raising capital on the equity market.

The jewellery sector has historically been hampered by a lack of cost-competitivefacilities for financing the use of precious metals in the fabrication line. Issuesrelating to loan costs, collateral requirements and insurance are explained, and thenew Gold Advance Scheme developed by AngloGold Ashanti, Gold Fields, BAESystems, Saab and Standard Bank is described. The objectives of the scheme areessentially to reduce the cost of funding inventory for South African jewellerymanufacturers, to increase the volume and value of South African jewellerymanufacture and export, and to attract new investors and entrants to the jewellerymanufacturing sector.

11..22..66 TTrraaddee ((CChhaapptteerr 77))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. Thecontribution of mining to South African exports by value, however, has fallen from50% in 1994 to 32% in 2004.

The USA, UK and Japan are the largest markets for South African goods and, in valueterms, represented 33% of the country’s total exports in 2004. Europe and Asiaaccount for 60% of the value of all South African exports.

USA, UK and Japan are largest markets for SAgoods...

Mining income derived from gold is taxed on thebasis of a formula...

South Africa – exports2004, top five countries, Rand

30

25

20

15

10

5

0

Data source: Department of Trade and Industry

Billi

ons

The MPRDA is based on the principle of statecustodianship of mineral resources...



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 offine 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 jewelleryhave risen since 1999 at an average of 23% per annum, from a base of 1.81t in1999 to 5.07t in 2004. During this period, the value of these exports rose fromapproximately R110m in 1999 to R495m in 2004. In 2004, some 62% of jewelleryin 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 andthe recent strength of the local currency against the Dollar.

Since 1994, the value of total manufacturing and industrial sector imports by SouthAfrica has risen by an average of 15% per year from approximately R75bn in 1994to approximately R300bn in 2004. Germany, the USA and China are the top threeexporters of goods to South Africa. Germany is the largest exporter to South Africaaccounting for 14.6% of the value of imports into the country in 2004. Asia andEurope 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 inSouth African trade data. This is because ownership of the gold in the refiningpipeline does not pass to Rand Refinery, but remains with the mine from which thedoré originated.

Imports of fine gold jewellery into South Africa increased by 50% from 0.85t in1999 to 1.28t in 2004. In value terms, this equates to R65m in 1999, increasing toR150m in 2004. Together, Hong Kong and China accounted for one-third of theseimports, as this region capitalised on increased general trade with South Africa,more competitive jewellery manufacturing charges and Rand strength. Imports offine gold coins decreased significantly from 2.68t in 1999 to 0.32t in 2004.

There is anecdotal evidence that the strength of the Rand has encouraged a highlevel 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 theofficial trade statistics, official figures may understate the true levels of goldjewellery entering the country, possibly by a significant margin.

South Africa enjoys favoured nation status with the USA in terms of the AfricanGrowth and Opportunity Act of 2000 (AGOA), which allows South African goldjewellery fabricators to export their finished product to the USA free of importduties. This provides South African jewellery manufacturers with a cost advantageover their European and Far Eastern competitors, on whom a 6% duty is levied forjewellery 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 beingdeveloped through the abolition of import and export tariffs between the twotrading partners. Import and export duties will be reduced from their maximum of20% in 2003 to zero by 2012. The country will then be able to export local goldjewellery duty-free into Europe. Thus over the next six years, the European marketwill progressively be opened up to South African jewellery manufacturers at anincreasingly attractive fiscal rate.

Tourist arrivals in 2003 (latest available data) totalled 6.5 million, 69% of whomwere from Africa, and 20% from Europe. Many long-haul visitors (those fromEurope, North America and Asia in particular) arrive with the intention of buying apiece of jewellery. The gold caratage associated with tourist purchases is higherthan that in the South African domestic jewellery market, with 18 caratpredominating especially in gem-set items.

It appears that the Rand strength has encouraged ahigh level of smuggling of finished jewellery intoSouth Africa...



AGOA provides South African exporters to the USAwith a 6% advantage over countries paying full dutyas import duties are waived...

11..33 OOPPPPOORRTTUUNNIITTIIEESS AANNDD CCHHAALLLLEENNGGEESS IINN TTHHEE SSOOUUTTHH AAFFRRIICCAANNGGOOLLDD BBUUSSIINNEESSSS

The gold mining industry in South Africa is essentially mature and productiontonnage is showing a declining profile. There is increasing debate on how growth ofthe downstream gold industry can be achieved, to add value to gold mined in SouthAfrica. The research identified a number of challenges and opportunities in respectof the downstream gold industry in South Africa.

OOppppoorrttuunniittiieess AGOAInbound tourism: interest in jewellery Refining capacity and refining track recordSouth African/European Trade Development andCo-operation Agreement (exporters)Emerging middle class among HistoricallyDisadvantaged South Africans (HDSAs)Gold financing schemesCloser co-operation between industry and government

CChhaalllleennggeess Laws forbidding ownership of gold other than jewellery and bullion coinsCurrent lack of access to cost-effective financeand insurance for jewellery manufacturersStart-up costs and cost of working capital associatedwith gold jewellery manufacturingPerformance of the local currencyQuality imports at competitive prices based on cheaper offshore labour and the strong RandTechnical limitations and ageing equipmentShortage of skills and concerns about training Low productivityAdverse effect of crime on jewellery salesLack of co-operation in the gold business, especiallyin jewellery manufacturingLocal jewellery retail sales are a small and decliningproportion of all consumer goods purchasedExternal perceptions of local jewellery/quality issuesLack of data South Africa/European Trade Development andCo-operation Agreement (local industry)

11..33..11 OOppppoorrttuunniittiieess

AAGGOOAA -- TThhee AAffrriiccaann GGrroowwtthh aanndd OOppppoorrttuunniittyy AAcctt ooff 22000000

Affected sector: Jewellery manufacturing targeting the export marketAGOA was ratified on 18 May 2000 and amended in 2002 and 2004. It providesSouth African exporters to the USA with a 6% advantage over countries paying fullduty since import duties into the USA for South African exporters are waived.

The Act offers incentives for African countries to open their economies and buildfree markets. These incentives are to encourage trade between African countries andthe USA by eliminating duties and introducing quotas in specified products.

In 2004, 62% of South African jewellery exports were destined for the UnitedStates, partly as a consequence of AGOA.

Gold mining industry in South Africa is essentiallymature...



Inbound tourists intend buying jewellery...

A new middle class is developing in South Africa...

Continued and expanded government assistance...

IInnbboouunndd ttoouurriisstt iinntteerreesstt iinn jjeewweelllleerryy

Affected Sector: Jewellery manufacturing and retailingInbound tourists frequently visit the country with the intention of buying a piece ofquality jewellery, especially gem-set with diamonds or tanzanite. Gold jewellerysales benefit indirectly as a result.

Since 1994, inbound tourist arrivals have increased substantially.

RReeffiinniinngg ccaappaacciittyy aanndd rreeffiinniinngg ttrraacckk rreeccoorrdd

Affected sector: Jewellery manufacturing and gold mining companiesThe two primary refiners offer localised refining services and capacity to refine goldcompetitively. Rand Refinery also offers secure warehousing. Both Rand Refineryand Musuku Beneficiation Systems have London Bullion Market Associationaccreditation and Rand Refinery serves as a referee in international quality controlfor the LBMA.

In September 2004, Rand Refinery became the world’s first refinery to receiveDubai Good Delivery accreditation.

TThhee SSoouutthh AAffrriiccaann//EEuurrooppeeaann TTrraaddee DDeevveellooppmmeenntt aanndd CCoo--ooppeerraattiioonn AAggrreeeemmeenntt

Affected sector: Jewellery manufacturing targeting the export marketThe South African/European Trade Development and Co-operation Fund (TDCS)provides for the creation of a free trade agreement between the European Unionand South Africa by no later than 31 December 2012. By this date, 90% of all tradebetween the two partners will be free of customs duties.

The phase-down of import duties, from current levels of 20%, allowed for by TDCShas important implications for the local jewellery industry as the European Unionwill gradually be rendered a free trade zone in the way that the USA is underAGOA. The reduction of tariffs applies to jewellery fabricated from gold, silver andPGM. This means that locally produced precious metals jewellery will eventuallyenjoy access to this market free of import duties. This represents a majoropportunity for exporters of South African-manufactured gold jewellery. However, italso presents a threat for local manufacturers reliant on domestic sales. (See below.)

TThhee eemmeerrggiinngg mmiiddddllee ccllaassss aammoonngg HHDDSSAAss

Affected sector: Jewellery manufacturing and retailingIn South Africa, a new middle class among the formerly disadvantaged isdeveloping. Jewellery manufacturers have noted this trend, reflected in theincreasing numbers of new accounts being opened with those jewellery retailersoffering credit facilities. In response to this trend, jewellery manufacturers areadapting their product range to suit this new market segment.

CClloosseerr ccoo--ooppeerraattiioonn bbeettwweeeenn ggoolldd mmaannuuffaaccttuurriinngg iinndduussttrryy aanndd ggoovveerrnnmmeenntt

Affected sectors: Jewellery manufacturing and governmentContinued and expanded government assistance by means of financial incentivescould improve the outlook for jewellery manufacturers.

Government and the private sector could also work together on joint marketingefforts targeting both local consumers and tourists.



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.

GGoolldd ffiinnaanncciinngg sscchheemmeess

Affected sectors: Jewellery manufacturing and mining industryAccess to affordable gold loans and other financing incentives would render thelocal jewellery manufacturers more competitive internationally and would facilitategrowth in the jewellery manufacturing sector in South Africa.

11..33..22 CChhaalllleennggeess

LLaawwss ffoorrbbiiddddiinngg oowwnneerrsshhiipp ooff ggoolldd ootthheerr tthhaann jjeewweelllleerryy aanndd bbuulllliioonn ccooiinnss

Affected sectors: Jewellery manufacturing and investmentThe Mining Rights Act of 1967 (and its subsequent amendments) restricts goldownership by South African citizens to finished jewellery and bullion coins2.

The regulatory system of recovery works licences and jewellery permits dictates theway jewellery manufacturers run their businesses. The fact that citizens are limitedregarding ownership of physical gold products also restricts the local investmentmarket in gold.

Current proposed amendments to the Mining Rights Act, which would result in thederegulation of ownership of minted bars3, would go some way towards liberalisingthe South African gold market. However, proposed amendments still fall far short ofentirely liberalising the ownership of gold.

LLaacckk ooff aacccceessss ttoo ccoosstt--eeffffeeccttiivvee ffiinnaannccee aanndd iinnssuurraannccee ffoorr jjeewweelllleerryy mmaannuuffaaccttuurreerrss

Affected sector: Jewellery manufacturing especially small businessesInterviews with the manufacturing sector (especially the medium and smallbusinesses,4) highlight the lack of access to affordable finance as the predominantreason for business failure, failure to grow an existing business, or as a primarydisincentive to entering the sector in the first place5.

Demonstrating the extent to which local manufacturers are disadvantaged, thetable overleaf indicates a comparison of the different jewellery financingmechanisms currently in place in Dubai, Italy and South Africa. These figures areestimates as loan agreements are invariably confidential and can vary betweendifferent parties.

The major difference between jewellery fabricators in Dubai (and in some cases inItaly) and those in South Africa is that the former are able to borrow metal at acost close to the international gold lease rate against a letter of credit issued by alocal bank. South African jewellery manufacturers are required to post collateral aslocal banks will not accept letters of credit. Furthermore, since they borrow Randsand not metal, they are obliged to borrow the currency at prime money marketinterest rates.

Problems relating to cash flow were also noted in the research, with themanufacturers having to borrow funds at several percentage points above primerates to finance short-term cash requirements. In most financial respects, thesebusinesses are no different to those operating in other sectors, save for one thatsets the gold jewellery manufacturer apart and that is the high cost and volatilenature of the jewellery manufacturer’s primary raw material.

With the exception of the large manufacturers, South African gold fabricators donot yet have access to the metal financing structures enjoyed by their overseascompetitors. Currently, they buy their raw material outright using working capital orthey finance it at the local prime lending rate plus a risk premium. Again, collateralis 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

QQuuoottaabbllee qquuootteess::“The current focus on beneficiation is not right. Weare trying to force people into beneficiation in thebelief that this can be achieved by yet morelegislation. But by creating a decriminalisedenvironment of ownership of gold we will obtaingreater organic growth. We were born and bred inan environment that criminalises ownership ofunwrought gold. Getting rid of that law will solvethe problem immediately.”OOffffiiccee bbeeaarreerr,, iinndduussttrryy bbooddyy

Lack of access to affordable finance is apredominant reason for business failure, failure togrow and a disincentive to invest...

QQuuoottaabbllee qquuootteess::“Of course I don’t have a balance sheet – I am aone-man band trying to run a tiny business.”MMiiccrroo mmaannuuffaaccttuurreerr

Small jewellery manufacturers have little or nocredit standing, insubstantial balance sheets,insufficient personal loan guarantees...

Affordable loans would make the industry morecompetitive...



standing, insubstantial balance sheets, insufficient personal loan guarantees andrepresent high credit risks to commercial banks.

GGoolldd jjeewweelllleerryy ffiinnaannccee –– CCoosstt ooff llooaannss aass ooff mmiidd 22000055DDuubbaaii IIttaallyy SSoouutthh AAffrriiccaa

Loan Type gold gold RandGold lease Gold lease Prime

Interest 2% 3% 10.5%Risk premium 0.70% 0.70% 2%-3%LOC (Note 1) Local Bank Local Bank NoneCost of LOC 1% 1% NACollateral (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 YesData 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 largercompanies potentially qualify for gold financing schemes. In addition, large retailersinterviewed reported that, on placing an order with larger jewellery manufacturers,they settle immediately for the cost of purchasing the associated fine gold. Thisrelieves the manufacturer of the related cash flow and financing issues. The smalljewellery manufacturers tend not to supply the large retailers, since they cannotdeliver finished product in the volumes required.

Manufacturers of all sizes face an additional cost. Those interviewed noted thatwhile they had insurance cover for third party liability and stock in transit, thepremiums associated with insuring jewellery inventories and metal in themanufacturing pipeline are prohibitively expensive. Absence of insurance willautomatically disqualify a jewellery fabricator from participating in gold financingschemes as sufficient insurance coverage is a pre-requisite.

SSttaarrtt--uupp ccoossttss aanndd tthhee ccoosstt ooff wwoorrkkiinngg ccaappiittaall aassssoocciiaatteedd wwiitthh ggoolldd jjeewweelllleerryymmaannuuffaaccttuurriinngg

Affected sector: Jewellery manufacturing especially small businessesWithout access to metal-based funding (as described above), local jewellerymanufacturers have two options: they may either fund their businesses using theirown 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 smallbusinesses in general. But the South African jewellery manufacturer is furtherdisadvantaged on a number of levels.

1. Interest rates in South Africa have remained high relative to other countries. Thechart on the right compares monetary interest rates in South Africa to the goldlease rate, which forms the basis of the borrowing cost to many overseascompetitors of the South African jewellery manufacturers.

2. The high cost of start-up. Discussions with small manufacturers revealed thateven a small workshop, for example, with two jewellery benches, a small furnaceand equipped with basic tools and equipment, such as facilities for plating, cancost up to R250,000. Chain-making machines, imported from Italy, costR150,000 each. Additionally, all spares and additional chain-making dies have tobe imported.

3. The nature of gold as a raw material. The very high value of the basic rawmaterial and the often volatile behaviour of the price of gold disadvantage thejewellery fabricator more than other manufacturing sectors.

Premiums associated with insuring jewellery,inventories and metal in the manufacturing pipelineare prohibitively expensive...



6 See Chapter 7 for details on the growth of jewellery exports from South Africa.

PPeerrffoorrmmaannccee ooff tthhee llooccaall ccuurrrreennccyy

Affected sectors: Mining, jewellery manufacturing (especially small businesses)The strength of the Rand during much of 2003 and 2004 against the Dollar, BritishPound and Euro, was cited not only as a barrier to market entry but also a threat tothe 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 SouthAfrica reported that finished jewellery can be imported at a cost less than themanufacturing cost incurred by local manufacturers for the same or very similarproduct. This is so even after taking into account the 20% import duty into thecountry and a clearance fee of 2% - 3%. Manufacturers also note that an unknownvolume of foreign-manufactured gold jewellery is being smuggled into the countryto avoid import duties and this has served to further disadvantage the localmanufacturers. The stronger the Rand against other currencies, the greater theincentive to import finished jewellery legitimately, and, even more so, to bring thesegoods into the country illegally.

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 robust6. Countries ofdestination were the USA, the UK and other parts of Europe, Australia, Israel andPanama. As the currency strengthened, reaching highs of R5.60 to the Dollar in2004, these same manufacturers reported that their levels of exports were underpressure and they were restructuring their business models in an attempt torecapture local market share. The effect has been increasing pressure on the mark-ups 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.

QQuuaalliittyy iimmppoorrttss aatt ccoommppeettiivvee pprriicceess bbaasseedd oonn cchheeaappeerr ooffffsshhoorree llaabboouurr aanndd tthheessttrroonngg RRaanndd

Affected sector: Jewellery manufacturing South African manufacturers are unable to compete with low labour costs injewellery manufacturing in, for example, China, Thailand and Turkey. This is an areaof concern and a threat to local manufacturing capacity.

Italian jewellery still leads the field in terms of quality and finish. However, importsfrom Turkey have gained ground and compete with quality products from othercountries. It was felt that goods from Far Eastern countries such as China were notyet on a par with respect to finish. However, in the mass market, especially wherelightweight jewellery items were concerned, the decisive factor was price ratherthan quality.

In environments such as China where there are no minimum wages or labourunionisation the cost of labour is lower than in South Africa. It is, therefore, difficultfor local jewellery manufacturers to compete internationally.

The effect of the strong local currency has beenincreasing pressure on the mark-ups earned by localmanufacturers...

South African manufacturers are unable to competewith low labour costs associated with jewellerymanufacturing in China, Thailand and Turkey...



TTeecchhnniiccaall lliimmiittaattiioonnss aanndd aaggeeiinngg eeqquuiippmmeenntt

Affected sector: Jewellery manufacturing The predominant jewellery manufacturing model is mass-production of eithermachined jewellery (particularly chain), or cast and stamped jewellery, targetingeither the local market or direct export. Mass-produced jewellery represents 80% ofthe tonnage of gold fabricated each year in South Africa.

During interviews with major retailers, concerns were expressed that much of themachinery being used by some small and medium jewellery manufacturers isoutdated. The ageing machinery also raised concerns about operating efficiencies.

However, new machinery is expensive and both hardware and spares need to beimported. This again raised the issue of lack of access to funding.

Retailers also expressed concern that South African manufacturers were behind inthe latest developments and fabricating techniques, such as electro-forming, variousmethods of gem-setting and the manufacture of hollow jewellery. Thesetechnological issues detract from local manufacturers’ ability to competeinternationally.

SShhoorrttaaggee ooff sskkiillllss aanndd ccoonncceerrnnss aabboouutt ttrraaiinniinngg

Affected sector: jewellery manufacturing Discussions revealed a mismatch between the training provided by the institutionsand the needs of jewellery manufacturers when they employ graduates.

Although students continue to graduate every year from the country’s universitiesof technology after completing jewellery courses, a lack of the skills required byjewellery manufacturers was cited by the fabricating sector as a major concern.In parallel, was the manufacturers’ contention that existing training programmesare turning out graduates insufficiently schooled to be able to take their placeproductively at a jewellery bench without considerable additional trainingand tuition.

The training institutions counter that jewellery manufacturers have unrealisticallyhigh expectations of graduates. They suggested that the real reason behind thereluctance on the part of jewellery manufacturers to acknowledge the trainingcourses was a financial one in that, by not acknowledging the qualifications, thejewellers were not obliged to pay graduates appropriate salaries. While manyjewellery manufacturers denied this, others noted that there was an element oftruth in the concern raised.

The institutions also argue that the manufacturers failed to consider the structureof the jewellery courses and that the industry fails to account for the lead timesinvolved in adjusting course content to address industry requirements.

QQuuoottaabbllee qquuootteess::“In terms of costs, we are very uncompetitive.Imports from the Far East are of poor quality andare poorly finished but retailers don’t care as longas it is cheap.”MMaannuuffaaccttuurriinngg jjeewweelllleerr



QQuuoottaabbllee qquuootteess::“People would rather buy a DVD or CD playerwhich they can lock up at home than wearjewellery on the street.”MMaannuuffaaccttuurriinngg jjeewweelllleerr

QQuuoottaabbllee qquuootteess::“A good client of mine asked me to remove herdiamond from its setting and replace it with a cubiczirconia. She put the diamond in the bank and nowwears the zirconia on the basis that if she loses it,it’s no big deal.”MMaannuuffaaccttuurriinngg jjeewweelllleerr

LLooww pprroodduuccttiivviittyy

Affected sector: All throughout the gold businessOf concern for the gold industry is South Africa’s levels of productivity relative toits competitors, especially China, other parts of the Far East and India.

The chart on the left compares South African wages rates, productivity and unitlabour costs with those of a range of emerging economies, including Turkey,Mauritius, Poland, Hungary, Hong Kong, Singapore, India, Mexico, Chile, Zimbabwead Korea. Data later than 1998 is not available.

South African wages were over 300% higher than the average wage in otherdeveloping countries in the period covered by this data. Productivity was also higherbut, at just over 200% of the developing country average, it was not enough tooffset the higher wages.

Furthermore, relative productivity has not improved. This was a recurring theme inthe jewellery manufacturing sector, especially among those running the largemechanised jewellery fabricating operations. Not only do local companies have tocompete with established operations in Italy, they also have to deal withcompetition from newly emerging companies in Turkey and the Far East.

TThhee aaddvveerrssee eeffffeecctt ooff ccrriimmee oonn jjeewweelllleerryy ssaalleess

Affected sector: Jewellery manufacturing and retailingThe high end of the jewellery product range, specifically those items with asubstantial proportion of gems (diamonds and fancy stones such as tanzanite), isadversely affected by crime. Consumers no longer want to be seen wearingexpensive jewellery. In other sectors of the market, this does not appear to be aproblem, although it was felt that costume jewellery was gaining ground asconsumers are less concerned about costume jewellery being stolen.

LLaacckk ooff ccoo--ooppeerraattiioonn iinn tthhee ggoolldd bbuussiinneessss,, eessppeecciiaallllyy jjeewweelllleerryy mmaannuuffaaccttuurriinngg

Affected sector: Jewellery manufacturingThis 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 themselvesbut with other sectors of the gold industry and with government as well. To bespecific, 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 affectingtheir industry. While a limited number of jewellery manufacturers do make aneffort, by far the majority in terms of numbers, are not members of anyaffiliated organisation nor do they participate in any organised industryinitiatives. Despite this, many were highly critical of the efforts of those who doinvolve 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 moreefficient and cost-effective;

Relative pay and productivity inmanufactured goodsCompared with developing countries

350%

300%

250%

200%

150%

100%

50%

0%

Data source: ‘Wage, productivity and export performance inSouth Africa: A dynamic panel analysis’, Lawrence Edwardsand Stephen Golub.

Wage ratesProductivityUnit labour costs



7STATS SA has ceased to record monthly retail sales of all products including jewellery. Discussions with jewellery sectorparticipants highlighted concerns about the quality and quantity of the data and consequently the series’ reliability.

• address the issues of training and skills within the jewellery manufacturingsector nor engage the training institutions in any meaningful debate. They also,in general, do not make themselves available to assist with private sectorjewellery training initiatives;

• take up skills training grants, schemes and initiatives made available to themby government to assist with in-house training. Two reasons for this emerged.Firstly, there appeared to be a lack of awareness of the financial assistanceavailable to encourage training, but secondly there was a level of distrustamong the manufacturers with respect to perceived government involvement intheir businesses;

• work with government to find ways to grow their businesses, target exportmarkets, or explore ways to invest new capital. The opportunities made availableto the sector are discussed in detail in Chapter 6; and

• contribute towards BEE, skills transfers or support for black-owned businessesthrough procurement.

DDeecclliinniinngg llooccaall jjeewweelllleerryy rreettaaiill ssaalleess aass aa ppeerrcceennttaaggee ooff ppuurrcchhaasseess ooff aallllccoonnssuummeerr ggooooddss

Affected sectors: Jewellery manufacturing and retailingData published by STATS SA7 and illustrated in the chart shows that jewellery salesas a percentage of total retail sales have been falling steadily since 1996.

Between Rand Refinery and Musuku, supplies of fine gold to the local jewellerymanufacturers have reportedly remained broadly constant over the last five years.Discussions with recyclers suggest that the volume of gold business with localjewellery manufacturers has also been broadly unchanged and in some cases hasdeclined. Unless the illicit flows of gold to the industry (mainly in the form offinished product smuggled into the country to avoid import taxes and VAT), havebeen increasing sharply (something that cannot be verified), then this researchconfirms that the local gold jewellery business has not grown in recent years, andhas lost market share to other consumer products.

In the five years from 1999 to 2004, exports of South African manufacturedjewellery have increased strongly, growing at an estimated average rate of 23% perannum by volume. If supplies of fine gold to local jewellery fabricators have beenbroadly unchanged and exports have risen, it follows that local sales of jewelleryhave been falling.

Manufacturers and retailers interviewed commented that jewellery as a whole hasbeen losing market share to other lifestyle products, especially to electronic goodsand, more recently, to mobile telephones. The fact that a retail outlet such asWoolworths recently discontinued its range of gold jewellery in keeping with itsself-service policy, but is still prepared to make an exception to this policy when itcomes to selling mobile telephones, is indicative of the strength of demand formobile communication at the expense of jewellery.

Jewellery loses market share to other lifestyleproducts...

Jewellery sales as a percentage of total retail saleshave been falling steadily since 1996...



8 See later in this chapter for details of credit options offered to customers.

Despite all this, those large jewellery retailers that offer credit to their customers8,report increases in the number of jewellery accounts being opened, especiallyduring 2004. The emerging black middle class in South Africa was cited as acontributing 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, thecommercial banks responded by reducing their lending rates to households. Thelower cost of credit has resulted in households having more disposable income tospend and these factors combined have encouraged consumers to open accountswith retail jewellery stores.

Jewellery’s loss of market share to other lifestyle products is not a phenomenonunique to South Africa. A similar trend has occurred in the USA. The hiatus in thedata series represents a change in definition and data collection on the part of theUS authorities but it nevertheless illustrates a similar trend.

EExxtteerrnnaall ppeerrcceeppttiioonnss ooff llooccaall jjeewweelllleerryy

Affected Sector: Jewellery Manufacturing and RetailingIn general, South African fabricated jewellery is not perceived, either locally orinternationally, in the same light as jewellery fabricated in other major centres suchas Italy and parts of the Far East.

While, in most instances, the quality and finish are on par, and product designs arelittle different from machine-made jewellery elsewhere, the country has yet toestablish a reputation as a gold jewellery manufacturer.

South African jewellery is neither recognisable as a brand, nor is there anystandardised means of establishing the basic quality of the product.

While individual manufacturing jewellers will inscribe their own fabricated productswith a personalised symbol or initial and an identification of caratage, there is nonation-wide centralised benchmarking of the origin and quality of South Africangold jewellery compared to product from other gold jewellery producing countries.

LLaacckk ooff ddaattaa

Affected Sector: All This research was hampered by a widespread lack of data related to the SouthAfrican gold business. With the exception of the mine supply figures in the formalsector, data was found to be either unreliable or non-existent. Difficulties were alsoencountered with official trade data. Data covering empowerment achievements,individual company employment equity plans etc., was unobtainable, or where thisdata was available, it was not in a form that could allow for direct comparison withother companies or sectors. There were instances where companies made availableonly empowerment targets and not achievements.

Research hampered by widespread lack of data...

South African jewellery is not recognisable as abrand...



STATS SA has ceased to collect and collate data relevant to retail jewellery sales inSouth Africa, 2003 being the last year for which data is available. The absence ofthis information will leave the gold business without any benchmark or indicationof whether or not the local jewellery industry is growing. Furthermore, it will notallow the gold industry to measure the success or otherwise of any initiatives thatmight be undertaken in an attempt to encourage growth in the local jewelleryindustry.

SSoouutthh AAffrriiccaann//EEuurrooppeeaann TTrraaddee DDeevveellooppmmeenntt aanndd CCoo--ooppeerraattiioonn AAggrreeeemmeenntt

Affected Sector: Jewellery manufacturing targeting the local marketWhile the South African/European Trade Development and Co-operation Agreementprovides an opportunity for South African jewellery manufacturers eventually toexport their finished product to Europe tax-free, the Agreement is a double-edgedsword. This is because, reciprocally, European jewellery manufacturers will be ableto export their finished jewellery product to South Africa, also eventually free ofimport duties. Unless local jewellery manufacturers increase their productivity,they may find it difficult to compete with the established Europeanjewellery manufacturers.


CCHHAAPPTTEERR 22

RREESSEERRVVEESS TTOO DDOORRÉÉ:: TTHHEE GGOOLLDD MMIINNIINNGG IINNDDUUSSTTRRYY

CCoonntteennttss::

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

CCHH

AAPPTTEERR 22

22

Photograph: Courtesy of AngloGold Ashanti Limited



CHAPTER 2RREESSEERRVVEESS TTOO DDOORRÉÉ –– TTHHEE GGOOLLDD MMIINNIINNGG IINNDDUUSSTTRRYY

22..11 IINNTTRROODDUUCCTTIIOONN

The discovery of the Witwatersrand Goldfields in 1886 led to the development ofSouth Africa’s world-class gold mining industry, which has dominated the globalgold mining industry for 120 years. In fact, the Witwatersrand Goldfields willprobably remain the greatest goldfield ever discovered, surpassing all others byseveral orders of magnitude1. From 1884 when records of production were firstcollected, to 2004, the South African gold mining sector has produced 50,055t ofgold which accounts for some 33% of all the gold estimated above the world’ssurface. Total South African remaining gold ore resources are estimated to be some40,000t, of which about 8,000 to 10,000t are economically recoverable dependingon the Rand gold price and cost scenarios applied.

The emergence of the gold mining sector in South Africa led to the rapiddevelopment and industrialisation of the country and, ultimately, contributed toSouth 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 serviceindustries. Soon after the discovery of the Witwatersrand Goldfields, Africa’s largeststock market, now the JSE Limited, was started in 1887 specifically for funding themining sector. Many of South Africa’s large-scale parastatals (Eskom, Spoornet, RandWater) and world-class financial services companies and institutions owe theirexistence to the gold and diamond mining sectors. The mining sector drove thedevelopment of Johannesburg, the industrial heartland of South Africa, which wasknown as as ‘Egoli’ or place of gold.

South Africa dominated the global gold mining industry for much of the past 120years, 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 declinedto 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 overthe next five years. Nonetheless, the gold mining sector continues to be a key driverof economic growth and a large employer, accounting for just less than 2% of GDP,10% of export earnings and 187,039 employees in 2004.

22..22 HHIISSTTOORRIICCAALL CCOONNTTEEXXTT

There is evidence that small-scale gold mining had been taking place in the country’sgreenstone belt areas some time before the emergence of the modern gold miningindustry, but little recorded history exists for the period prior to the 1830s. The morerecent history of gold mining in South Africa started with the mining in thegreenstone belts in Northern KwaZulu-Natal in 1836 and the development of minesin the Murchison, Giyani and Pietersburg greenstone belts. In 1875 gold wasdiscovered on the farm Kromdraai, just north of present day Krugersdorp, and this ledto the first proclamation of gold in the Witwatersrand region. In 1883 the PioneerReef was discovered in Barberton, and in 1886 the very rich Witwatersrand Main Reefwas discovered. This led to the influx of miners from around the world, theestablishment of many new companies and the commencement of the developmentof the country’s large scale gold mining industry.

While many mining companies were formed in the latter part of the 1880s, SouthAfrica’s gold production was dominated in the early years by the followingcompanies:

CCoommppaannyy//eevveenntt EEssttaabblliisshheeddUnion Corporation 1886Gold Fields of South Africa 1887Johannesburg Consolidated Investment Company Ltd (JCI) 1889Rand Mines 1893General Mining and Finance Corporation 1895Anglo American 1917Anglo-Transvaal Consolidated Investment Company (Anglovaal) 1934

1JRF Handley, Historic overview of the Witswatersrand Goldfields, Handley book page VII


CHAPTER 2RREESSEERRVVEESS TTOO DDOORRÉÉ –– TTHHEE GGOOLLDD MMIINNIINNGG IINNDDUUSSTTRRYY

These seven companies were the backbone of the South African gold mining industryfor most of the 20th century. However, for all the reasons referred to earlier –declining output, mining at increasing depth and increasing costs, weak internationalgold prices throughout the mid-1980s and mid-1990s, as well as increasing outputfrom other countries – a major restructuring of the industry became necessary.

The industry, however, saw changes taking place throughout the 1990s, the mostrecent of which are detailed below.

• AngloGold Ashanti Ltd, South Africa’s largest gold producer, was formed in April2004 through the merger of AngloGold Limited and Ashanti Goldfields of Ghana.AngloGold Limited was itself formed in June 1998 through a merger of the goldoperations, mineral rights and exploration activities of Anglo AmericanCorporation and the subsequent acquisition of a number of non-South Africanmining assets. Some of the company’s South African mines have since been soldto other producers.

• Also in 1998, South Africa’s second largest producer, Gold Fields Limited, wasformed 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 separatedout as Randgold & Exploration (Randgold). In 1994 Randgold became a pure goldmining house with a portfolio of marginal gold mines. By 1997 this had beenrationalised into three South African mining companies (Durban RoodepoortDeep (now DRDGOLD), Harmony Gold Mining and Crown ConsolidatedRecoveries) and an offshore gold company, Randgold Resources, operating theSyama mine in Mali.

• DRDGOLD Limited expanded in the late 1990s as a result of the acquisition of anumber of mines from other operating companies. In 2005, DRDGOLD closed itsNorth West operations following an eartquake.

• In 1995, Johannesburg Consolidated Investments was divided into a non-mininggroup, (Johnnies Industrial Corp), a gold, ferrochrome and base metals group, (JCILtd) and a PGM producer (Anglo Platinum). JCI’s primary remaining gold asset isa 50% stake in Western Areas, in partnership with Placer Dome Inc.

• Harmony Gold Mining Company Ltd has grown since its unbundling from RandMines, expanding from its single gold mine in the Free State by acquiring bothSouth African and overseas assets. Harmony acquired Elandsrand and Deelkraalfrom the then AngloGold and, together with ARMgold, the then only BEE goldcompany listed on the JSE, acquired Freegold from AngloGold. Subsequently,Harmony merged with ARMgold. In 2003, following the merger between AfricanRainbow Minerals (formerly a major shareholder in ARMgold, and now inHarmony) 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 inpartnership with JCI Gold.

22..33 GGLLOOBBAALL GGOOLLDD MMIINNEE PPRROODDUUCCTTIIOONN

South Africa remains the world’s largest gold producer, but the country’s output hasbeen in decline for more than three decades, a substantial decrease from the 1,000tproduced in 1970 which was equivalent to two-thirds of global supply at that time.

In 2004, South African gold mining output fell by a further 9% to 342t comparedwith 2003. This amounted to 14% of global production in 2004, Australia and theUSA each now producing around 10% of global supply, (although both countriesare also mature gold producers and production has fallen recently). However, othercountries have begun to expand their gold production, particularly China, Russia,Indonesia, Uzbekistan, Peru, Papua New Guinea and Tanzania.

Seven major mining houses were the backbone ofthe South African gold mining industry for most ofthe 20th century...

South Africa remains the world’s largest goldproducer...


CHAPTER 2RREESSEERRVVEESS TTOO DDOORRÉÉ:: TTHHEE GGOOLLDD MMIINNIINNGG IINNDDUUSSTTRRYY

The following table lists the top 20 global gold producing countries in 2004.

CCoouunnttrryy 22000044 ((tt))South Africa 342USA 260Australia 253China 220Peru 173Russia 159Canada 129Indonesia 100Uzbekistan 90Papua New Guinea 71Ghana 60Tanzania 48Mali 40Chile 39Brazil 34Colombia 30Argentina 27Mexico 24Kazakhstan 22Kyrgyzstan 22Data source: Raw Materials Group, March 2005.

22..44 SSTTRRUUCCTTUURREE OOFF TTHHEE SSOOUUTTHH AAFFRRIICCAANN GGOOLLDD MMIINNIINNGG IINNDDUUSSTTRRYY

Three of the six largest international gold mining companies in the world areSouth 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 theChamber of Mines of South Africa as far as possible, although not all companies aremembers of the Chamber or provide it with data.

22..44..11 LLaarrggee,, ppuubblliiccllyy--lliisstteedd ggoolldd mmiinniinngg ccoommppaanniieessThere are five large, publicly-listed gold mining companies in South Africa:AngloGold Ashanti, Gold Fields, Harmony, DRDGOLD and Western Areas.

These five companies accounted for 312t, or 91% of the fine gold produced inSouth Africa in 2004. The following is a brief account of these producers. Furtherdetails may be found in the Research Directory of this document. Information onthese companies’ South African ore reserves is contained in section 2.5 of thischapter.

AAnnggllooGGoolldd AAsshhaannttiiAngloGold Ashanti is headquartered in Johannesburg and has operations in 10 countries around the globe. Its primary listing is on the JSE limited, although thecompany is also listed on the New York, Australian, London and Ghanaian stockexchanges as well as on Euronext Paris and Brussels.

Five companies accounted for 91% of the fine goldproduced in South Africa in 2004...



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 operatingmines in South Africa in two regions. The Vaal River region, near Klerksdorp in NorthWest Province, comprises three mines – Great Noligwa, Kopanang, Tau Lekoa – andthe West Wits region, near Carletonville, comprises three mines – Mponeng, Savukaand 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 beingprocessed. The Savuka mine is currently in closure mode. The Moab Khotsong mineis currently under development and is expected to come into commercialdevelopment in 2006.

As at the end of December 2004, the company was involved in the followinggrowth projects in South Africa: Mponeng shaft deepening (R1.2 billion, of whichR50 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 wasremaining).

At the end of 2004, AngloGold Ashanti employed 65,400 people globally (includingcontractors), 69.4% or 45,380 people in South Africa.

GGoolldd FFiieellddssGold Fields is also headquartered in Johannesburg, South Africa, with operations inSouth 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 aswell 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 NorthAmerican gold producer IAMGOLD were thwarted as a consequence of theHarmony takeover bid.

In 2004, the company produced 129t of gold, 68% or 88t from its South Africanoperations, Driefontein and Kloof, near Carletonville, and Beatrix, near Welkom inthe Free State. The two primary operations, Kloof and Driefontein, produced 78% ofthe company’s South African gold output.

Planned capital expenditure (reported at the end of June 2005) amounted toR280 million on the Driefontein Expansion project, R230 million at Kloof andR250 million on the Beatrix north section project.

At the end of June 2005, the company employed some 43,942 people (excludingcontractors) across its operations, 94% or 41,500 people in South Africa.



HHaarrmmoonnyyHarmony’s headquarters are in Virginia in the Free State, although the company’scorporate office is in Johannesburg. The company is listed on the JSE Limited, on theNew 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 NewGuinea.

In 2004, the company produced 92t from its South African operations. However,following significant restructuring, the company expects production to decline in2005.

Harmony has structured its operations into Quality shafts, Leveraged shafts andGrowth 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, Elandsrandnew 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.

DDRRDDGGOOLLDDBased in Johannesburg DRDGOLD is listed on the JSE Limited, the London,Australian and Port Moresby stock exchanges and on Nasdaq in the USA. Thecompany has operations and interests in South Africa, Australia and Papua NewGuinea.

Following an earthquake at its North West operations in March 2005, the companysuccessfully applied for the provisional liquidation of the wholly-owned subsidiaryin which these assets are contained, thereby significantly reducing its South Africanasset base. DRDGOLD subsidiary Crown Gold Recoveries is the country’s largestdump retreatment operation.

In 2004, DRDGOLD produced 23.2t of gold from its South African operations. (10tor 58% came from the now-closed North West operations). This includes 4.3tattributable to Khumo Bathong Holdings (KBH), DRDGOLD’s BEE partner. In 2005,agreement was reached with KBH that KBH would acquire an 11% stake inDRDGOLD, with the option to acquire a further 15%, and that ERPM and CrownGold 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 was6,390 as at the end of June 2005.



WWeesstteerrnn AArreeaassWestern Areas has a 50% stake in the South Deep mine, together with jointventure partner Placer Dome. In 2004, the South Deep mine produced 13.4t, ofwhich 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-listedcompanies.

22000044 ((t) Production

AngloGold Ashanti 95.8Great Noligwa mine 24.7TauTona mine 17.7Kopanang mine 15.1Mponeng mine 13.6Tau Lekoa mine 9.1Savuka mine 4.9Surface operations 3.7Ergo 6.9

Gold Fields 87.8Driefontein mine 35.8Kloof mine 32.9Beatrix mine 19.1

Harmony 9922..00DRDGOLD* (includes 40% interest in ERPM and CGR by KBH) 23.2South Deep mine (50% attributable to Western Areas

and 50% to Placer Dome) 13.4Total 312.11

22..44..22 BByy--pprroodduucctt aanndd ttaaiilliinnggss rreettrreeaattmmeenntt ggoolldd pprroodduuccttiioonnIn 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: AngloPlatinum, Impala Platinum Holdings Limited, Lonmin Platinum and AquariusPlatinum. These companies do not report separately on gold production.

The two major dump retreatment operations active in 2004 are accounted forunder AngloGold Ashanti (Ergo, now closed) and DRDGOLD (Crown GoldRecoveries). Total dump retreatment production is estimated at 13.1t for 2004.Other small-scale dump retreatment operations are accounted for under small-scale producers.

22..44..33 JJuunniioorr//ssmmaallll--ssccaallee ggoolldd mmiinniinngg ccoommppaanniieessThe National Small Business Act of 1996 defines each sector of the economy,including mining, in terms of the number of employees, annual total turnover andtotal gross net asset value. With respect to mining, junior or small and mediumcompanies would employ at least 200 people, have an annual turnover of R30million and total gross net asset value of least R18 million.

In 2002, the Minerals & Energy Policy Centre2 (MEPC), completed research into thedevelopment of the junior mining sector in South Africa.3 The report noted theexistence at that stage of 20 junior or small-scale mining companies, of which eightwere mining gold4.

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 nowincreasingly 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 Developmentof 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.



Data from the major refineries and the Chamber of Mines indicates that small-scalegold producers and small-scale dump retreatment operations contributed some22.7t of fine gold in 2004. (This figure excludes Ergo and CGR.)

22..44..44 IInnffoorrmmaall ggoolldd mmiinniinnggIn addition to the formal mining sector, informal gold mining takes place in thoseareas of the country where there are old mine workings or tailings dams, forexample in the vicinity of Nigel in Gauteng, and Barberton and Sabie inMpumalanga Province. This informal sector is distinct from the illegal operations inwhich mine output is stolen from the formal mining sector either at the mines orfrom the smelters.

Informal miners tend to be one-man operations working on abandoned mine sitesand dumps. As they are unregistered with any fiscal or regulatory authorities, thenumbers of informal miners and their gold output are impossible to estimate.Discussions with the Department of Mineral and Energy indicate that theseinformal miners are also transitory, moving frequently from one location toanother, making their existence and activities more difficult to trace.

According to the CSIR5, it was estimated that in 1998 there were at least 1,250informal gold miners active in South Africa. Since then, no other figures have beencollated. Collectively, these miners are thought to produce less than 1t of goldannually, much of which is believed to be traded mainly with their suppliers ofmercury based in Swaziland and Mozambique.

22..55 SSOOUUTTHH AAFFRRIICCAANN GGOOLLDD CCOOMMPPAANNIIEESS IINN AA GGLLOOBBAALL CCOONNTTEEXXTT

A number of South African gold producers have become global players, havingextended their exploration activities and asset base beyond the borders of thecountry. Of the world’s six largest gold producers three – AngloGold Ashanti, GoldFields and Harmony – are from South Africa.

Although it is estimated that close to 50,000t of gold have been mined in SouthAfrica since 18876, South Africa’s gold resources still make up 40% of the world’sknown resources. It is also estimated by the US Geological Survey (USGS) thatSouth Africa has six times more gold resources than the USA and Australia7.

Ore reserves held by the major South African gold mining companies in SouthAfrica are estimated as follows:

Estimates of available (proved) ore reserves in South Africa of major SouthAfrican publicly listed mining companies as at 30 June 2005

Calculated on the 000t Grade Containedbasis of a gold price (g/t) gold

per kg (R/kg) (kg)AngloGold Ashanti(South African) 94,764 30,900 5.21 160,800DRDGOLD 88,960 55,341 2.07 114,344Gold Fields Driefontein 92,000 30,100 7.90 237,800

Beatrix 92,000 14,400 5.50 79,200Kloof 92,000 13,600 10.20 138,700

Harmony South Africasurface 92,000 26,000 0.45 12,000South Africaunderground 92,000 55,400 6.49 360,000

Western Areas Extended SV1area 91,429 2,012 7.70 15,490Phase 1 area 91,429 4,120 10.5 43,265

Data source: Chamber of Mines of South Africa and company annual reports/websites

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 resourcebase includes reserves that are currently economic (reserves), marginally economic (marginal reserves) and some that arecurrently sub-economic (sub-economic reserves).

Small-scale gold producers and small-scale dumpretreatment operations contributed 22.7t of finegold in 2004...



22..66 EECCOONNOOMMIICC CCOONNTTRRIIBBUUTTIIOONN OOFF GGOOLLDD MMIINNIINNGG

The gold mining industry played a substantial role as a foundation industry in theevolution of South African industry. The discovery of the rich WitwatersrandGoldfield in 1886 led to a substantial influx of engineers, geologists, miners,technicians, financial people, etc., that were attracted from all over the world to thenew opportunities presented by the gold rush. The need for housing, water, power,explosives, equipment, communications, food and liquor, were initially met byimporting the products from overseas and then transporting the goods by wagonfrom the coast. Within five years a railway line had been developed from Cape Townand was followed by another line from KwaZulu-Natal. A year after the discovery ofthe Witwatersrand Goldfields a telegraph service was operational. The material andservices requirements of the gold sector ultimately led to the establishment offinancial services and manufacturing companies. Roads, railway stations, electricityservices and water reticulation, all evolved on the back of large demands from themining sector. The requirements of the mining sector were increasingly met fromlocal sources and services and industry boomed. Over time the banks, stock market,service providers and manufacturers were able to generate their own critical massand start providing goods and services to industries and consumers outside themining sector.

The gold mining sector has been the dominant foreign exchange earner for thecountry over the past century. More recent numbers indicate that gold exportearnings in 1980 accounted for over 50% of South Africa’s merchandise exports inthat year. The decline in the Dollar gold price, combined with the fall in SouthAfrican gold production and the increasingly diversified structure of the economymeant that by 2004 gold exports accounted for a smaller 10% share of totalmerchandise exports. Similarly, the direct contribution to GDP of gold miningpeaked 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 decadewith 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 theeconomy and the multiplier effects, gold mining's total contribution to GDP iscloser to 4.4%. These multiplier effects include:

• backward linkages, which arise from the purchase of goods and services bythe gold mining industry, which stimulates industrial production and theprovision of services (e.g. gold mines consume 15% of all electricitygenerated in South Africa);

• forward linkages, arising from the use of mineral products in other domesticindustries, such as jewellery fabrication and production of refined gold;

• social multipliers which arise from the role of mining in the development ofhuman resources and infrastructure such as schools, colleges, clinics, roads,and housing;

• the primary incomes multiplier which arises from household expenditures ofprimary incomes derived from mining (in 2004 R13.1 billion was paid toemployees in the form of salaries and wages);

• the employment multiplier, which arises from the employment created inother industries as a result of gold mining. In 2004, the Chamber of Minesestimates that in addition to the 187,039 people employed in gold mininganother 63,000 jobs were created in related industries linked to the goldmining sector. This multiplier includes the benefits of the provision ofemployment for workers from deep rural communities and the transfer offunds back to these areas;

• the income terms-of-trade multiplier which arises from the positive impactthat gold export earnings have on the balance of payments, foreign reserves,



monetary policy and ultimately upon the general level of business activity inthe 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 inattracting foreign capital to the country (via the JSE Limited or via directinvestment), and in domestic capital formation.

22..77 CCOOSSTT OOFF PPRROODDUUCCTTIIOONN

The cost of producing gold in South Africa varies between mining companies andoperations, as each operates with unique geological and metallurgical circumstances.

The Chamber of Mines collates information on the components of mining costs fromits members.

Components of cash costs for 20048

%Company employees (including foodstuff) 58.36Power and water 12.36Stores and services (excluding foodstuff) 23.33Other costs 5.96Total cash costs 100.00

In terms of world ranking, an international gold cash cost curve comparison for theyears 2002 and 2004 is shown below and overleaf. The cost curve positions goldmines on a cumulative production chart in a way that allows for direct comparisonsbetween operations.9

South African gold producers feature in red and the two different graphs show thedeterioration in South Africa’s competitive position over the time period. Themovement 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 onlocal 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.



22..88 EEMMPPLLOOYYMMEENNTT

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 ofMines was used. More details on particular mining companies can be found in theResearch Directory at the end of this review. Historically, the gold mining industryhas been a significant employer although employment levels have decreasedsubstantially in recent years.

As at June 2004, the gold mining industry was still the largest employer withinSouth Africa’s mining sector, with 41% of all employees, or 187,039 people. Overthe past 20 years, this number has fallen, with mine closures, restructuring andmergers contributing to the decline in employment levels. In 1987, the industryemployed 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 totalwork force has contributed to this, and when measured in percentage terms thedecline in the numbers of unskilled workers (between 1984 and 2003) at 73% waslarger than the 52% for skilled workers. The most recent data (for 2004) shows thatthis trend has continued.

Employment levels in the diamond and the PGM mining industries have beenincreasing as both the diamond and PGM sectors have experienced expansion anddevelopment over this period.

On an international basis, the South African gold mining industry employssubstantially more people than do other major gold mining countries. This is due, inpart, to the fact that the local industry is engaged in deep-level hard-rockunderground mining which by nature is labour intensive. By comparison, the goldmines in Australia and North America are more commonly open pit and are suitablefor mechanisation.

Historically, the gold mining industry has been asignificant employer, although employment levelshave decreased substantially in recent years...

187,039 people were employed in the gold miningsector as at June 2004...

By far the greatest job losses in the industry havebeen among unskilled workers...



22..99 TTRRAANNSSFFOORRMMAATTIIOONN IINN TTHHEE SSOOUUTTHH AAFFRRIICCAANN MMIINNIINNGG IINNDDUUSSTTRRYY

The South African mining industry is regulated by a range of legislation andregulations in respect of transformation and Black Economic Empowerment (BEE).This legislation and the regulations are dealt with in Chapter 6. The following is abrief description of the progress that has been made in the mining industry inrespect of transformation.

The Mineral and Petroleum Resources Development Act (MPRDA) requires thatmining companies transform their ownership structures or facilitate BEE such thatthey can show 15% Historically Disadvantaged South African (HDSA) ownership of equity in their companies or the equivalent attributable units of production toHDSA 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 andmaterially increase the economic participation of HDSAs within the industry, fromemployment to procurement.

In order to assess progress against BEE strategy in the gold industry, three distinctareas 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.

22..99..11 HHDDSSAA oowwnneerrsshhiippTotal mergers and acquisitions in the gold mining industry (including BEEtransactions) are recorded in the following table, which shows both the number oftransactions and their total value.

Gold mining - Total mergers and acquisitionsNumber of transactions Value R million

1999 19 162000 16 7,1722001 13 6,8532002 25 8,0972003 43 38,3412004 35 13,432TToottaall 115511 7733,,991100

Data source: Ernst & Young.

Of these transactions, the following levels of BEE transactions were identified, againin total number of transactions and value.

Gold mining - BEE transactionsNumber of transactions Value R million

1999 n/a n/a2000 0 02001 5 2,6182002 6 4032003 7 13,4422004 8 695TToottaall 2266 1177,,115588

Data source: VM analysis of Ernst & Young data.

The MPRDA requires that mining companiestransform their ownership structure...



This data shows that between 2000 and 2004 (inclusive), an average of 19.7% ofthe total number of transactions in the South African gold mining industry wereassociated with BEE, as was 23.2% of the total value. The annual breakdown of thisfigure for the period is shown in the table below.

BEE transactions as percentage of total M&A activity in gold miningNumber of transactions Value R million

1999 n/a n/a2000 0 02001 38.5 38.22002 24.0 5.02003 16.3 35.12004 22.9 5.2Average (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 sectorAcquirer Target Seller Value20011 RmKomanani Mining Harmony Harmony 394Komanani Mining Harmony Harmony 6African Rainbow Assets AngloGold 10Simane Security Harmony Harmony 8Harmony/ARM2 Free State mines AngloGold 2,200

of AngloGold2002Khumo Bathong Crown DRDGOLD 105Khumo Bathong Crown Crown 68Lwami Invest Afrikander Lease Undisclosed 120Khumo Bathong 10% Elandskraal Hanson 105Masakhisane Stone & Allied AngloGold naBEE Stone & Allied Ind Stone & Allied AngloGold 52003Metorex/ ETC Assets AVGOLD 255Millennium ConsAfrican Vangueard Doornkop Harmony 250Harmony African Rain Shareholders 4,900Mvelaphanda SA Gold Assets Gold Fields 4,100Kabusha mining Afrikander Lease Peter Skeat 127Randgold & EX Viking Pony Prop Phikoloso mining 268Anglovaal Harmony ARM 3,5422004Randgold & EX Luxinge Alluvial Koketso Anglo JV 24Randgold & EX Dando Kwanza Masupatsela 28Randgold & EX Somba Sul Quantum 25

African miningRandgold & EX Mining Equip & Trans Benguela Log 28

AssetsInkwenkwezi Gold Western Areas Anglo American 515Randgold & EX Lunda Alluvial Undisclosed 57Undisclosed 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.

Between 2000 and 2004 (inclusive) an average of19.7% of transactions in the South African miningindustry were associated with BEE...



The volume of the above transactions shows that progress has been made towardsHDSA ownership in the gold mining sector. It would, however, be misleading to usethis data to estimate the proportion of the gold mining sector which is now HDSAowned, given the debt structures of the transactions that have been undertaken toenable transfer of ownership to HDSA participants. It is also clear that, given thecapital-intensive nature of the gold mining sector, the process of transfer of equityto HDSA participants will inevitably take time to gather pace.

22..99..22 BBEEEE tthhrroouugghh pprrooccuurreemmeennttGold mining and refining companies largely source goods and services via a tenderprocess. Decisions on the awarding of tenders are usually based on price, quality ofgoods, reliability of services and, additionally, the BEE status of the vendors.

Mining companies are required to identify current levels of BEE procurement interms of the Mining Charter. However, at the time of publication, this data was notavailable in a consolidated form for the industry. Where data on individualcompanies’ BEE procurement was available, it was not in a format which madeconsolidation and comparison possible.

However, the following information reported by the primary gold producers offerssome indication of the aggregate volume of HDSA procurement which has beenachieved:• AngloGold Ashanti reported that, in 2004, R711 million of total procurement

spend in South Africa was attributable to companies with at least 25% HDSAownership, and offers the following breakdown of this spend in 2004, and HDSAprocument targets for 2008:

PPrrooccuurreemmeenntt ccaatteeggoorryy %% HHDDSSAA %% 22000088ssppeenndd iinn 22000044 TTaarrggeett

Site works 41 41Consumables 39 99Services 17 22Capital 7 9TToottaall 2222 4488

• Gold Fields reported that the company is increasingly doing business with smalland medium-sized enterprises on a competitive basis. Procurement from suchcompanies (excluding capital expenditure) increased from 18% in the 2004financial year to 25% in the 2005 financial year;

• Harmony reported that, for the 2005 financial year, HDSA spend increasedto 28% of procurement spend;

• DRDGold reported that procurement spend with HDSA suppliers rose to 12% bythe end of 2004; and

• Western Areas reported that 48% of its R368.3 million spend in 2004 was withcompanies 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%.

22..99..33 EEmmppllooyymmeenntt eeqquuiittyyThe Employment Equity Act No 55, which prescribes employers’ responsibilities inrespect of employment equity, came into effect in 1998 and is described in Chapter6. The Mining Charter also deals with employment equity, particularly relating tothe participation of HDSAs at board and management level, as well as women inmining. While the legislation requires that employment equity information be madepublicly available, once again the format of reporting differs from company tocompany. Information on the individual mining companies is made available in theresearch directory at the end of this document.

Where data on individual companies’ BEEprocurement was available, it was not in a formatwhich made consolidation and comparisonpossible...

The process of transfer of equity to HDSAparticipants will inevitably take time to gatherpace...



22..99..44 WWoommeenn iinn mmiinniinnggAs can be expected in the mining industry, men far outnumber women in the SouthAfrican gold mining workforce. There is a legacy of legislative exclusion of womenfrom the South African mining industry, this restrictive legislation only having beenremoved 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% ofthe total number of people employed in gold mining, and they were employedmainly in administrative and technical roles as opposed to actual mining.

An analysis of the published statistics contained in the individual companies’employment equity plans bears out the predominance of men in the miningindustry. The following table gives a breakdown of the presence of women in thevarious job categories, as reported by the mining companies.

WWoommeenn iinn ggoolldd mmiinniinngg bbyy jjoobb ddeessccrriippttiioonn DDeecc 22000033--JJuunnee 22000044WWeeiigghhtteedd aavveerraaggeess %% ooff ttoottaall

eemmppllooyyeeeessSenior Management 6.4Professional 8.1Technical 7.6Clerks 28.3Craft related 6.2Machine operators 1.7Unskilled 2.1Temporary 2.3Data 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 miningindustry have less than 10% of their payroll consisting of women.

22..99..55 HHDDSSAA eemmppllooyymmeenntt iinn mmiinniinnggThe weighted average number of HDSA employees by job category for the goldindustry is tabulated below.

HHDDSSAA eemmppllooyyeeeess iinn ggoolldd mmiinniinngg bbyy jjoobb ddeessccrriippttiioonn DDeecc 0033--JJuunnee 0044WWeeiigghhtteedd aavveerraaggeess %% ooff ttoottaall

eemmppllooyyeeeessSenior management 14.2Professional 12.3Technical 36.3Clerks 85.6Craft related 55.2Machine operators 98.1Unskilled 99.5Temporary 90.9Data Source: Analysis of individual company data where available.

This analysis was undertaken on the basis of the available data. Only AngloGoldAshanti included a job description to cover temporary workers employed by thecompany, of which 91% were HDSA. The other mining companies appear to haveincorporated temporary employees in other categories of employment andtherefore the HDSA percentages may be overstated.

There is a legacy of legislative exclusion of womenfrom the South African mining industry...

The South African gold mining industry is staffedpredominantly by black people...



22..1100 IINNDDUUSSTTRRYY BBOODDIIEESS AANNDD IINNIITTIIAATTIIVVEESS,, GGOOVVEERRNNMMEENNTT BBOODDIIEESS AANNDD UUNNIIOONNSS

22..1100..11 IInndduussttrryy bbooddiieess

TThhee CChhaammbbeerr ooff MMiinneess ooff SSoouutthh AAffrriiccaaThe Chamber of Mines was formed on 7 December 1887 in Johannesburg and wassucceeded by the modern Chamber on 5 October 1889. Funded by its members, itis a producers’ organisation, representing mine owners to government, labour andothers. Its key mandate is to promote and protect the interests of mining groupsand the mining industry in general.

During the 20th century it was one of the most effective employers’ organisationsin South Africa. As well as dealing with government, it also negotiates with tradeunion bodies and sets labour policy and standards for its membership.

Currently, membership of the Chamber consists of two financial corporations, eightgold mines, and a large number of coal, diamond, PGM and other mining companiesand associated bodies. The Chamber of Mines members account for some 90% ofSouth Africa’s mineral production (by value) or 86% of gold production. TheChamber is organised around a committee system, the most senior of which is theExecutive Council, responsible for setting the overall policy direction of the Chamber.

As far as gold mining is concerned, the Gold Producers Committee (GPC) isresponsible for directing policy in this sector. In addition to the GPC, there arecommittees 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 whichit operates and has redirected many of its core activities by:

• refocusing to position itself as the principal advocate to government of majorpolicy positions endorsed by the mining industry;

• ending its direct involvement in the financial subsidisation of various industryservices; and

• expanding its membership base.

SSoouutthh AAffrriiccaann MMiinniinngg DDeevveellooppmmeenntt AAssssoocciiaattiioonn ((SSAAMMDDAA))The South African Mining Development Association (SAMDA) was formed topromote the interests of the junior and black economic empowerment sector inSouth African mining.

Founded in 2000 and funded by its members, it was registered as a Section 21company at the end of 2002. Its key function is to lobby stakeholders such asgovernment, labour and organised business on behalf of its membership.

Junior mining companies in this instance are defined as those companies withannual sales valued at between R30 million and R1 billion. The lower end of thescale is obtained by using the definition of small-scale mining in the National SmallBusiness Act of 1996 with the upper end limit agreed at an interim committee ofSAMDA in 2002.

SAMDA’s membership includes 62 companies (comprising 181 individual minesincluding 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 managedblack enterprises; 15 (24%) are involved in gold production, with 21 individual goldmining operations.

In recent years, the Chamber has responded to thechanging environment in which it operates and hasredirected many of its core activities...

The South African Mining Development Association(SAMDA) was formed to promote the interests ofthe junior and black economic empowerment sectorin South African mining...

During the 20th century the Chamber of Mines wasone of the most effective employers’ organisationsin South Africa...



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.

MMiinntteekkMintek was established in 1934, initially as a technical adviser to the miningindustry in general. Since then, the organisation has broadened its service baseconsiderably. Apart from specialising in mining, metallurgical and engineeringprojects, Mintek has branched out into social and human resource initiatives as theyapply to the mining industry, including training, HIV/AIDS treatment andprevention, and jewellery manufacturing projects. Details of Mintek’s jewelleryprojects and the small miners’ programmes are discussed in Appendix 3.

Mintek is financed by a combination of government grants and fees earned fromexternal 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 anadditional six to nine other members. The Chairman is selected by the Minister ofMinerals and Energy. The CEO is supported by an executive management team, 18divisional managers and over 400 employees.

In 2001, Mintek signed a three-year letter of intent with the South AfricanGovernment 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 theMintek Compact.

Apart from the technical services offered, Mintek also has an information centrethrough which fee-paying members access data. Currently, Mintek has partners inCanada, India, Brazil, Argentina, Bolivia, Uruguay and Peru, and is actively undergoinga process of commercialisation via wholly-owned subsidiaries.

The commercialisation of MintekIn 2002 Mintek established Mindev (Pty) Ltd, a wholly-owned holding companydesigned specifically to support the commercialisation of Mintek’s technologies viajoint venture partnerships.

Mindev currently has non-controlling shareholdings in four companies namely ApicToll 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 ApicToll Treatment, and is involved in the remaining entities as the provider of licencesand Mintek technology. Musuku is discussed in more detail in Chapter 3 as is theassociated Minataur (Mintek Alternative Technology for Au Refining) process thatwas developed by Mintek.

Tollsort was formed in conjunction with MikroSort SA, B&E International and theSPA Group to assess and develop optic sorting to upgrade ore types.

Apart from specialising in mining, metallurgical andengineering projects, Mintek has branched out intosocial and human resource initiatives as they applyto the mining industry...

Currently, Mintek has partners in Canada, India,Brazil, Argentina, Bolivia, Uruguay and Peru, and isundergoing a process of commercialisation viawholly-owned subsidiaries...



22..1100..22 GGoovveerrnnmmeenntt bbooddiieess

DDeeppaarrttmmeenntt ooff MMiinneerraallss aanndd EEnneerrggyy ((DDMMEE))The DME is the primary government department responsible for formulating andimplementing mining and minerals-related policy. It reports to and advises theMinister of Minerals and Energy who, in consultation with the cabinet, takes finalresponsibility for policy.

Within the Department, the Electricity and Nuclear Branch is responsible forelectricity and nuclear affairs; the Hydrocarbons and Energy Planning Branch isresponsible 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 SafetyBranch is responsible for the application of mine health and safety legislation.

With respect to the gold industry, the main function of the DME is theadministration 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 ofgold, mainly jewellery and craft manufacture; and

• the Directorate of Mineral Economics through which the DME deals withstatistics and mineral economics in relation to gold. The statistics sectioncollects and assimilates production, local sales, export sales and labour data inrelation to gold mines and recovery works. The DME also monitorsdevelopments in the gold mining industry regarding both mineral economicsand policy. The department disseminates mineral economic statistics andinformation on developments in reports, annual reviews and bulletins.

If the Precious Metals Bill (See Chapter 6 for further details) is enacted in its currentform, the Minister of Minerals and Energy (through the proposed Diamonds andPrecious Metals Regulator) will assume administration of the Precious Metalslegislation, except for exchange control and security-related matters.

MMiinniinngg QQuuaalliiffiiccaattiioonnss AAuutthhoorriittyy ((MMQQAA))The MQA is a statutory body made up and funded by the State, and by employerand employee organisations in the South African mining industry. It was establishedas a result of the South African Qualifications Authority (SAQA) Act 58 of 1995 andthe Mine Health and Safety Act 29 of 1996.

The MQA advises the Department of Minerals and Energy on matters relating toeducation and training standards and qualifications in the mining industry. It hasadopted a constitution, set policy and devised a business plan.

The Department of Minerals and Energy reports toand advises the Minister, who, in consultation withthe cabinet, takes final responsibility for policy...

The Mining Qualifications Authority (MQA) is astatutory body made up and funded by the State,and by employer and employee organisations in theSouth African mining industry...



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.

In order to meet the need for a higher level of skills in the mining and mineralssector, the MQA, via the National Skills Fund (NSF), offers bursaries to studentswho are currently registered at a university or at a university of technology. TheMQA/NSF bursary funds are available for 2002, 2003 and 2004.

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 andskills transfer.

22..1100..33 TTrraaddee uunniioonnss

NNaattiioonnaall UUnniioonn ooff MMiinneewwoorrkkeerrssThe National Union of Mineworkers (NUM) is the largest union in the miningindustry and the largest affiliate union of the Confederation of South African TradeUnions (COSATU). It was established on 5 December 1982 in Klerksdorp. The unioninitially served four regions – the Free State, Klerksdorp, Westonaria andCarletonville, and had an initial membership of 14,000. As at July 2004, the latestdata available, membership totalled 264,659 and according to COSATU, 80% ofgold 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.

The National Skills Fund (NSF) offers bursaries tostudents who are currently registered at a universityor university of technology...



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 socialwelfare;

• improve the wages and terms and conditions of employment of membersthrough 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 labourorganisations in general;

• foster co-operation among all workers in the mining and energy industries andother industries;

• establish contacts and relationships with other trade unions, trade unionfederations and labour organisations nationally and internationally for thebenefit of the members; and

• embark on other lawful activities which are in the interests of the NUM and itsmembers and which are consistent with its constitution.

NUM remains the largest recognised collective bargaining agent in South Africa,representing the mining, construction and electrical energy sectors and is thelargest affiliate of COSATU.

The NUM is funded by individual member subscriptions, which its constitutionstates 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, educationand training, social security, housing and providing legal services to its members. Italso makes representations to government on issues of industrial and politicalrelevance to its members.

UUAASSAAUASA’s roots date back to the beginning of the century, but it came into being inits current form only on 1 April 1998, with the amalgamation of the Administrative,Technical and Electronic Association of SA (ATEASA) and the Officials’ Associationof SA (OASA). It is the second largest union representing workers in the miningindustry, and its membership is primarily composed of white-collar workers inclerical and technical job categories. Current membership, excluding pensioners, is98,000, 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 SouthAfrican Labour Development Trust (SALDT);

• representation of members during disciplinary and grievance procedures andassistance and legal advice in respect of any work-related accident and/oremployment problem;

• assistance to the dependants of a deceased member to ensure that they receiveall the benefits they are entitled to; and

• assistance by a registered psychologist in the event of members losing theiremployment by no means of their own doing.

NUM remains the largest recognised collectivebargaining agent in South Africa...

UASA came into being in its current form on 1 April1998...



SSoolliiddaarriittyySolidarity was established in 2001 with the incorporation of the South AfricanWorkers’ Union, (SAWU), Denel Union, Transporter’s Union and the Forestry andPlantation Management Union into the original Mineworkers’ Union. In 2002 theAssociation of Meteorological and Allied Workers joined Solidarity. The originalMineworkers’ Union was established in 1913 and it expanded in the 1980s toinclude the chemical, electrical, telecommunications and steel industries.Membership comes predominantly from those industries’ skilled white productionemployees, usually blue-collar workers such as miners and artisans.

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.

SSAAEEWWAAThe South African Equity Workers Association (SAEWA) was established in 1937 andin its early days membership was primarily drawn from the electricity industry. Itlater expanded to include members in the food and beverage and mining sector. In2001 it merged with the South African Allied Workers Union (SAAWU) and in 2003with the United Metal Industries and Allied Workers Union of South African(UMIAWUSA).

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.

The South African Equity Workers Association(SAEWA) was established in 1937...

Solidarity was established in 2001...



CHAPTER 3DORÉ TO SEMI-FINISHED PRODUCT: REFINING ANDRECYCLING

CCoonntteennttss::

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

CCHH

AAPPTTEERR 33

33



CHAPTER 3DDOORRÉÉ TTOO SSEEMMII--FFIINNIISSHHEEDD PPRROODDUUCCTT:: RREEFFIINNIINNGG AANNDD RREECCYYCCLLIINNGG

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.

33..11.. IINNTTRROODDUUCCTTIIOONNIn terms of both value and volume, gold refining in South Africa is concentrated inthe hands of two primary participants: Rand Refinery Ltd and Musuku BeneficiationSystems1. Throughout this chapter, they are referred to as the primary refiners.There are a number of fundamental differences between the two refiners in termsof their history, ownership, feed, business structures, services and products, whichare discussed in more detail.

In addition to the primary refiners, there are at least another seven known, but verysmall2, refiners operating in the country. While three of these companies report thatthey refine output from the small-scale and informal mining sectors3 and materialarising from dump treatment, all seven small refiners concentrate on the recyclingof old gold jewellery scrap and process scrap generated during the jewellerymanufacturing process, as well as medical and dental waste containing recoverableprecious metals. Throughout this chapter the small refiners are referred to asrecyclers.

Interviews with industry sources revealed that there are a number of illegal smeltersand refiners operating in and around the vicinity of the country’s gold mines. Theactivities of these illegal operations are not quantifiable and have not beenaccounted for in the statistics and analysis that follow. They do not form part of theformal value chain as described in this review.

Detailed interviews were conducted with six of the sector participants, includingthe two primary refiners. The results indicate different business structures; theprimary refiners being distinct from the recyclers in the volume of metal refined, aswell as in terms of cost structures, material and feed sourcing, customer bases andend products.

33..22.. SSUUMMMMAARRYY OOFF TTHHEE SSOOUUTTHH AAFFRRIICCAANN GGOOLLDD RREEFFIINNIINNGG IINNDDUUSSTTRRYYIn 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 shownin the following table.

FFlloowwss ooff ggoolldd ttoo aanndd ffrroomm tthhee rreeffiinneerrss aanndd rreeccyycclleerrss iinn SSoouutthh AAffrriiccaa iinn ffiinnee ggoolldd 22000044GGoolldd ttoo rreeffiinniinngg ffrroomm:: tt %%South African mine output 328.9 73.8Other mine output (Non-RSA)1 100.5 22.6Dump treatment (RSA)2 13.1 2.9Secondary recycling3 2.8 0.7TToottaall 444455..33 110000..00

GGoolldd ffrroomm rreeffiinniinngg ttoo::400oz bars 198.2 44.5Kilobars and other bars 234.5 52.7Local jewellery manufacture 9.6 2.2Coins 2.9 0.7Dental alloys 0.05 0.0Electronics 0.01 0.0TToottaall 444455..33 110000..00Note: 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 generatedduring the process of jewellery manufacture, termed processing scrap. Thesesources of gold for refining are dealt with in more detail later in this chapter.

Gold refining in South Africa is concentrated in thehands of two participants, Rand Refinery andMusuku Beneficiation Systems...

There are at least another seven known, but verysmall refiners in the country...

Illegal smelting houses and informal refinersoperate in and around the vicinity of the country’sgold mines...

In 2004, the primary refiners and recyclers treated445t of fine gold...



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.

By far the majority of refined gold output (97% in 2004) is made into bars ofvarious specifications. The bars were all exported directly to customers (mainly inIndia and Dubai), and also to the international bullion banks (mainly in London andEurope).

A further 9.6t of fine gold (or 2.2% of total gold refined) was fabricated intoproducts for the jewellery sector, such as grain, plate and wire4 .This percentagerefers to total gold refined in South Africa, which includes output from minesoutside South Africa. Of mine output from South Africa only5, the percentage ofgold fabricated into jewellery by local manufacturers in 2004 was 2.9%.

In 2004, a further 2.93t (or 0.7% of total gold refined) was struck into coinage andthe final 0.05t was applied to industrial and medical applications. Chapter 5provides further details on gold coins and industrial applications.

33..33 SSOOUUTTHH AAFFRRIICCAANN RREEFFIINNIINNGG IINN AANN IINNTTEERRNNAATTIIOONNAALL CCOONNTTEEXXTT

33..33..11 TThhee LLBBMMAAThe London Bullion Market Association (LBMA) represents the interests of thoseinternational gold dealers, traders and bullion banks operating through the Londongold market6. It was established in 1987 and issues a list of accredited refiners ofwhich there are currently 56 around the world. These are refineries that have metspecific criteria with respect to their refining standards and the quality of theirproducts, and have been awarded London Good Delivery status7, giving theminternational recognition for quality and purity.

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 LBMAaccreditation. Musuku Beneficiation Systems was awarded LBMA accreditation inSeptember 2005. Rand Refinery is also one of only five refineries in the world tohave been appointed by the LBMA as a Good Delivery Referee, responsible for thetesting of samples from Good Delivery refiners in support of the LBMA’s GoodDelivery system.

In March 2005, Rand Refinery received Dubai Good Delivery Status.

33..33..22 PPllaacciinngg SSoouutthh AAffrriiccaa iinn aa gglloobbaall ccoonntteexxttPlacing South African refining in a global context is not a simple task. Informationon precious metals refining, market shares, installed capacity and capacityutilisation is considered proprietary and is difficult to obtain. An additional problemrelates to identifying complete records of refining operations internationally. Whileit is possible to construct a database covering the known primary refiners andrecyclers, there are literally hundreds of smaller operations whose business profilescover a wide range of product lines, but which are essentially involved with therecycling of gold scrap8. This is particularly true of areas like the Indian sub-continent where such operations (dealing most commonly with less than 1kg ofgold per annum) operate outside the formal sector.

Both Rand Refinery and Musuku BenificiationSystems have achieved LBMA accreditation...

Rand Refinery is one of only five refineries in theworld to have been appointed by the LBMA as aGood Delivery Referee...

Only 2.2% of total gold refined was purchased bySouth African jewellery manufacturers...

In 2004, 97% of refined gold output was made intobars...



This review draws on a global database consisting of 162 known refineries9 andrecyclers. It analyses only commercial operations within the formal sector for whichit is possible to obtain data. This global database also includes precious metalsrecovery associated with base metal refining, for example, gold and silver recoveryfrom copper, lead and zinc refineries.

The three tables that follow present the analysis on a broad regional basis, althoughit 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 inZimbabwe. The figures for Africa also include three South African refineries thatprocess PGM concentrates containing gold as a by-product.

Regional comparisons show that an estimated 8% of the world’s gold refineries arefound in Africa.

RReeffiinniinngg ssuummmmaarryy ((nnuummbbeerr ooff rreeffiinneerriieess))NNuummbbeerr %%

Africa 13 8Asia and Indian sub-continent 36 22Australasia 7 4Eastern Europe 12 7Latin America 13 8Middle East 4 3North America 29 18Western Europe 48 30TToottaall 116622 110000Data source: Virtual Metals.

33..33..33 CCaappaacciittyy aanndd ccaappaacciittyy uuttiilliissaattiioonnThe 162 global refining operations collectively have the capacity to treat 6,652t offine gold per annum. The regional breakdown of this capacity is tabulated below:

RReeffiinniinngg ssuummmmaarryy ((%% gglloobbaall ccaappaacciittyy))tt %%

Africa 772 12Asia and Indian sub-continent 1,027 15Australasia 341 5Eastern Europe 662 10Latin America 207 3Middle East 775 12North America 778 12Western Europe 2,091 31TToottaall 66,,665522 110000Data source: Virtual Metals.

Of this total, Africa represents 11.6% (or 772t) of which South African refiningcapacity represents 98% (or 757t).

In 2004, global gold refining capacity utilisation was estimated at 55%10. This figureis somewhat higher than historical global capacity utilisation averages of 45%-52%.The reason for this increase is that, in 2004, larger than normal amounts ofsecondary material were returned for refining in direct response to higher Dollargold 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.

... and 12% of global refining capacity...

Review draws on global database comprising 162 known refineries...

Africa accounts for 8% of the world’s goldrefineries...

In 2004, global gold refining capacity utilisationwas estimated at 55%...



Refining capacity utilisation also shows some regional variances.

RReeffiinniinngg ssuummmmaarryy 22000044OOuuttppuutt ((tt)) CCaappiittaall uuttiilliissaattiioonn ((%%))

Africa 475 61Asia and Indian sub-continent 454 44Australasia 928 37Eastern Europe 185 28Latin America 105 51Middle East 155 20North America 436 56Western Europe 920 44TToottaall 33,,665577 5555Data 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, processed142t of fine gold from African countries outside South Africa11;

• although Eastern Europe (the former CIS) has substantial installed capacity,refineries based in these countries are forbidden by law to tender forinternational refining contracts and have to rely on local feed;

• Western European capacity utilisation has increased since the closure in 2004of Johnson Matthey’s Royston plant in the United Kingdom; and

• capacity utilisation in the Middle East is particularly low since this data includesthree new refineries able to treat a total of 700t gold per annum recentlycommissioned in Dubai.

Irrespective of variations in regional capacity utilisation, the global gold refiningindustry remains in a state of over-capacity and this has been the case for manyyears. Despite this, there have been newcomers to the industry, for exampleMusuku Beneficiation Systems in South Africa and the new refineries based inDubai. Consequently, tenders for refining contracts are aggressive, with treatmentterms12 offered by the refineries being particularly competitive. When tendering forinternational primary production, the refineries attempt to improve their tenders byoffering attractive insurance and transport terms.

33..44 OOVVEERRVVIIEEWW OOFF TTHHEE LLOOCCAALL RREEFFIINNIINNGG IINNDDUUSSTTRRYYAnalysis of the known refineries in South Africa highlights two distinct marketsectors, namely the two primary refiners and the recyclers. Fact sheets detailing thebusiness profiles and product lines of the two primary refineries and four of therecyclers can be found in the Research Directory.

33..44..11 PPrriimmaarryy rreeffiinneerrssRand Refinery has been in existence since 1921 and is the result of a collaborativeeffort by the major South African gold producers. Musuku Beneficiation Systems is arelative newcomer to the business having been established in 1997, when Harmonywithdrew from Rand Refinery.

Harmony collaborated with minerals technology service provider Mintek in 1997 tobuild a small-scale plant that was later expanded with funding from Europeandefence contractor BAE Systems, which supported the project as part of its defencecontract 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 aresult 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 thusthis Rand Refinery figure is not directly comparable.

12 See later in this chapter for further details on treatment terms.

The global gold refining industry remains in a stateof over-capacity, as has been the case for manyyears...

Africa’s capacity utilisation is slightly higher thenother regions...

Rand Refinery has been in existence since 1921 andis the result of collaborative effort of major SouthAfrican producers...



• Harmony believed that it would be cost-effective to refine its own output.Rand Refinery still treats Harmony’s silver production and has assisted Harmonywith its gold refining throughput when process problems at Musuku haverequired Harmony to process gold at Rand Refinery.

While Musuku Beneficiation Systems is 100% owned by Harmony Gold Mining, theownership structure of Rand Refinery is as follows:

RRaanndd RReeffiinneerryy oowwnneerrsshhiipp ((SSeepptteemmbbeerr 22000044))%%

AngloGold Ashanti 53Gold Fields 33DRDGOLD 10Avgold 2Western Areas 2Data source: Rand Refinery Ltd.

The table below summarises the differences in technology usage, funding, productsand client base between the two.

DDiiffffeerreenncceess bbeettwweeeenn tthhee ttwwoo pprriimmaarryy rreeffiinneerrssRRaanndd RReeffiinneerryy MMuussuukkuuLLiimmiitteedd BBeenneeffiicciiaattiioonn

SSyysstteemmssDate established 1921 1997, expanded in

2000Funding Shareholders Harmony Gold,

Mintek and BAE Systems (latter funded expansion only)

LBMA London Good Delivery Status Yes Yes2005

LBMA Good Delivery Referee Status Yes NoRefining Process Miller Chlorination MinataurSmelting Yes NoCarbon Incineration Yes NoSilver Electro-refining Yes NoGold Electro-refining Pending NoRefinery Feed Doré Cathode SlimeFeed Source Shareholders’ production South Africa

plus competes (Harmonyinternationally for doré operations only)and other material

Product Range:400oz Good Delivery Bars Yes Not originally - only

recently awarded LBMA status

Kilobars Yes YesOther bars Yes YesLegal tender coins Yes NoCoin blanks Yes NoJewellery alloys Yes YesDental alloys Yes YesAssaying services Yes NoLocation Guateng, urban At Harmony mine

in Free StateData source: Interviews.

Rand Refinery is owned by AngloGold Ashanti(53%), Gold Fields (33%), DRDGOLD (10%),Avgold (2%) and Western Areas (2%)...



98% of Musuku’s feed is in the form of cathode slime, a product of electro-refining13. Rand Refinery’s feed is 90% doré14 and the balance primarily cathodeslime. Rand Refinery also treats mine output from non-South African mines inGhana, 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 wasteand electronic scrap represents a small proportion of the feed taken by the primaryrefiners. In volume terms, this secondary feed accounts for 2% of the refineries’throughput.

Both refineries reported that increasing volumes of electronic scrap were becomingavailable in the local market. Currently only Rand Refinery has the ability to treatthis material.

For Rand Refinery, gold represents 96% of the company’s turnover by value. Thebalance is made up from silver. For Musuku, in value terms, the gold to silver ratio islower than that of Rand Refinery at 85% gold and 15% silver. The differencebetween the two is a reflection of the different primary feed the refineries receivefrom their mining clients.

Kilobars that are exported directly into India make up in excess of 95% of Musuku’sfinal product. A further 1% is made up of bar products other than kilobars such as100g bars. This output is also destined for export, to the Indian sub-continent, theMiddle East or the Far East. The remaining 4% of Musuku’s output is destined for thelocal 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 theLondon market, and kilobars and 100g bars, primarily for the Indian market, (eitherdirectly or indirectly via the major international bullion banks), as well asSwitzerland, Italy, Turkey and Dubai. The small bars and 400oz bars make up some97% of Rand Refinery’s product line. The global destination of Rand Refinery’sproducts is shown in the graph on the right.

Rand Refinery and Musuku between them account for an estimated 65% of thekilobar and small-bar market in India with other international primary refiners, suchas Pamp SA, Argor-Heraeus SA, Metalor Technologies International SA, Valcambi SAand Australian Gold Refineries (AGR) making up the balance. The profit marginsachieved on kilobars and small bars15 are low, and in order to maintain overallprofitability, the refiners need to sell and ship gold bar products in large volumes.

33..44..22 RReeccyycclleerrssThere are seven known recyclers formally operating in the gold business in SouthAfrica, as well as an unknown number of illegal operations in existence, largely inand around the vicinity of the mines, processing stolen gold, ore and goldconcentrates. Only information relating to the seven known recyclers has beenincluded in this discussion.

Cumulatively, the seven recyclers have the capacity to treat and return to the localmarket just under 2t of fine gold per annum. In 2004, they supplied 1t of fine goldwhich was destined for the jewellery manufacturing industry.

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 aqueouselectrolyte 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 impuritieswill 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.

98% of Musuku’s feed is in the form of cathodeslime; 90% of Rand Refinery’s feed is doré...

Recycling represents a small portion of feed byprimary refiners...

Cumulatively, the recyclers have the capacity totreat and return to the local market just under 2tof fine gold per annum...



Research showed a range of different business practices, customer bases andproduct 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 metalsscrap;

• recyclers who treat mainly medical waste to recover silver but who will also takejewellery sweepings and process scrap;

• recyclers who deal only with the jewellery industry and will not treat industrialwaste;

• recyclers who operate out of one regional centre only, serving only localjewellery manufacturers;

• recyclers who have their main processing plant in one region, gather materialfrom around the country and thus service a wide network of clients from themajor jewellery manufacturing areas; and

• recyclers servicing only the very small jewellery manufacturers who use fine goldmeasured in grams.

These recyclers are all privately operated businesses that are family-owned.

33..55 EEMMPPLLOOYYMMEENNTT PPRROOFFIILLEESSThe collective gold refining and recycling sectors in South Africa directly employedan estimated 532 people in 2004.

DDeemmooggrraapphhiicc pprrooffiillee ooff pprriimmaarryy rreeffiinneerrss aanndd rreeccyycclleerrssPPrriimmaarryy

22000044 rreeffiinneerrss RReeccyycclleerrss TToottaallTotal Employees 323 209 532Men (%) 83 64 76Women (%) 17 36 24Data Source: From interviews.

On a weighted average basis, the gold refining and recycling industry is male-dominated (76% of all employees are men). The gender ratio in the primaryrefineries 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 muchfine gold per staff member as the recyclers, at 38kg and 6kg respectively, indicatingthe economies of scale of operating a large refinery compared with the smallrecycling plants.

Half the staff members working in the primary refineries are black.

RRaacciiaall pprrooffiillee ((%%)) PPrriimmaarryyrreeffiinneerrss RReeccyycclleerrss TToottaall

White 43 43 43Black 50 31 42Coloured 5 26 14Indian 2 0 1TToottaall 110000 110000 110000Data source: Interviews.

In 2004, the refining and recycling sectors in SouthAfrica directly employed 532 people...

Secondary recyclers are all family-ownedbusinesses...

Primary refiners, on a weighted average basis,produce more than six times as much fine gold perstaff member as the recyclers...



The educational profile of employees within the refiners and recyclers is shownbelow:

EEdduuccaattiioonn ((%%))PPrriimmaarryyrreeffiinneerrss RReeccyycclleerrss TToottaall

No matric 26 30 27Matric 22 32 26Tertiary 52 38 47TToottaall 110000 110000 110000Data source: Virtual Metals analysis of interviews

Tertiary education includes diplomas or non-university post-matric training fromuniversities of technology (previously called technikons).

The higher level of tertiary qualifications among employees within the primaryrefiners reflects the skills levels needed to ensure smooth production andfabrication 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 stillcomplete assays for internal purposes and therefore employ a percentage oflaboratory staff or technicians.

JJoobb ddeessccrriippttiioonnss ((%%))PPrriimmaarryyrreeffiinneerrss RReeccyycclleerrss

Admin 16 20Sales 3 25Lab/Tech* 22 22Management 17 14Production 42 19TToottaall 110000 110000Data source: From interviews.

* Technical refers to assaying staff, metallurgists and laboratory technicians.

The recyclers employ a high proportion of sales staff relative to their administrativestaff. These figures include company representatives who spend much of their timeon the road servicing a network of clients. Their primary role is the collection ofjewellery scrap and the marketing of their recycled alloys. Since the primary refinersrely on large gold mining companies for the greatest part of their refining feed, theyhave less need for sales and marketing staff to service such business.

33..66.. PPRROODDUUCCTT RRAANNGGEE 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 recyclersfocus mainly on the production of commonly used jewellery alloys.

Recyclers employ a high portion of sales staffrelative to administrative staff...

47% of employees in the refining and recyclingbusiness have a tertiary qualification...

Refiners offer a range of semi-finished and finishedfine gold products, while recyclers focus mainly onthe production of commonly used jewellery alloys...



33..66..11 BBaarrssGold bars are either minted or cast:• cast bars are manufactured by the casting of molten gold into a mould of

specific dimensions. The identifying marks16 are then applied manually or bypress; and

• minted bars are struck from blanks (templates) that are stamped out of specificdimensions from a flat strip of gold in the same way as coins are struck fromblanks. Identifying marks are usually applied during the minting process. Like goldcoins, the dimensions of minted bars are precise.

In addition to these broad definitions, the international gold industry also classifiesgold bars by weight with ‘large’ bars weighing 1,000g (1kg) or more and ‘small’ barsweighing 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 and5 tael bars17.

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. Howeverin 2003, the Indian authorities changed the local tax regime which halted demand forthe tola bars. Specifically, they centralised the VAT system in India which meant thatthe tola bar became subject to VAT. Indian consumers ceased buying the tola bar andswitched to 100g bars and kilobars which were not subject to VAT. Both primaryrefiners in South Africa adjusted their manufacturing emphasis to meet this shift inIndian consumer preferences.

As a consequence, sales of gold bars from South Africa in 2004 were predominantlykilobars (51%) and 400oz bars (46%). In 2004, the two primary refiners reported nosales of tael bars or minted bars.

AAnnaallyyssiiss ooff SSoouutthh AAffrriiccaann ggoolldd bbaarr ssaalleess 22000044CCaasstt bbaarrss tt %%400oz bars:99.9 London Good Delivery 4.5 1.0599.5 London Good Delivery 193.7 44.77Sub-total 198.2 45.81

Kilobars:99.9 83.6 19.3299.5 138.0 31.90Sub-total 221.6 51.22

500g bars 99.5 0.3 0.08100g bars 99.9 12.0 2.7710 Tola bars 0.5 0.12Sub-total 12.8 2.97TToottaall 443322..77 110000..0000Data Source: Rand Refinery Limited and Musuku Beneficiation Systems

CCaasstt bbaarrssIn South Africa, only Rand Refinery and Musuku cast gold bars and, of the two, RandRefinery has the widest product range. The dimensions and specifications of RandRefinery’s cast bars are detailed in the table below and are typical of similar barsfabricated elsewhere by other international refiners. Musuku’s product line includeskilobars and 100g bars of the same dimensions and specifications as those cast byRand 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.

Gold bars are either minted or cast...

In 2004, sales of gold bars from South Africa werepredominantly kilobars (51%)...



Five weights of cast bars, namely 400oz bars, kilobars, 100g bars, 500g bars and tolabars, are fabricated by the primary refiners.

400oz bars are cast and, to be accepted as London Good Delivery, they mustconform 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, beingglobally the most widely recognised and accepted. They are cast in three purities999.9, 999 and 995 parts gold per 1,000 purity.

The Rand Refinery kilobar specifications are shown in the table below. Musuku alsoproduce 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 popularin India, particularly since changes in VAT legislation. Musuku produces 100g bars in995, 999 and 999.9 parts gold per 1,000.

Tola bars are still fabricated by Rand Refinery in 10 and 5 tola weights, althoughfollowing the changes in the Indian VAT structure, demand for these bars has declined.

RRaanndd RReeffiinneerryy ccaasstt bbaarrss440000oozz

Purity min 995 or 999.9Dimensions (mm)Top 260 X 80 X 40Base 240 X 60 X 40Serial numbers 2 letters, 4 numbers1st Year of current shape 1921

KKiilloobbaarrPurity min 995 or 999.9Dimensions (mm) 116 X 51.5 X 9.5Serial numbers 2 letters, 4 numbers1st Year of current shape 1959

110000gg bbaarrPurity 999.0Dimensions (mm) 45 X 27 X 4Serial numbers As required

1100 TToollaa bbaarrPurity 999.0Dimensions (mm) 45 X 27 X 5Serial numbers None

55 TToollaa bbaarrPurity 999.0Dimensions (mm) 31 X 19 X 4Serial numbers None

1100 TTaaeell bbaarrPurity 999.0Dimensions (mm) 89 X 40 X 6Serial numbers None

55 TTaaeell bbaarrPurity 999.0Dimensions (mm) 70 X 29 X 5Serial numbers NoneData source: Rand Refinery Limited and The Industry Catalogue of Gold Bars Worldwide,

Grendon International Research, 1998.

QQuuoottaabbllee qquuootteess:: “There is no money to be made in small bars, soyou have to go for volume. Your only chance toachieve a reasonable margin is in the semi-fabricated products, but here your market is limitedto the local environs which we believe is capped bythe prohibition on owning unwrought gold and theimposition of value added tax.”MMaajjoorr rreeffiinneerr

18 LBMA good delivery specifications: http://www.lbma.org.uk.

The kilobar is the world’s most widelymanufactured and traded gold bar...



MMiinntteedd BBaarrssThe three most common minted bars are 10, 50 and 100g bars. Rand Refinery firstbegan minting these bars in 1999, in 999.9 parts gold per 1,000. While these barsare available, no sales were recorded in 2004.

33..66..22 JJeewweelllleerryy pprroodduuccttssThe two primary refiners produce a range of gold products for jewellerymanufacture. These products are in the form of grain, sheet, wire, foil, strip andplate of various alloys termed semi-finished products or semis. Jewellerymanufacturers purchase these products depending on their manufacturing process.

The two primary refiners offer a wide range of these products in different caratagesand colours. As an example, the range of grain offered by Rand Refinery isdemonstrated in the table below:

RRaanndd RReeffiinneerryy jjeewweelllleerryy aallllooyyAAllllooyy CCooddee CCoolloouurr MMeellttiinnggggrraaiinn RRaannggee˚̊ CC HHaarrddnneessss AApppplliiccaattiioonnss

9 Carat 09DD Yellow 900 - 950 Semi-Soft Casting9 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% Nickel9 Carat 09LX White 950 - 1,000 Semi-Soft Casting9 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 General18 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% Pd22 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 smallquantities and is applied to casting techniques. Strip and sheet is applied tostamping, and wire for chain-making.

33..66..33 CCooiinn bbllaannkkssCoin blanks are manufactured solely by Rand Refinery for the striking ofKrugerrands. (See Chapter 5 for further information).

33..66..44 DDeennttaall aallllooyyssThe primary refiners also produce a range of dental alloys. (See Chapter 5 forfurther information).

33..77 FFIINNAANNCCIIAALL PPEERRFFOORRMMAANNCCEEThe financial performance of both the local and international refining industries isnot made public and information is difficult to obtain. This section attempts to shedlight 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 respectiveproducts.

The financial aspects of the local and internationalrefining industries have always been confidential...

The two primary refiners offer a wide range of goldproducts for jewellery manufacture...

Rand Refinery manufactures coin blanks for thestriking of Krugerrands...



33..77..11 OOwwnneerrsshhiipp ooff ggoolldd dduurriinngg tthhee rreeffiinniinngg pprroocceessssOwnership 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 isgenerally not cleared until doré has physically been delivered to the refinery;

• the refinery concludes sales to buyers on the basis of the anticipated volume ofgold to be delivered;

• the gold price applied to the refinery’s sales of gold to end users is the same asthat used to pay the mining client so that the refinery takes no exposure to thegold price. Usually the fix on the day of delivery of gold to the refinery is used asa basis for pricing;

• the gold is again assayed by the refinery, and any differential between theoriginal anticipated metal content and the final assay is settled in value termsbetween the refiner and the mining client; and

• the refined gold is then sent to buyers directly from the refinery or according tothe buyer’s specific instructions.

At no stage during this process does the refinery take ownership of the gold beingrefined.

33..77..22 OOppeerraattiinngg ccoossttssThe research was able to highlight certain similarities in the cost structures of RandRefinery 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.

The remaining components of total operating costs include waste disposal, securityand other overheads.

For the recyclers, the weighted average cost breakdown varies as follows:

TTyyppiiccaall ccoosstt pprrooffiillee:: rreeccyycclleerrss %%Raw materials 7.5Waste disposal 2.5Insurance 2.5Labour 42.4Rent 10.4Energy 10.8Marketing 15.9Other overheads 8.0TToottaall 110000..00Data source: Interviews.

At no stage during the process does the refinerytake ownership of the gold being refined...

Labour costs for both companies are similar,representing 42% of total operating costs...



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 regionalmanufacturing and retail jewellers;

• energy (both gas and electricity) makes up just over 10% of costs for therecyclers while for the primary refiners it represents a smaller 5%; and

• waste disposal is a fixed cost imposed by environmental legislation. It involvesgaseous emission controls from the refinery and safe disposal of chemical wastegenerated in the refining process.

33..77..33 TTrreeaattmmeenntt tteerrmmssThe cost and conditions of refining gold quoted by the refiners are referred to asthe treatment terms. In an international industry with surplus capacity, primarygold refiners and secondary recyclers will vary their treatment terms in order togain an advantage. There is therefore no strict formula to which a refiner or recyclerwill conform when drawing up refining terms. This section describes industry normsin principle, but highlights where treatment terms can vary between the refinersand recyclers.

Depending on the circumstances described below, international gold refiningtreatment charges applied to kilobars and other small bars range between 30-45 UScents per ounce with 100% metal returned. Within this range, treatment terms arearound 0.1% over the spot price of gold.

The terms described above are general and individual agreements will varydepending 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 berecovered and the customer is paid for these metals, termed by-product credits;

• the existence of deleterious elements such as mercury, lead and beryllium in thefeed. These elements have to be removed during the refining process and therefiner 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 quoted by primary refiners in South Africa to customers areconsidered highly confidential. In general, however, terms are broadly in line withthose cited as average for the international refining industry.

In South Africa, the treatment terms for scrap vary considerably between therecyclers and their customers, and the various categories of scrap19.

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 andcalculated fine gold content based on Rand Refinery prices of the day20;

• for jewellery sweepings, the refinery will return 85-92% of fine gold content ineither metal or value at the Rand Refinery price of the day, subject to aminimum refining charge of R900 per job lot irrespective of the size of the job;and

• for washings21, the refiner will return 85%-90% of fine gold content, or the valueof that amount of fine gold based on the Rand Refinery prices of the day.

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.

Primary refiners and secondary recyclers will varytreatment terms to gain or maintain a competitiveadvantage...

Treatment terms are highly confidential...

Labour remains the major cost for both primaryrefiners and recyclers...



Where a recycler is aggressively bidding for scrap, the recycler will discount thetreatment charges for targeted customers, returning anything from 97-99.5% of thecontained fine gold or the value of that gold (in Rands). In these instances, thecompanies interviewed acknowledged that this business practice was a loss leaderfor the company but was implemented where the operation needed feed material.

33..77..44 TThhee RRaanndd RReeffiinneerryy pprriiccee ooff ggoollddThe Rand Refinery quotes Rand-denominated prices for its gold products to its localcustomers. This price is set twice-daily and is available on request. Given that theprice is used widely by recyclers as a benchmark by which they calculate their ownprices 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 atthe closing of the previous day;

• after midday on any business day, Rand Refinery will use the morning Londongold price fix of that day and the noon Rand/Dollar exchange rate of the sameday; 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 Refinerywill use the most recent London price fix.

33..77..55 MMaarrkk--uuppssMark-ups over the gold price achieved by the primary refiners in South Africa forkilobars and other small bars are low, in keeping with premia achieved for small barsinternationally. 30 to 45 US cents per ounce is standard for kilobars. 100g bars andother smaller bars may command slightly higher mark-upss. Mark-ups achieved willvary according to international demand for small bars, but not necessarily accordingto the gold price.

With respect to other gold products associated with the jewellery manufacturingindustry, 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 (overfine gold content) on different products for the jewellery manufacturing sector. Itshould be noted that these mark-ups are benchmarked to the daily quoted RandRefinery 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:

TTyyppiiccaall pprriiccee mmaarrkk--uuppss ffoorr ggoolldd aallllooyyss bbyy rreeccyycclleerrss%%

22 carat yellow and red 418 carat yellow, red and white 618 carat with palladium 1618 carat with platinum and palladium 3614 carat red and yellow 614 carat white 259 carat yellow and red 69 carat white 38Data source: Interviews.

Mark-ups achieved by primary refiners for kilobarsare low, at between 30 and 45 US cents per ounceof gold...

Rand Refinery sets the price twice-daily for its goldproducts...

Secondary recyclers use the Rand Refinery price ofgold as a benchmark...



33..88 RREECCYYCCLLIINNGG FFEEEEDDThose businesses involved in the treatment of recycled gold, including theprimary 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-out22. In linewith 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 goldjewellery, including filings and polishings, offcuts and rejects. While 95% of thisscrap is 9 carat, it can also contain 14 carat and 18 carat scrap. Jewellers’ processscrap is usually returned by the jewellery manufacturers to the refiners on amonthly basis to assist the manufacturers in managing cash flows. The level ofprocess scrap is relatively large, up to 40% of the volume of gold used byjewellery manufacturers;

• jewellery sweepings, literally the floor sweepings of jewellery workshopscollected and sent in, usually bi-annually, for recycling include material otherthan 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 offine gold per kilogram of sweeping, but these instances are rare;

• wash waters from the jewellery manufacturing process which can contain 4% to5% 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 application23. To apply a gold filling, a dentist onlyuses up to 25% of the metal he needs to work with; the balance is immediatelyrecycled; and

• electronic waste which has been increasing in recent years and which includesnot only gold but also palladium and silver. Not all the refiners and secondaryrecyclers can process electronic scrap. According to interviews, Rand Refinery,treats between 6t and 10t of electronic scrap annually. The precious metalscontent of this feed can vary, but on average the material currently beingreturned for recycling can typically contain 200g/t of gold.

There is some seasonality in the rate at which jewellery scrap and waste is returnedfor recycling which is not sensitive to international or local gold prices. This waste isreturned with the greatest frequency and in the largest volume during the periodjust 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.

33..99 AASSSSAAYYIINNGGThere is no formal hallmarking system in place in South Africa and this has beencited as a deterrent to locally made gold jewellery gaining international recognitionand acceptance.

However, a number of jewellery manufacturers do mark their jewellery with either acaratage stamp or a manufacturer’s insignia. Furthermore, recyclers such as FirstAssay offer assaying facilities in addition to those offered by Rand Refinery.

Interviews with those companies offering assay services revealed the followingcosts and associated terms:• six hours for results of an assay. If urgently required, an assay can be done in 21/2

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.

QQuuoottaabbllee qquuootteess:: “Jewellery sweepings are disgusting. We get thesedustbin bags bursting at the seams with anythingfrom six-month old sandwiches to cold drink cans.With all this rubbish, jewellery manufacturers thencomplain that the recovery grade is so low.Occasionally I refuse to handle the stuff and havesent it back.”RReeccyycclleerr

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.

There is no formal hallmarking system in place inSouth Africa...

A number of jewellery manufacturers mark theirjewellery...

Some seasonality exists in the rate at whichjewellery scrap and waste is returned for recycling...



Discussions with those regularly involved with assaying indicate that there is under-carating in the South African gold jewellery industry. It was claimed that this wasoften unintentional with inexperienced jewellers producing their own alloys. Atother times, however, this under-carating appears to be deliberate and the largeretailers make a practice of having all their stock assayed prior to it going into shopwindows.

33..1100 BBAARRRRIIEERRSS TTOO MMAARRKKEETT EENNTTRRYY The continuing global state of over-capacity in gold refining represents theforemost barrier to market entry for potential newcomers to the refining industry,with current capacity utilisation at 55% (although this varies on a regional basis).

The decision to commission the Musuku refinery in 1997 was not based on theneed for further refining capacity in South Africa or indeed globally, but onHarmony’s own marketing and process imperatives. The newly-commissionedrefineries in Dubai, with the latest technology24, have added to global refining over-capacity and placed additional pressure on the industry.

To win refining contracts, individual operations not only have to be verycompetitive, but also concentrate on additional logistical options. These includeoffering potential clients a one-stop service from the mine gate including airfreightand insurance.

33..1111 RREEFFIINNIINNGG TTEECCHHNNOOLLOOGGYY Two refining processes are currently in use in South Africa. Rand Refinery makes useof the Miller Chlorination Process and Wohlwill electrolysis. Musuku BeneficiationSystems makes use of the Minataur Process. Both these processes are describedvery briefly below and flow charts of both processes are included.

33..1111..11 TThhee MMiilllleerr CChhlloorriinnaattiioonn PPrroocceessss aanndd WWoohhllwwiillll EElleeccttrroollyyssiissThe Miller Chlorination Process was first developed by Dr F. B. Miller at the SydneyMint 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 isadded to the crucibles once the gold is molten. Chlorine gas does not react withgold, but will combine with silver and base metals to form chlorides. Once thechlorides 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 furtherrefined to extract the gold and silver.

Indications are that there is under-carating in theSouth African gold jewellery industry...

The continuing over-capacity represents theforemost barrier to market entry for potentialnewcomers...

Two refining processes currently used in South Africa...

To win refining contracts, refineries now look atlogistics...

24 See earlier in the chapter for details.



The Miller Chlorination Process, which can take up to 90 minutes, produces goldthat is at least 99.5% pure, with silver being the main remaining component. Thisgold can be cast into bars, as 99.5% gold purity meets the minimum ‘London GoodDelivery’ requirements of the London bullion markets.

However, some customers such as jewellers and other industrial end users requiregold that is almost 100% pure, so further refining is necessary. In this case, goldusing the Miller process is cast into anodes, which are then sent to an electrolyticplant. The final product is a 99.99% pure gold sponge that can then be melted toproduce various end products suited to the needs of customers.

The electrolytic method of gold refining was first developed by Dr. Emil Wohlwill in1874. Wohlwill's process is widely used in major gold refineries and in conjunctionwith the Miller Chlorination process. The Wohlwill process is based on the solubilityof gold and insolubility of silver in an electrolyte solution of gold chloride inhydrochloric acid.

The impure gold is cast into anodes which are suspended in cells, while thecathodes are thin strips of pure gold. By passing an electric current from anode tocathode through the electrolyte solution, the anodes are gradually dissolved andthe gold is deposited on the cathodes; any silver, which is insoluble in theelectrolyte, and any platinum group metals are precipitated to the bottom of thecells. The sequence takes about two days, following which the gold-coated cathodesare removed, melted and cast into bars. The initial process can produce gold up to999.5 parts per thousand fine, with further treatment bringing it up to 999.9 partsper 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 or999.9 parts per thousand is required, electrolytic facilities at many refineries havebeen added.

33..1111..22 TThhee MMiinnaattaauurr PPrroocceessssThe Minataur Process was developed by Mintek. In this process the gold-bearingfeed is leached in a chloride solution. The resultant material is then subjected toselective solvent extraction to reject impurities and then stripped to produce apurified, concentrated gold solution, from which high-purity gold powder isprecipitated by reduction.



The gold content of the feed can range from about 20% to 90%. Suitable feedsinclude silver-refining anode slimes, gold-electrowinning cathode sludge, zincprecipitation filtrates, doré bullion and jewellery scrap. Materials with variable goldcontent 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 theFree State. This plant has been expanded, and now processes all of Harmony’s goldoutput from its South African operations. Subsequently, turnkey plants have beenbuilt 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 to150t per annum. Plants in Algeria and Mexico are small, with a capacity of 1t to3t per annum.

33..1122 EENNVVIIRROONNMMEENNTTAALL IISSSSUUEESS

The refining and recycling industries have two areas of environmental control thatapply specifically to their operations. The first is the appropriate disposal of wasteproducts (for example chemical residues) generated during the refining process andthe second is atmospheric emission and air quality control. These environmentalregulations apply to all the refining and recycling operations in South Africairrespective of their locations.

International environmental management standards under the InternationalStandards Organisation (ISO) can also be applied to the gold refining industry. TheISO is a network of national standards institutes in 153 countries on the basis ofone member per country. The Central Secretariat is based in Geneva and the SouthAfrican member of the ISO is the South African Bureau of Standards (SABS). TheISO standard relating to the environment is ISO 14001.

Rand Refinery achieved ISO 14001 certification in April 2001.

Source: http://www.musuku.com/minataur/flow2.htm

The first Minataur plant was constructed forHarmony in Virginia, in 1997...


CCHHAAPPTTEERR 44

FFIINNAALL PPRROODDUUCCTT:: JJEEWWEELLLLEERRYY

CCoonntteennttss::

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

CCHH

AAPPTTEERR 44

44

Photograph courtesy: Harmony Gold Mining Limited



CHAPTER 4FFIINNAALL PPRROODDUUCCTT:: JJEEWWEELLLLEERRYY


During 2004, the primary refiners and secondary recyclers in the formal sectorsupplied 12.6t of fine gold to the local gold fabricating industry.The details are shown in the table below.

GGoolldd uussaaggee iinn ffaabbrriiccaattiioonntt %%

Jewellery fabrication 9.64 76.6Coin fabrication 2.90 23.0Other fabrication 0.05 0.4TToottaall 1122..5599 110000..00

Jewellery imports 1.28Jewellery exports 5.07Domestic sales (including imports) 5.85Domestic sales (locally manufactured) 4.57* All figures net of process scrapData 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 to1.28t and official exports of fine gold in jewellery products totalled 5.07t. Thisimplies that South African jewellery sales, including imports, amounted to 5.85t ofwhich 4.57t was fabricated locally1.

The research method used in preparing this chapter on jewellery fabrication andrecycling involved a combination of face-to-face interviews and the analysis ofresultant data. Appendix 1 lists those interviewees whose data was used inconstructing sectoral databases.

The scope of the research undertaken to compile this chapter is detailed below.

MMaannuuffaaccttuurriinngg:: Members of the Jewellery Council of South Africa (JCSA) as well as the Council itselfand its manufacturing affiliates, the Jewellery Manufacturers Association of SouthAfrica (JMA) and the Cape Jewellery Manufacturers Association (CJMA), wereinterviewed.

The annual volumes of fine gold used by the 34 jewellery manufacturers werecollated into a database. Collectively, the 34 companies accounted for 7t of finegold consumption in 2004. Of these, 20 were interviewed in depth and data wasobtained for the remaining 14. Manufacturers known to use the largest volumes offine gold were selected for interview, giving a representative sample of gold usageof 73% of the fine gold supplied to local jewellery manufacturers by the refinersand recyclers. The interviews also included a number of manufacturers who userelatively small amounts of fine gold in order to contrast the varied businessmodels, 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 of9 carat and costume jewellery (less than 9 carat). This review avoids using the term fine gold jewellery as we define fine goldas pure gold of ‘4 9s’ fineness (999.9 parts per 1,000 pure gold or 24 carat gold). When referring to jewellery, we use theterms gold jewellery or carat jewellery implying a minimum of 9 carat.

During 2004, primary refiners and recyclers in theformal sector supplied 12.6t of fine gold to the localgold fabricating industry...



RReettaaiilliinngg:: The analysis of the retail sector of the South African gold jewellery industryincluded 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 thetotal value of South African jewellery retail sales;

• interviews with buyers representing 10 of these retail companies, accounting for73% 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 thediscussion.

44..22 JJEEWWEELLLLEERRYY MMAANNUUFFAACCTTUURRIINNGG

44..22..11 SSiizzee,, ssttrruuccttuurree aanndd oowwnneerrsshhiippIn 2004, South African gold jewellery fabrication at 9.64t accounted for 2.8% oflocal 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% oftotal gold consumed in jewellery manufacture globally (2,795t2).

Gold jewellery purchased locally is predominantly (95%) 9 carat. The balance ismade up of 18 carat gold associated with gem-set items, especially diamonds andtanzanite. The presence of 14 carat gold is associated with tourist sales. Goldjewellery 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.

Different types of businesses fall under the blanket description of ‘jewellerymanufacturer’. These manufacturers demonstrate a spectrum of business models,product ranges, customer bases and operational parameters.

This review segments the jewellery manufacturing sector into four categoriesaccording to their annual fine gold usage.

Micro Manufacturers using 20kg or less per annumSmall Manufacturers using more than 20kg but less than 50kg

per annumMedium Manufacturers using more than 50kg but less than

750kg per annumLarge Manufacturers using more than 750kg per annum

Details of the data sample (34 manufacturers) are tabulated as follows:

SSiizzee ooff ccoommppaannyy MMiiccrroo SSmmaallll MMeeddiiuumm LLaarrggee TToottaall((<<2200 kkgg)) ((2200kkgg ((5500kkgg ((>>775500kkgg))

ttoo ttoo 5500kkgg)) 775500kkgg))

Number of companies interviewed 9 3 5 3 20Number of companies added data 5 7 2 0 14TToottaall ccoommppaanniieess 1144 1100 77 33 3344TToottaall ffiinnee ggoolldd uussaaggee ((kkgg)) 9988 339900 11,,553300 55,,001100 77,,002288Data source: Virtual Metals.

2 Virtual Metals estimates for 2004.

In 2004, South African gold jewellery fabrication at9.64t accounted for 2.8% of local mineproduction...

Gold jewellery purchased locally is predominantly(95%) 9 carat...



Hobbyists, who were included in our research, are incorporated in the micromanufacturers category. Hobbyists are defined as individuals who practise jewelleryfabrication but for whom gold jewellery manufacturing does not represent aprimary source of income. It is not known exactly how many hobbyists there are inSouth Africa. However, by law they have to hold valid jewellers’ permits if they areworking in precious metals and thus are accounted for in these statistics.

SSiizzee ooff tthhee iinndduussttrryy aanndd nnuummbbeerr eemmppllooyyeeddAccording 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 topractise as a fabricator of precious metals jewellery, individuals must, by law, hold avalid jewellery permit. Of this total, 241 licences were newly-issued, an increase of10.9% in the number of manufacturers over the previous year.

The legislation pertaining to these jewellery permits is discussed in Chapter 6 underthe Mining Rights Act of 1967 and its amendments.

Between them, the Cape Jewellery Manufacturers Association (CJMA) and theJewellery Manufacturers Association (JMA) had 99 members in 2004.3 Analysis ofthese membership lists indicates that there were some members of theseassociations who were not directly involved in gold manufacturing (beingexclusively recyclers, or diamond or platinum manufacturers), and some areasof overlap.

It was possible to conlude that the CJMA and the JMA between them have 86 goldjewellery manufacturing members. A comparison of the combined membershipsand the number of valid jewellers’ permits currently in issue therefore indicatesthat, by number, only 3.5% of jewellery permit holders are members of these tradebodies although, by volume of gold usage, the organisations include the threelargest manufacturers as members.

The gold jewellery manufacturing sector in South Africa has the followingcharacteristics.

• In terms of volume of fine gold usage, the industry is consolidated. The top 10manufacturers (medium and large entities) account for 6.5t of fine gold usageannually, or 67% of the 9.6t identified as being consumed by the industry. Ofthese 10 companies, three account for 5t (52% of total fine gold usage4) andare 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 isnot clear how many holders of these jewellery permits are manufacturers inthat they run workbenches and design and fabricate jewellery, as opposed tojewellers who might undertake jewellery repairs but are neither designers normanufacturers of jewellery. Goldsmiths who might have a small retail shop witha 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 micromanufacturers 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, thereforean element of overlapping and potential double counting; and

• there are jewellery manufacturers who source gold from the primary refinersand not the recyclers and, therefore, the recyclers’ customer bases were notnecessarily a true reflection of the total number of jewellery manufacturers.

With respect to the numbers of people employed in the gold jewellerymanufacturing industry, the 34 companies for which there is data employed 1,297permanent 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.

Hobbyists are defined as individuals who practisejewellery fabrication but for whom gold jewellerymanufacturing does not represent a primary sourceof income...

There were 2,456 valid jewellery permits in issue inSouth Africa in 2004...

Between them, the Cape Jewellery ManufacturersAssociation (CJMA) and the Jewellery ManufacturersAssociation (JMA) had 99 members in 2004...



Without conducting an exhaustive survey of all gold jewellery manufacturers inSouth Africa, an exercise which is outside the scope of this study, it is only possibleto give an estimate of the total numbers employed in the jewellery industry. Thisestimate is based on the following assumptions.

The sample researched in this review gives wide coverage of the large- andmedium-sized manufacturers, as defined in this chapter. Therefore, it is assumedthat those jewellery manufacturers for which there is no confirmed data are, bydefinition, the small and micro manufacturers. These manufacturers are known tobe either one-man operations or to have only one or two staff members on thepayroll.

It is not possible to verify how many of the valid jewellery permits are held byhobbyists who, by definition, would not employ staff since their goldsmithing wouldnot be a primary source of income. Discussions with the jewellery manufacturersand the trade associations, however, suggest that there are between 1,200 and1,500 gold jewellery hobbyists.

Taking the above into account it is estimated that 2,680 people are employed bythe country’s gold jewellery manufacturing sector.

GGeeooggrraapphhiicc ddiissttrriibbuuttiioonn aanndd oowwnneerrsshhiippGold jewellery manufacturing is concentrated in and around Johannesburg andCape Town and their close environs. Gauteng and the Western Cape are home tojust under 70% of South Africa’s gold jewellery manufacturers. If KwaZulu-Natal isincluded, the total rises to just over 85%.

A regional analysis of valid jewellers’ licences for 2003 and 2004 gives the followingdistribution of jewellery manufacturers across the country:

Number of valid jewellery permits 2003 2004 Region as% of 2004 total

Gauteng 838 982 40.0Western Cape 710 733 29.8KwaZulu-Natal 351 385 15.7Eastern Cape 76 95 3.9Free State 71 84 3.4Northern Cape 59 63 2.6Mpumalanga 50 52 2.1Limpopo 33 34 1.4North West 27 28 1.1TToottaall 22,,221155 22,,445566 110000Data source: Virtual Metals’ analysis of South African Police Service data.

The following table shows, on a regional basis, where the increase in number ofjewellery permits occurred in 2004, compared with previous years. According to thedata the increase was mostly in the Eastern Cape (25%), the Free State (18.3%)and Gauteng (17.2%).

GGrroowwtthh iinn jjeewweelllleerryy ppeerrmmiittss bbeettwweeeenn 22000033 aanndd 22000044%%

Eastern Cape 25.0Free State 18.3Gauteng 17.2KwaZulu-Natal 9.7Northern Cape 6.8Mpumalanga 4.0North West 3.7Western Cape 3.2Limpopo 3.0CCoouunnttrryy aavveerraaggee 1100..99Data source: Virtual Metals’ analysis of South African Police Services data.

It is estimated that 2,680 people are employed bythe country’s gold jewellery manufacturing sector...

Gauteng and the Western Cape are home to justunder 70% of South Africa’s gold jewellerymanufacturers...



There are two reasons for the 25% increase in the number of jewellery permits heldin 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 vvoolluummee of fine gold usage, manufacturing is concentrated in theJohannesburg and Cape Town areas. Two of the three big manufacturers are basedin Johannesburg and the third in Cape Town.

With respect to the nnuummbbeerr of manufacturing entities, the industry is still family-based in terms of ownership, sometimes with third or fourth generation owners. Ofthose interviewed, more than 90% of the businesses were either family concerns orpartnerships whose origins were in family businesses. The remaining 10% ofbusinesses were partnerships which did not involve family members. This isparticularly true where the manufacturer also specialises in diamonds and fancystones. The implications of small family-owned businesses are discussed in moredetail in Appendix 3 which deals with training and skills transfer.

MMaarrkkeett nniicchheess aanndd bbuussiinneessss mmooddeellssThe umbrella definition of gold jewellery manufacturers covers a variety offabricators exhibiting diverse business models. Manufacturers have structured theirbusinesses to service sub-sectors to which they deliver their final product.The identification of niche markets on the part of a manufacturer influences thatfabricator’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 whodemonstrate the following distribution, product and manufacturing processcharacteristics:

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.

In terms of the volume of fine gold usage,manufacturing is concentrated in the Johannesburgand Cape Town areas...

The industry is still family-based in terms ofownership, sometimes with third or fourthgeneration owners...



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 bymanufacturers of mass-produced chain and cast or stamped jewellery for both thelocal market and direct export. Mass produced jewellery represents approximately80% of fine gold jewellery fabricated in South Africa each year.

In terms of the numbers of businesses, however, the dominant business model isthe small enterprise focusing on cast or hand-made jewellery sold into the localmarket.

The following table highlights these findings. Among the micro and smallmanufacturers interviewed, cast and hand-made jewellery accounts for over 90% ofmanufacturers in volume terms.

MMaannuuffaaccttuurriinngg pprroocceessss ((%%))MMiiccrroo SSmmaallll MMeeddiiuumm LLaarrggee

Cast 55 45 69 19Machine-made5 9 1 25 81Hand-made 36 54 6 0Data source: Interviews.

Medium-sized manufacturers produce mainly cast jewellery (67%), although theyalso produce more machine-made jewellery (27%) than the micro and smallfabricators. 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 onchain-making and Alan Mair Manufacturing Jewellers focuses on casting. OroAfricafocuses on machine-made chain, but has some casting and speciality chainmanufacturing capability. The dominance of these three manufacturers in volumeterms skews the weighted average for the collective industry, as the pie chart onthe right shows.

Interviews with retailers highlighted two concerns about the manufacturingprocesses 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 ofproducing the latest designs. This problem of ‘old’ machinery also raisedconcerns about operating efficiencies. Manufacturers responded to these claimswith concerns about the cost of new machinery, which, together with thenecessary spares, had to be imported. However, capital expenditure on theupgrading of machinery was ongoing in at least two of the large manufacturersinterviewed.

5 Machining includes stamping.

In terms of volumes of fine gold, the majority ofgold is consumed by manufacturers of mass-produced chain and cast or stamped jewellery forboth the local market and direct export...

The dominant business model is the small enterprisefocusing on cast or hand-made jewellery sold intothe local market...

The three large manufacturers are almostexclusively mechanised...



• Second, retailers felt that South African manufacturers were being left behind inareas such as electro-forming, various methods of gem-setting (such as invisiblesetting) and the manufacture of intricate hollow jewellery. They highlightedthese issues as detracting from the ability of local manufacturers to competeeffectively on an international level. Nevertheless, local manufacturersmaintained that their product could compete internationally in terms ofmanufacturing processes and finish.

44..22..22.. CCaappaacciittyy aanndd ccaappaacciittyy uuttiilliissaattiioonn

OOvveerrvviieewwInterviews indicated the following regarding capacity and capacity utilisation:

LLaarrggee mmaannuuffaaccttuurreerrssFor the large manufacturers, labour is a relatively small component of total costs.With capital already invested in their machinery, there are strong incentives toboost productivity through higher levels of capacity utilisation. In these instances,capacity is limited only by the number of machines and their ability to operatearound the clock. In general, these manufacturers are somewhat less subject toseasonality and tend to supply customers throughout the year, although the periodbetween September and November was still noted as a particularly busy time witha marked slow-down in January.

At the time of interviewing, the strong Rand was having a dramatic effect onmanufacturers. With export levels down as a result of the robust currency, capacityutilisation was down to 65% of potential6. The large manufacturers were activelyaddressing this problem by refocusing on their local customer base.

SSmmaallll aanndd mmeeddiiuumm mmaannuuffaaccttuurreerrssSmall and medium manufacturers are highly susceptible to the capacity constraintsassociated with seasonality. Like many of the micro operations, they are reluctantto expand capacity permanently because of the associated increase in overheads.For many, labour costs represent the largest expense and this dictates capacitydecisions.

During the busy period in the months prior to the delivery of Christmas orders, theywill either take on temporary staff or, more commonly, will outsource basic worksuch as repairs to micro jewellers. Factors influencing the decision to outsource arediscussed in more detail later.

MMiiccrroo mmaannuuffaaccttuurreerrssMicro 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 withrespect to being able to fill orders but have little financial latitude to increasecapacity and are unwilling, or unable, to increase overheads accordingly.

• The second group use greater volumes of metal (but still less than 20kg) andare subject to the seasonality of the Christmas cycle and, in many cases, willtake on temporary staff to overcome capacity constraints.

TThhee mmaannuuffaaccttuurreerrss’’ yyeeaarrApart from high-volume, machine-made items, jewellery manufacturing showsdistinct seasonality that affects capacity utilisation. In general the year is structuredas follows:

•• MMiidd--JJaannuuaarryy tthhrroouugghh ttoo mmiidd--AApprriillThe early months of the year through to mid-April tend to be quiet, withcapacity utilisation at its lowest (estimated at 60%). Permanent core staffmembers continue with ongoing work. Many manufacturers use this time tocomplete design work. Those wishing to participate in the Vicenza Jewellery Fairin 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 jew-ellery manufacturers is closer to 80%.

QQuuoottaabbllee qquuootteess::“We load up the machines with wire and leavethem running overnight. They stop running whenthey run out of wire.”CChhaaiinn--mmaakkeerr

For the large manufacturers, labour is a relativelysmall component of total costs...

Small and medium manufacturers are highlysusceptible to the capacity constraints associatedwith seasonality...

Jewellery manufacturing shows distinct seasonalitythat affects capacity utilisation...



•• MMaayy aanndd JJuunneeManufacturers will begin recruiting part-time staff in June, if required, inpreparation for incoming Christmas orders. Depending on their job descriptionand existing skills, these part-time staff members would be given at least twomonths to familiarise themselves with the jewellery range to be manufacturedin order to meet the Christmas demand. Relative to permanent staff, the part-timers can be substantial in number, in some instances doubling the payroll andhead count for the associated months.

Discussions with the industry revealed that there is a relatively large pool ofqualified goldsmiths from which manufacturers can draw during these periods.These people would come from the micro sector of the industry, as definedearlier in this chapter, and appear to be independent goldsmiths, amenable toperiodic high season work, and to whom the larger manufacturers can alsooutsource overflow work. If they do not take on temporary staff, manymanufacturers will outsource overflow work to these micro entities.

Two factors influence the decision as to whether to outsource or to employtemporary 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 toItaly in June7 or they might attend the JCK Jewellery Fair in Las Vegas.

•• JJuullyy aanndd AAuugguussttBy the end of this period, the year’s designs and the product range for the yearare tabled and portfolios are complete. The development of the year’s productrange is a combination of a number of processes. Manufacturers generallyattend the Jewellex Jewellery Fair in July.

If they do not attend a trade show early in the year, manufacturers will at leasthave the most recent trade magazines which would give a good indication ofthe latest designs and fashions. They will then consult with their major retailcustomers on the design range the retailer is most likely to order. Samples willbe made up and marketed. Orders will then be placed and this process is usuallycompleted by early September.

If manufacturers also participate in the jewellery industry as retailers, they willdo their own marketing in the form of brochures, newspaper inserts andmagazine advertisements. On the basis of our interviews, this work appears tobe completed in-house, usually by the owner or manager of the company.Throughout this period (January to August) the industry operates at belowcapacity.

•• SSeepptteemmbbeerr tthhrroouugghh ttoo mmiidd--DDeecceemmbbeerrThe industry then goes into a period of intense production. The rate at whichthe manufacturers deliver final product will vary, depending on the productrange. Four to eight weeks is the norm for the time required for delivery of thefinal product.

From mid-October onwards, orders are delivered. Christmas catalogues aredistributed, advertising in magazines and newspapers is filled and shops stocked.By mid-December, the process is normally complete and the manufacturersclose until mid-January.

September through to the end of the year is the time of maximum capacityutilisation.

7 From 2006, the second Vicenza Jewellery Fair of the calendar year will be held in May.

There is a relatively large pool of qualifiedgoldsmiths from which manufacturers can drawduring these periods...

QQuuoottaabbllee qquuootteess::“We essentially run a six-month business but have12 months of fixed costs.”SSmmaallll--ssiizzeedd mmaannuuffaaccttuurreerr



44..22..33 EEmmppllooyymmeenntt pprrooffiilleess,, eedduuccaattiioonn aanndd sskkiillllssThe following section analyses the employment profile of the manufacturingjewellery sector. It acknowledges the presence of the three largest manufacturersand their ability to affect the results of the analysis, particularly when consideringthe sector in terms of volumes of fine gold usage, as opposed to numbers ofoperating entities. Unless otherwise stated, the weighted average of themanufacturers (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 formthat is directly comparable.

Within the four defined categories of manufacturers, a number of employmentprofiles are identified. The weighted average shows that the ratio of men to womenemployed in the jewellery manufacturing sector is 57:43. The results are influencedby the gender profile of the three large manufacturers of 52% women to 48% menas, 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 productionof jewellery product as opposed to other support functions in the company) withwomen filling administrative, accounting and marketing roles. Women are alsoemployed to do work in polishing, filing, washing and finishing. The sales role ofwomen was particularly apparent when the manufacturers maintain retail outlets aswell and require a shop front sales force.

Manufacturers who combine diamond jewellery manufacture (or gem-setting ingeneral) with the fabrication of gold-only jewellery, had a higher average number ofemployees. The labour intensity of gem-setting and its associated manufacturingprocesses clearly inflated employment levels in these companies. This wasparticularly true of the micro category, where employment rose to seven staffmembers per company.

The age profile of the workforce showed a standard distribution and this was true ofthe 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 asfollows on a weighted average basis:

By industry segment, the racial profile is as follows:

RRaacciiaall pprrooffiillee %% MMiiccrroo SSmmaallll MMeeddiiuumm LLaarrggeeWhite 40 22 26 27Black 52 64 18 55Indian 6 3 0 10Coloured 2 11 57 8Data source: Interviews.



The high proportion of whites in the micro manufacturers reflects the historicalstructure and family-owned nature of these companies. In the medium category,many companies are located in the Western Cape.

Turning to levels of education and skills within the jewellery manufacturing sector,the research showed that, on a weighted average basis for those companies whereinformation is available, almost 42% of those on the payrolls of the jewellerymanufacturers 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:

EEdduuccaattiioonn ((%%)) MMiiccrroo SSmmaallll MMeeddiiuumm LLaarrggeeNo matric 57 52 12 48Matric 32 30 73 31Tertiary 10 18 15 20Data source: Interviews.

An analysis of job descriptions shows that, on a weighted average basis, 67% ofthose employed in gold jewellery manufacturing work on the jewellery benches.8

By market segment, the analysis showed that the large manufacturers have thehighest percentage of their staff on the jewellery benches (74%).

JJoobb ddeessccrriippttiioonn ((%%)) MMiiccrroo SSmmaallll MMeeddiiuumm LLaarrggeeAdmin 11 15 15 16Benches 61 70 59 74Management 17 10 4 5Other 11 4 22 5Data source: Virtual Metals’ analysis of detailed interviews.

A high proportion of those employed do not have a matriculation certificate. Itshould be noted that a majority are employed on the jewellery bench where theyare called apprentices by jewellery manufacturers. Goldsmithing is then learnt onthe job where specialist skills such as alloying, all the stages of casting, machiningand stamping, gem setting, polishing and finishing are gained from practicalexperience. Apprenticeship training received from a manufacturer is not formallystructured in the way a diploma course or a degree might be at a university oftechnology or university and therefore it would probably be more accurate to termthe 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 implicationsof these observations are discussed in more detail in Appendix 3, in the context ofthe universities of technology (formerly known as technikons) and their actual andperceived 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.

QQuuoottaabbllee qquuootteess::“The ability to make a good piece of jewellery is anart form – a highly skilled task which is notdetermined by a matriculation certificate orTechnikon diploma. The art is learnt on the job – atthe bench and there is no substitute for experience.”MMiiccrroo mmaannuuffaaccttuurriinngg jjeewweelllleerr

The high proportion of whites in the micromanufacturers reflects the historical structure andfamily-owned nature of these companies...



In terms of training, the jewellery manufacturers train staff in-house, on the job, inthe form of apprenticeships. Only one manufacturer interviewed expressed theopinion that training in-house was not desirable or indeed necessary. This fabricatorargued that in-house training only left the company vulnerable to having theirnewly-trained staff either poached by competitors or setting themselves up incompetition. This attitude was by far the exception and other manufacturers agreedwith the need to train the next generation of goldsmiths. Readers are referred toAppendix 3 for a more detailed analysis of training and skills development.

There was very little evidence of manufacturers approaching the MiningQualifications Authority (see Chapter 6) for financial assistance with in-housetraining 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 (asopposed to in-house training), manufacturers expressed the view that existingcourses were too theoretical and did not prepare trainees fully for life at thejewellery bench. They argued that the skill of goldsmithing is largely acquiredthrough experience, and universities of technology training programmes need togive students more practical knowledge.

Discussions with the universities of technology revealed a different perspective.They maintained that it is common for manufacturers not to recognisequalifications obtained through universities of technology because the lower thelevel of education recognised, the lower the wage to be paid by the manufacturers.

44..22..44 MMeeaannss ooff ffiinnaanncciinnggThe rate of growth of the South African gold jewellery manufacturing industry hashistorically been constrained by the absence of cost-competitive financing facilitiesof precious metals in the jewellery fabrication pipeline.

The problem is attributable largely to the proportionately high value of rawmaterial in relation to the final product. Unlike other manufacturing industries (suchas textiles for example), gold jewellery manufacturers have to deal with the veryhigh cost of working capital for their raw material, over and above the financialoutlays necessary to establish and run a business.

The high cost of gold, and the volatile nature of the gold price, renders itparticularly expensive for a manufacturer to own the metal tied up in themanufacturing process or locked up in the finished product.

The issue of funding the manufacture of gold is considered in more detail inChapter 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 metalfrom financial institutions at an internationally-related gold lease rate (see chart) plus a pre-agreed risk premium. The company is assessed oncapitalisation and turnover and, depending on the company’s financial trackrecord, guarantees (save for insurance) will be tailored appropriately. In theseinstances there is a long financial track record, management expertise andproven experience in the industry which, in the case of the small and microjewellery manufacturers in South Africa, is not the case.

• South African gold manufacturers do not have access to similar financingstructures. Currently they have to buy raw material outright through workingcapital, or they have to finance it at the local prime lending rate (plus a riskpremium which, depending on the jeweller, can be some basis points aboveprime). In addition to this, they have to provide collateral as loan security whichmay be up to 120% of the value of the loan.

Jewellery manufacturers train staff in-house, on thejob, in the form of apprenticeships...

There was very little evidence of manufacturersapproaching the Mining Qualifications Authority(see Chapter 6) for financial assistance with in-house training programmes...



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 majorconstraining factor to growth in jewellery production. This places the local industryat a competitive disadvantage internationally and has been cited as a primaryreason for business failures or discouraging new entrants to the market.

In limited instances and specific to the large manufacturers, some more favourableform of financing is in place. The details are confidential to those manufacturingjewellers but it is believed that gold can be borrowed (against a guarantee of up to120%) for between 2% and 7% with an additional 1.5-2% fee to the lendingfinancial institution to cover the guarantee provided.

Access to this sort of finance is by far the exception, applying only to the largemanufacturers and to a limited number of medium-sized manufacturers. It doesnot apply to the small and micro manufacturers.

But manufacturers are faced with another problem. Those interviewed noted thatwhile they had insurance cover for third party liability and stock in transit, thepremiums associated with insuring jewellery inventories and metal in themanufacturing pipe-line are prohibitive. The absence of insurance has implicationsfor the jewellery fabricator’s ability to participate in gold financing schemes, sincesufficient insurance coverage is a stated pre-requisite.

Chapter 6 deals in more detail with the specifics of the financing mechanisms thatare in place, including those offered by Rand Refinery and most recently by a goldadvance scheme to be underwritten by BAE Systems/Saab, AngloGold Ashanti andGold Fields.

44..22..55 FFaabbrriiccaattiioonn ccoossttssGiven the different customers and product ranges around which the South Africanjewellery manufacturers have built their business models, the cost of fabricatinggold jewellery can vary widely. The size of the business, manufactured volumes, thetype of final product and the raw materials required influence the cost structure ofthe company.

Analysis showed two distinct cost profiles, depending on the size of the operationand on the method of manufacture. Given these differences, it would beinappropriate to calculate a single weighted average for the industry and thus costprofiles are discussed separately. The average cost profiles of the micro, small andmedium fabricators are tabulated below, although these figures should beconsidered in the context of the notes that follow:

TTyyppiiccaall ccoosstt pprrooffiillee ooff mmiiccrroo,, ssmmaallll aanndd mmeeddiiuumm ggoolldd jjeewweelllleerryy mmaannuuffaaccttuurreerrss%%

Raw materials 30Financing 12R&D/training 5Labour 30Rent/overheads 20Marketing 3TToottaall 110000Data Source: Interviews.

In the high interest rate environment of South Africa,finance is most often cited as either a barrier tomarket entry or the major constraining factor togrowth in jewellery production...



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 materialsincreases by up to 50%. Conversely, where a company makes extensive use ofsilver in addition to gold, the raw materials represent less in the way of costs.

• Rentals are substantially higher for those manufacturers who also run retailoutlets, 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. Themanufacturers interviewed were covered for third party liability and accident aswell as loss of stock in transit, but not for their finished jewellery inventories orpipeline stocks.

• The majority of those interviewed considered labour as a variable cost,particularly with respect to overtime when filling Christmas orders. Thus, overthe period from July to mid-December, overtime paid to permanent staff and inmany cases the presence of part-time staff members can greatly increase theratio of labour costs to other costs.

• Financing in general represents overdraft facilities to ensure cash flow on amonthly basis and to fund the purchase of raw materials. As interest rates havedecreased 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 isreturned on a rolling two-month basis. Depending on the items beingfabricated, work in progress can be anything from two to three weeks forsimple, mass-produced items and up to six to eight weeks for more intricategoods.

In the case of very high value jewellery, with a greater design content and gemsetting, a piece can be in the production pipeline for more than eight weeks. Wheremanufacturers are supplying retail clients, the terms for payment can range from 60and 90 days and even 120 days. This term can be longer if the goods are exportedand therefore the period of exposure by the manufacturer to the gold content isextended. Very little appears to be sold on consignment.

The cost profiles of the large category manufacturers are different. Because they areprimarily mechanised, the labour component of total costs is lower. Furthermore,because of their size and turnover, they tend to have access to more cost-effectivefinancing which reduces this item of expense compared with the other threecategories of manufacturers. Their higher rate of production turnover also meansthat their raw material costs are a much larger percentage of total costs and theprofile is estimated as follows:

CCoosstt pprrooffiillee ooff tthhee llaarrggee ggoolldd jjeewweelllleerryy mmaannuuffaaccttuurreerrss%%

Raw materials 85Financing 2R&D/training 2Labour 5Rent/overheads 2Marketing 1Other 3TToottaall 110000Data source: Interviews.

44..22..66 PPrriiccee mmaarrkk--uuppssGiven the diversity of business practices, client bases and product lines, themanufacturing sector includes a spectrum of mark-ups and measures ofprofitability.

In the case of very high value jewellery, with agreater design content and gem setting, a piece canbe in the production pipeline for more than eightweeks...

The cost profiles of the large categorymanufacturers are different from those of micro,small and medium manufacturers...



All mark-ups cited in this sector are in addition to those achieved by the refiners orsuppliers of metal to the jewellery manufacturers. In other words, the mark-ups arecompounded – they are added to the price at which the manufacturer buys his finegold 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 thevolume of gold used), the mark-up for cast jewellery most frequently cited wasbetween 15% and 20%. This mark-up range applies to 9 carat gold only.

In comparison, discussions with European manufacturers noted that basic non-chain, 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 Europeanindustry deals with larger orders than the South African industry and uses a highercaratage of gold. Both economies of scale and jewellery alloy would affect theachieved mark-ups.

For items of a higher caratage, hand-made items or gem-set items, higher mark-upscan be applied and up to 40% can be achieved. In the case of individuallycommissioned items of jewellery, designed to a client’s exact requirements, evenhigher mark-ups can be levied. In these instances, where a piece of jewelleryrequires a good deal of design time and craftsmanship, mark-ups of 100% werecited. Since these items are commissioned by individual clients and are destined forthose clients, the associated mark-ups should actually be compared with the mark-ups achieved by retailers and not with the mark-ups of manufacturers who arefilling mass orders.

In terms of the volume of fine gold usage, the mark-up profile is very different andranges of 5% to 10% were cited as the norm for the majority of 9 carat, gold-onlyitems. This applies particularly to fully mechanised manufacturers and theirmachine-made product range.

There are of course variations around this average and the following is worthnoting:• 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 discountmargins;

• manufacturers will adjust margins in favour of regular customers placingongoing orders, as opposed to a customer who might only place sporadic orders;and

• manufacturers will adjust margins in line with other terms agreed between thecustomer and fabricator. In general, the longer the time to payment, the higherthe mark-up.

These three variations are not unique to the jewellery industry and apply to themanufacture of other goods such as clothing.

Discussions with market participants in South Africa yielded the following averages:

SSuummmmaarryy ooff aavveerraaggee jjeewweelllleerryy mmaannuuffaaccttuurriinngg mmaarrkk--uuppss iinn SSoouutthh AAffrriiccaa pprroocceessss mmaarrkk--uupp %%Machine-chain 5Other mechanised 5-10Cast 15-20Hand-made 40Gem-set 40One-off custom designed Up to 100Data source: Interviews.

All mark-ups cited in this sector are in addition tothose achieved by the refiners or suppliers of metalto the jewellery manufacturers...

The most common belief among those interviewedwas that they can achieve a mark-up of between15% and 20% for cast jewellery...

For items of a higher caratage, hand-made items orgem-set items, higher mark-ups could be appliedand up to 40% can be achieved...

For machine-made chains, interviewees indicated anaverage mark-up of 5%...



For machine-made chain (the largest category of gold products), intervieweesindicated an average mark-up of 5%. This appeared to be in line with those mark-ups achieved by European jewellery fabricators, especially in Italy. The mark-upsassociated with the South African chain manufacturers remained at these levelsirrespective of whether the final product was for local consumption or for export.

44..22..77 EExxppoossuurree ttoo ffiinnaanncciiaall vvaarriiaabblleess aanndd aacccceessss ttoo ffiinnaanncciiaall pprrootteeccttiioonnThe manufacturers interviewed were unanimous in their response with respect totheir 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 inworking progress.

To the extent that there is no industry-wide access to leased metal, themanufacturers’ exposure to the international gold lease rate is not of significance.

With the exception of the large manufacturers, local jewellery fabricators have tobuy their metal outright and they calculate their margins on the basis of the pricepaid for the gold from their suppliers. Any sharp changes in international or localgold prices while the gold is in the production pipeline or in inventory do not affectthe selling price of those goods. These manufacturers either borrow to fund workingcapital or finance the purchase of their gold out of working capital.

Manufacturers could buy forward cover for currency from local banks and protectthemselves from adverse movements in the currency but, in practice, they do notmake use of the local currency forward market. During interviews, some said thecost of forward cover was too expensive, while others maintained that their pipelinetimes do not justify buying currency protection. Others indicated that theirbusinesses were simply not sophisticated enough to warrant the use of financialmechanisms.

With respect to the gold price, there is currently no local futures contract to protectthem from price movements. There is, however, a local contract based on theKrugerrand (see Chapter 5).

When asked if they would consider making use of a dollar-denominated exchangefutures contract if it were offered locally, many noted that the amount of gold theyused on a daily basis was too small to warrant this form of hedging. Only the largemanufacturers indicated that they might investigate the possibility of using thishedging mechanism, but the cost of such cover would be a critical factor.

44..22..88 DDeessiiggnn ccoonnssiiddeerraattiioonnss aanndd pprroodduucctt rraannggeessDesign is a function of the type of jewellery being produced and the market sectorinto 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 aseason’s or year’s product line are an interactive process between the manufacturerand the retailer customer.

Financial parameters affecting gold manufacturersare the Dollar spot price of gold, the value of theRand relative to the Dollar and local interest rates...

Design is a function of the type of jewellery beingproduced and the market sector into which thejewellery is to be sold...

Manufacturers could buy forward cover for currencyfrom local banks and protect themselves fromadverse movements in the currency but, in practice,they do not make use of the local currency forwardmarket...



Jewellery manufacturers attend major international jewellery fairs as well as thelocal Jewellex Jewellery Fair, or access international trade magazines for the latestdesigns and ideas.

The manufacturers compile a range of product designs and their retailer clients thenselect the range that they believe is most likely to appeal to the market niche thatthey serve. Large retailers also travel to jewellery fairs with their mainmanufacturing suppliers to identify product ranges.

It is common for South African consumers to buy locally fabricated jewellery that isindistinguishable (in design) from product sold in Western markets elsewhere. Inboth design and caratage, the South African mass market is similar to that of theUnited Kingdom. This is particularly true of mass-produced chain, bangles, braceletsand earrings.

In other instances however, distinctly South African preferences are apparent.Examples of this exist in the product category of zirconia combined with semi-precious stone dress rings set in 9 carat yellow gold, which are popular throughoutthe country. Although they do not have a particularly ethnic design to them, theyare distinctive enough to be recognisable as typically bought and preferred bySouth Africans.

According to our categories of manufacturers, the breakdown by type of productsold is shown in the following table.

PPrroodduucctt lliinneess ((%%)) MMiiccrroo SSmmaallll MMeeddiiuumm LLaarrggeeRings 46 40 33 3Solid bangles 20 22 20 14Chain (neck and bracelets) 8 6 14 74Other, including earrings and pendants 26 32 34 9Data 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 non-chain bangles. These product ranges contain very little chain and any linkednecklaces and bracelets are hand made.

The medium-sized manufacturers interviewed noted that rings dominated theirproduct line (33%) with other non-chain items (earrings, pendants and bangles)representing another 54%. Again, linked chain represents a relatively smallproportion of their product line and is hand-made.

On a weighted average basis by mass, mechanised chain manufacture represents74% of the output of the three large companies.

On a weighted average basis for the entire industry, the predominance of chain bymass falls to 56% as shown in the chart overleaf.

The manufacturers compile a range of productdesigns and their retailer clients then select therange that they believe is most likely to appeal tothe market niche that they serve...

On a weighted average basis by mass, mechanisedchain manufacture represents 74% of the output ofthe three large companies...



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 ahigh 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 lesslikely to be influenced by international product ranges. In these instances, thedesign is geared more to the preferences of the client. Thus the retailer, or theultimate customer, is likely to have considerable input especially where a productrange, or more particularly an individual item, is commissioned.

For jewellery destined for export, design falls into two categories, either jewelleryfor direct export or jewellery destined for indirect export via the tourist. The exportmarket is dominated by mass-produced, lighter ranges of jewellery where price isthe decisive factor for the retailer. The output is very similar, if not identical, tothose ranges produced by competing international fabricators. In these instances,international jewellery trends dictate design. In this category, the research did notreveal 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 materialsassociated with Africa such as local stones, beads, bone or elephant hair.The ‘big five’ and the outline of the African continent are examples of motifsthat often feature in this product range.

44..22..99 TTrraaddee bbooddiieess,, iinniittiiaattiivveess aanndd ppuubblliiccaattiioonnssTThhee DDiiaammoonndd aanndd JJeewweelllleerryy FFeeddeerraattiioonn The Jewellery Council of South Africa (JCSA) has recently been restructured andincorporated under a new umbrella organisation, the Diamond and JewelleryFederation.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) wasrecently 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 forany other store they wish to link to the membership (R1,490 per annum formain 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. Jewellerymanufacturers with between five and nine employees pay R900 membershipper 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 DealersAssociation (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.

For hand-made items, and items with a high stonecontent, manufacturers are less likely to beinfluenced by international product ranges...

Where product is geared to the tourist, two distinctproduct ranges were detected...



The JCSA currently has 170 direct members, representing companies that are notmembers 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 JewelleryManufacturers Association has 25 members. The Jewellery Association of SouthAfrica, which represents the retailers, has 245 members including the head officesof the major chain stores and 618 individual branches of the large retail stores.When compared with the number of valid jewellery permits held by manufacturersin 2004, only 3.5% of jewellery fabricators are members of the JCSA and itsaffiliates. However, in terms of the volume of gold usage, the JCSA is wellrepresented by the large and medium-sized manufacturers. Of the 18manufacturers interviewed, 17 were either direct members of the JCSA or membersof the Council’s affiliates.

In addition to representatives from the various constituent bodies, six major entitiesserve on the Council executive. These are AngloGold Ashanti, Anglo Platinum, theChamber 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 Confederationof Jewellery, Silverware, Diamonds, Pearls and Stones (CIBJO) which automaticallyallows members to participate in the promotional activities of associatedinternational organisations presented by 35 countries.

Interviews with JCSA office bearers indicated that the secretarial and administrativefunctions needed to meet the Council’s primary objectives, and undertakingprogrammed objectives, took up at least 80% of the staff’s time. Membership issuesand marketing together account for 10-20% of the JCSA’s time.

Arbitration, while an important service offered by the JCSA, does not consumemuch of the office bearers’ time. On average they are called on to mediate aboutfive to six times annually, with cases dealing with issues of payment being morecommon than those related to quality concerns. The arbitration rate is low as theJCSA will only moderate in cases where members are involved. Where cases ariseinvolving members of the public against non-JCSA members, the JCSA will notarbitrate.

Jewellex, the annual local trade fair, dominates the JCSA’s annual promotionalefforts. Held in July each year, usually at the Sandton Convention Centre, the fair isopen to jewellery manufacturers as well as to watch and clock makers, andwholesalers of jewellery equipment and accessories. Although open to internationaltrade, Jewellex exhibitors are mainly from South Africa and other SADC countries.

Membership subscriptions cover the costs of running the JCSA. Any profit derivedfrom other areas of business, such as the Jewellex trade fair or the diamondlaboratories, is applied to marketing drives and other activities designed to meetthe organisation’s objectives.



In response to recommendations made by the consultancy group Kaiser Associates,in their report to the Jewellery Sector Counterpart Group dated 26 June 200112 theJCSA initiated the Support Services Group (SSG). It was launched in September2002 after the JCSA secured special funding from the Fund for Research intoIndustrial Development Growth and Equity.13

The SSG initially considered the Kaiser Associates recommendation which includedthe provision of a centralised service to the jewellery industry, addressing, amongother issues, materials financing, VAT and dollar-denominated accounts, smallbusiness support, branding and training. After two years in operation, the SSG wasrenamed the Jewellery Development Group, concentrating on facilitating SouthAfrican jewellery exports and on securing and expanding export markets for localjewellery product. At the time of writing, it had been merged into the JewelleryManufacturing Association, which is continuing with these activities.

There were divergent views with respect to the effectiveness of the JCSA. Somemanufacturers claim that it has failed to deliver results that are meaningful,particularly to their sector. Others maintain that it is doing the best job possiblewithin the constraints of its budget. There was also the concern that the majority ofthe manufacturing sector, through non-membership, was failing to support the JCSAand were criticising it in the absence of participation and constructiverecommendations or proactive suggestions. Office bearers and several activemembers noted that there is a core of jewellery manufacturers and retailers whoare actively involved in the JCSA and its activities, and that industry support for atrade body of this nature was always left to a willing few who then came in forcriticism from those unwilling to make the effort to participate.

TThhee GGoolldd ZZoonneeThe Gold Zone is an initiative aimed at encouraging gold beneficiation in SouthAfrica through a secure and appropriately serviced site for modern industrialisedjewellery manufacturing. Rand Refinery and a property developer appointed byRand Refinery, Keenland Properties 125 (Pty) Ltd, established the Gold Zone.

Rand Refinery donated land (3.3 hectares) adjacent to its premises for thedevelopment of the Gold Zone, which was officially opened on 6 October 2000 bythe 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 basisfor export;

• provide skills development and training in manufacturing and design, and toprovide a direct interface with the jewellery manufacturers based at the GoldZone;

• establish the Gold Zone as a recognised entity through which internationalmarketing campaigns can be implemented; and

• facilitate the direct marketing of locally manufactured gold jewellery by creatinga 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 directaccess to export facilities associated with Johannesburg International Airport.Located in Germiston, it is 15km from the Johannesburg central business districtand 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.

There were divergent views with respect to theeffectiveness of the JCSA...

The Gold Zone is an initiative aimed at encouraginggold beneficiation in South Africa through a secureand appropriately serviced site for modernindustrialised jewellery manufacturing...

The Gold Zone is situated immediately adjacent tothe Rand Refinery with direct access to exportfacilities associated with Johannesburg InternationalAirport...



Tenants of the Gold Zone are offered the benefits of Rand Refinery’s secureindustrial and transport infrastructure in Germiston and the Refinery’s high-securityvaults at Johannesburg International Airport. Tenants’ export products can betransported to the vault facility on the ‘airside’ at the airport and this enables theSouth African Revenue Services to keep track of the value and volumes of exportproducts.

Manufacturing on site began in February 2002 but to date has attracted only onetenant (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 GoldZone is geographically isolated from other tourist destinations. Furthermore,manufacturers were concerned that relocating to the Gold Zone in Germistonwould remove them geographically from their local client base.

Manufacturers also expressed concern that being located in the Gold Zone wouldlimit their ability to source their gold from suppliers other than Rand Refinery.

IInndduussttrryy ppuubblliiccaattiioonnss

SSAA JJeewweelllleerryy NNeewwssSA Jewellery News is the official mouthpiece of the JCSA. It has been publishedmonthly for the last 70 years and belongs to the Jewellery Trade MagazinesNetwork. The circulation is 10,000 copies monthly to the trade and subscriptionscost R144 per annum.

Distribution is by mass mail-out to subscribers monthly by Isikhova Publishers andthe publication is fully funded by the JCSA.

JJeewweelllleerrss NNeettwwoorrkkJewellers Network is a jewellery trade publication directed at the manufacturingsector. Published independently, it comprises an annual directory and monthlymagazine. These publications are funded by advertising and cover fees.

In preparing the directory, the company maintains a database covering in excess of3,000 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 atthe end of January. Those companies appearing in the directory are not charged foreither their directory listing or for copies of the annual publication. For thosereaders not appearing in the directory, a charge of R144 per copy is charged.

Jeweller’s Network also publishes a monthly magazine, JewelTrader, which isdistributed free of charge to those in the trade who are listed in the annualdirectory. The content focuses on the trade and the buying and selling of jewelleryservices in the local industry. The company also offers a direct mail service throughwhich clients can mail their own promotional materials using the Jewellers Networkdatabase 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.

44..33 JJEEWWEELLLLEERRYY RREETTAAIILLIINNGG

44..33..11 SSiizzee,, ssttrruuccttuurree,, oowwnneerrsshhiipp aanndd vveerrttiiccaall iinntteeggrraattiioonnAccording to the Department of Trade and Industry (DTI), local retail sales ofjewellery during 2003 totalled R2.4 billion14, 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.

QQuuoottaabbllee qquuootteess::“My local clients are my bread and butter and arebased in the northern suburbs of Johannesburg. My tourist sales are seasonal and highly variable asthey are dependent on the currency. If I move tothe Zone, I fear that I will lose my local clients.”MMaannuuffaaccttuurriinngg jjeewweelllleerr

Manufacturers expressed concern that if they werelocated in the Gold Zone, it would limit their abilityto source their gold from suppliers other than RandRefinery...



TTaarriiffff ccooddee 22000033 SShhaarreeRRaanndd ((000000)) ((%%))

Perishable/ processed food 7,285 31.0Inedible groceries 14,462 6.2Alcoholic and non-alcoholic beverages 10,785 4.6Footwear 9,250 3.9Men's and boys’ clothing and accessories 13,547 5.8Ladies', girls' and infants’ clothing and accessories 22,784 9.7Textiles 4,884 2.1Household furniture 12,646 5.4Domestic appliances 6,306 2.7Audio appliances 2,444 1.0TV sets, videos etc 2,568 1.1Other domestic furnishings 2,830 1.1Glass, crockery, cutlery, kitchenware 6,244 2.7Pharmaceuticals, medicines,cosmetics and toiletries 19,612 8.3Books, magazines and newspapers 4,486 1.9Sport and recreation requisites 7,502 3.2Jewellery, silverware, watches and precious stones 2,394 1.0Hardware 9,351 4.0All other merchandise 9,979 4.2TToottaall 223344,,992233 110000..00Data source: STATS SA, 2003.

According to STATS SA there are two sets of statistics, sales by type of business andsales category by type of merchandise. The category 'Jewellers' in the first setcovers only specific jewellery retailers and totalled R1.625bn in 2003. This excludesjewellery counters sited within larger retail stores selling a range of other consumerproducts. The second category, 'Jewellery, silverware, watches and precious stones'covers all jewellery sales and thus includes the discount stores and generaldepartment stores that sell jewellery as well as those retailers that sell jewelleryexclusively15.

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 forthe distinction between pure gold jewellery plus predominantly gold jewellery(with set stones) as distinct from the other categories of non-gold jewellery orwatches; and

• second, STATS SA has recognised weaknesses in the data to the extent that itno longer collates or publishes these statistics, and 2003 is the last year forwhich 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 percentageeach year which raised doubts as to their accuracy;

• the accuracy of small and medium enterprise data as the sample coverage waslow; and

• the response rate to surveys. STATS SA reported that, by including largequestionnaires with such frequency (monthly), their response rate fell to levelsof 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.

According to the Department of Trade and Industry(DTI), local retail sales of jewellery during 2003totalled R2.4 billion, equivalent to 1% of total retailsales...



After taking advice from consultants, STATS SA elected to cease collating this dataand no alternative is being considered.

While recognising STATS SA’s concern about the data, it has been used in thisreview since no other source of national sales figures for jewellery exists.Furthermore, to incorporate as much of the sales as possible, the second categoryof data which includes non-gold jewellery such as watches, pearls, silver, platinumand stones was used. We were then left with the task of determining whatproportion of total sales represented gold-only jewellery.

On the basis of gold jewellery fabrication, the import figures used in this review andfindings with respect to mark-ups along the jewellery manufacturing chain, it isestimated that 58% of total jewellery retail sales in 2003 applied to gold-onlyproduct.

In both value and volume terms, the local jewellery sector is characterised by a highlevel of consolidation with 13 large retail chains owned by nine companies16

dominating sales and accounting for 77% of the total value of jewellery sales overthe last three years (2002-2004 inclusive).17

An analysis of ultimate ownership of these retail names shows that the jewelleryretail 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 countryoriginate from stores that belong to six retail groups.

Of the list of large retail stores, one is conspicuous by its absence. Woolworths doesnot offer jewellery of any description (fine gold, silver or stones), having recentlyeliminated the range from its product line. Discussions with the company indicatedthat it is store policy that all merchandise must be available for purchase off-the-peg (that is customers are self-serving up until the cash point stage). The onlyexception the company has made with respect to this policy is the dedicated andserviced counter selling mobile telephones.

44..33..22 DDiissttrriibbuuttiioonn nneettwwoorrkkssAn analysis of the collective extent of the distribution network of the 13 main retailchains offering fine gold jewellery revealed 951 shops and branches across SouthAfrica selling gold jewellery. Only stores that offer gold jewellery were included inthis figure. Stock held and sold by retailers differed regionally, and there are anumber of branches of these retail chains that do not offer gold jewellery.

The results of this analysis by company are presented in the table that follows. TheFoschini group (including American Swiss and Sterns) dominates, accounting for40% of the retail stores offering jewellery around the country. Truworths accountsfor almost 23%. The two corporate groups between them accordingly account foralmost 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

QQuuoottaabbllee qquuootteess::“South Africans really like their yellow gold – whitemetals just do not seem to feature locally aspredominantly as elsewhere in the world. Platinumhas a following among the super-rich and, morerecently, has captured some of thewedding/engagement ring sector. Silver is flea marketstuff - dispensable. Gold falls between the two.”BBuuyyeerr ffoorr aa mmaajjoorr rreettaaiill ssttoorree

In both value and volume terms, the local jewelleryretail sector is characterised by a high level ofconsolidation with 13 large retail companiesdominating sales and accounting for 77% of thetotal value of jewellery sales over the last threeyears...

An analysis of the collective extent of thedistribution network of the 13 main retail chainsoffering fine gold jewellery revealed 951 shops andbranches across South Africa selling gold jewellery...



NNuummbbeerr ooff jjeewweelllleerryy rreettaaiill ssttoorreess bbyy ccoommppaannyyRReettaaiilleerr SSttoorreess %%Truworths 214 22.5American Swiss 169 17.8Edgars 109 11.5Sterns 109 11.5Foschini 103 10.8Galaxy 90 9.5Game/Dions 61 6.4NWJ 44 4.6Arthur Kaplan 18 1.9Makro 13 1.4Browns 12 1.3Tourvest Grp 9 0.9TToottaall 995511 110000Data Source: Virtual Metals.

On a regional basis the distribution of these retail stores is as follows:

RReeggiioonnaall ddiissttrriibbuuttiioonn ooff mmaajjoorr jjeewweelllleerryy rreettaaiilleerrssNNuummbbeerr %%

Gauteng 292 30.7Western Cape 227 23.9KwaZulu-Natal 130 13.7North West 86 9.0Eastern Cape 62 6.5Free State 57 6.0Mpumalanga 48 5.0Northern Cape 34 3.6Limpopo 15 1.6TToottaall 995511 110000..00Data source: Virtual Metals.

Research among the jewellery manufacturers shows that the jewellery retailersdiverged 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 ofconsumer goods at highly competitive prices. Within these stores, the companieshave jewellery counters selling lightweight and mass-produced gold jewellery atprices that discount other retailers. The value of their gold jewellery sales is asmall percentage of total store turnover (just less than 5%)19. They stock coreproduct lines which they know sell well and their jewellery stock turnover rate ishigher than that of traditional jewellery retailers. Price is the most importantfactor in the minds of their customers and the companies are considered the firstpoint of entry for jewellery buyers. Throughout the discussion and comparisonsthat follow, they are referred to as ‘ddiissccoouunntt ssttoorreess’.

• Truworths, Foschini and Edgars offer jewellery counters in stores that sell arange of clothing, cosmetics, fashion accessories and soft furnishing. Prices aregeared to a more upmarket client base than the discount stores and thejewellery range and the prices reflect the different client base. The jewellerysales still account for only a fraction20 of turnover and the jewellery is notconsidered core to the companies’ businesses. These stores are referred to as‘rreettaaiill cchhaaiinnss’’.

19 White goods such as fridges, washing machines and cookers and electronic equipment such as TVs, videos and DVDs topthe list of sales.

20 It was not possible to confirm the exact figure but interviewees indicated that this was substantially less than 10%.

Research among the jewellery manufacturers showsthat the jewellery retailers diverged in their businessmodels. This is reflected in different product ranges,suppliers, customer bases, inventory managementand mark-ups...



• Sterns, American Swiss, Arthur Kaplan and Browns are categorised as ‘ddeeddiiccaatteeddllooccaall jjeewweelllleerryy rreettaaiilleerrss’. Their product ranges are exclusively jewellery andwatches and their customer base is predominantly local (at least 80%) with thebalance being tourists. Their target markets are the middle to higher end of therange and their pricing is structured accordingly.

• Galaxy and NWJ are also ‘ddeeddiiccaatteedd llooccaall jjeewweelllleerryy rreettaaiilleerrss’ but both alsoexhibit 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 awholesaler to the local jewellery industry of final product. Galaxy therefore isthe largest most vertically integrated jeweller in the country.

– NWJ is also a medium-sized manufacturer. The unique feature of thiscompany is that it has franchised its retail outlets throughout the country. Thefranchises run independently but provide a guaranteed destination for NWJ’smanufactured output. Thus NWJ also shows high levels of vertical integration.

• Tourvest which operates the retailers Forma Viva, Pinns, Murdock, Tanur andDiamond Works is designated as a ‘ddeeddiiccaatteedd ttoouurriisstt rreettaaiilleerr’’. Only 20% of theirsales are to local customers and their product line is geared specifically totourists in South Africa.

• Finally, this section must make reference to ‘ssiinnggllee--oouuttlleett rreettaaiilleerrss’ that run theirindependent businesses usually in the main shopping malls21. (South Africanretail shopping is characterised by centralised shopping malls rather than mainstreet or high street shopping.) These jewellers also invariably call themselvesmanufacturers although they are more involved with jewellery repairs ratherthan jewellery manufacturing. Thus, their shops double as a retail store andbasic repair workshop. To avoid double counting., they are included in thediscussion on manufacturing. Calculations, however, suggest that they accountfor 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 theanalysis.

The cumulative market share of the independent single outlet retailers was inferredfrom the estimated market share of the 13 large retailer chains. This involveddetailed discussions with office bearers representing 10 of the major retail storesand an analysis of these companies’ financial results. The results for 2004 aretabulated as follows:

EEssttiimmaatteedd rreettaaiill mmaarrkkeett sshhaarreess bbyy ccaatteeggoorryy iinn 22000044%%

Dedicated local jewellery retailers 42.9Single outlet retailers 27.1Discount stores 15.6Dedicated tourist retailers 10.0Retail chains 4.4TToottaall 110000..00Data Source: Virtual Metals.

Data collation, analysis and comparisons of the local jewellery retailing sectorproved more difficult than was the case in respect of jewellery manufacturing. Therewere a number of reasons for this.

• Firstly, the sector is intensely competitive with respect to market shares andmarket niches. As a result, the sector was less forthcoming in providing thestatistical basis needed for a full sectoral comparison. The degree ofconsolidation 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 havetwo or more shops. They tend however to be few and far between relative to the one-shop retailer.



• Secondly, where a retail jewellery company was part of a larger commercialentity, the pertinent jewellery sales data was very often collated by thecompany for the larger entity and the statistics specific to the jewellerycomponent of the overall business were not always available. As an example,the discount stores could confirm how many staff were involved with jewellerybuying and the counter sales of jewellery in their stores. However, they couldnot confirm the number of staff involved with jewellery inventory management,security, accounting, marketing or advertising since these people fulfilledfunctions at a corporate level for a wide range of products and not justspecifically for jewellery. The costs of these services, therefore, were accountedfor at head office level.

44..33..33 EEmmppllooyymmeenntt pprrooffiilleess,, eedduuccaattiioonn aanndd sskkiillllssOn a weighted average basis by sales of the major retail stores, an analysis ofemployment profiles and the level of education and skills in the sector showed thefollowing.

On a gender basis, the weighted average suggests a ratio of employment thatstrongly favours women in the retail sector at 88:12. This reflects the dominance ofwomen in the sales teams in individual shops. Men act more as administrators andserve in accounting, and as buyers for these companies.

Unlike the manufacturing sector, the age profile of the retail workforce did notrepresent a normal distribution but favoured the 18-25 age group. Again this reflects asales 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 onthe left.

Turning to education and skills levels within the jewellery retail sector, the researchshowed that in excess of 86% of the staff employed by the large jewellery retailstores have either a matric or some form of tertiary education. This profile wassimilar across the various retail categories as defined in this review.

An analysis of job descriptions in this sector shows that, on a weighted averagebasis, sales teams comprise almost half (49%) of the jobs in the retail sector, withmanagement and administration making up 47%. The technical (eg IT) componentof the staff profile only accounts for 4% as the chart on the next page shows.

44..33..44 JJeewweelllleerryy rreettaaiill bbuussiinneessss pprrooffiilleess aanndd rreettaaiill ssttrraatteeggiieess ((iinncclluuddiinngg mmaarrkkeettiinngg))

SSeeaassoonnaalliittyy aanndd mmaarrkkeettiinnggThree events dominate the retail calendar. In order of importance, they areChristmas (December), St Valentine’s Day (February) and Mothers’ Day (May).However, retailers do proactively organise other sales-generating events during thecourse of a year,.

The busiest times for all the retailers are the last two to four shopping days prior toChristmas Day when stores will record sales in excess of monthly averages for theremainder of the year.

Customers over the Christmas period, St Valentine’s Day and Mothers’ Day aremostly men buying for their wives and partners. At other times of the year, buyingis more frequently a joint decision, with couples coming into the shops togetherand the intended recipient of the gift having a substantial say regarding what is tobe purchased. This is particularly the case when higher priced jewellery is beingbought. Women also buy jewellery for themselves, but usually less expensive items.In addition to the traditional calendar events, retailers hold sales, commonly twiceyearly, aimed at moving stock by discounting prices. Sterns and American Swiss

QQuuoottaabbllee qquuootteess::“Two days before Christmas we have fraughtlooking men coming into our branches, pointing atsomething on display and saying “How much isthat, just wrap it please.”BBuuyyeerr ffoorr aa mmaajjoorr rreettaaiill ssttoorree



hold an annual winter diamond jewellery sale between June and July and theircompetitors often pre-empt this event with promotional campaigns of their own inMay. Irrespective of the competition, dedicated local retailers all reported increasedsales over this period.

The only exceptions to these seasonal patterns are those companies, defined asdedicated tourist retailers, whose customer base is 80% reliant on tourism. Theirsales are seasonal, in that northern hemisphere visitors tend to visit South Africaduring their winter. The tourist season peaks in November/December, but there isalso an influx of tourists during the late South African summer months, mainlybetween January and April.

PPrroommoottiioonnaall aaccttiivviittyyAn analysis of the advertising undertaken by retailers highlighted differences in thequality and quantity of gold jewellery advertising, and in the amount spentannually on marketing.

The retail chains spend on average between 3.5% and 5.5% of annual turnover onmarketing. Those interviewed unanimously agreed that this amount ought to behigher, closer to 6-8% of annual turnover.

With respect to the mass discount stores, it was not possible to isolate themarketing spend specific to jewellery. These companies advertise in daily andweekend newspapers (usually in colour and usually in the form of inserts). Theirjewellery is not advertised independently of the store’s other range of products andgold jewellery might share a page with white goods and electronic goods forexample. The advertising emphasis is on price discounting.

The retail chain stores also advertise in newspapers. Although the advertisementsare in leaflet/brochure format, they are of a substantially higher quality than thoseof the discount stores with good photographic reproductions on glossy paper and inA5 format. The advertising emphasis is less on price discounts, and more on valuefor money. Again, gold jewellery shares advertising space with cosmetics and make-up, perfumes and soft household furnishings.

Dedicated local jewellery retail stores differentiate their advertising from that of theretail chain stores with full-colour inserts appearing not only in newspapers, butalso in fashion magazines. These inserts tend to be more substantial in volume,advertising a wider range of products and photographed in close-up detail. Themarketing emphasis is value for money and luxury spending.

The dedicated tourist retailers and the upmarket single outlet retailer target atotally different market. Their advertising focuses on single pages in full colourfashion and women’s magazines. They also concentrate marketing spend on touristmagazines destined for hotel rooms and on local and international airline in-flightmagazines. The retailers that make most use of this promotional route are thosedominant in more expensive diamond- and tanzanite-set jewellery. Less up-market,single outlet retailers do not appear to do any active marketing, save for brochureswhich they distribute via their shops.

Retailers who have attempted to sell their product via the internet reported thatthis approach had been particularly unsuccessful.

CCuussttoommeerr pprrooffiilleess aanndd pprroodduucctt lliinneessThe various categories of retailers address different customer bases and differentbuying preferences. The following tables collate average retail prices for a very basicrange of core product and give an indication of the varying customer basesassociated with each category of retailer. Given that jewellery retailers stockthousands of different items, direct comparisons are not easy. Nevertheless,comparisons have been made as directly as possible by identifying the average total

The retail chains spend on average between 3.5%and 5.5% of annual turnover on marketing...

Dedicated local jewellery retail stores differentiatetheir advertising from that of the retail chain storeswith full-colour inserts appearing not only innewspapers, but also in fashion magazines...



weight of the basic products. For the dedicated local jewellery retailer, the sectorhas 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:

PPrriiccee ooff DDeeddiiccaatteedd DDiissccoouunntt RReettaaiill AAvveerraaggeesseelleecctteedd iitteemmss -- ttoouurriisstt ssttoorreess cchhaaiinnss wweeiigghhtt RRaanndd iinncc VVAATT rreettaaiilleerrss iinn ggrraammssSleeper earrings Not on offer R29.99-R34 R30-R50 0.2 eachFine chain R2,000- R199- Up to Up to 5

R5,000 R2,000 R2,000Other neck chains R10,000 to R700- R2,000- 10 upwards

R25,000 R1,600 R5,000Bangles R5,000 R199 for R1,200- 5 upwards

upwards 4mm R2,500R1,399

for 15mmRings 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 upwardsto R65,000 offer offer including

stones Data Source: Virtual Metals.

DDeeddiiccaatteedd llooccaall jjeewweelllleerryy rreettaaiilleerrssPPrriiccee ooff sseelleecctteedd MMiidd--rraannggee LLooww--eenndd HHiigghh--eenndd AAvveerraaggee iitteemmss -- wweeiigghhttRRaanndd iinncc VVAATT iinn ggrraammssSleeper earrings R49 R89- R250 0.2 each

upwards R199 and overFine chain R399 R349- R1,000 Up to 5

upwards R999 and overOther neck chains R800 R2,000 R5,000 10 upwards

upwards upwards upwards upwardsBangles R499- R349- R2,000 5 upwards

R999 R1,200Rings 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 upwardsR10,000 R10,000 R120,000 including

stonesData Source: Virtual Metals.Notes:Fine chain refers to the light chain used to hang pendants. Other neck chains refer to heavier chain withlarger 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 andquality of the stones. In the case of the Discount Stores and the low end of the market Dedicated LocalRetailers ‘diamonds’ refer to cubic zirconia or diamond chips.

Discount stores cater for the first-time buyer and the lower end of the retailmarket. Within this customer profile, components of the product range are preferredby different customers. Chain necklaces with matching bracelets are favoured byboth black men and women. Bangles (non-link) are favoured by white women. Ringswith zirconia find favour with Indian women. Earrings, especially sleepers andCreole, are favoured by black customers. The entire product range is 9 carat andalmost exclusively yellow gold.

Looking at dedicated local jewellery retailers, there is a close overlap in thegeographical positioning of Sterns and American Swiss retail outlets, largely forhistoric reasons. These retailers used to be competitors, until the Foschini Groupbought Sterns in 1993. Since then, Foschini has differentiated between the two inproduct lines. American Swiss is geared towards younger, more self-assured buyers

QQuuoottaabbllee qquuootteess::“We sell 25,000 pairs of Creole earrings a year atR29.99 per pair.”BBuuyyeerr ffoorr aa mmaajjoorr ddiissccoouunntt ssttoorree



while Sterns targets a more conservative buyer who welcomes advice andreassurance from sales staff. Thus, the American Swiss jewellery range is moreinfluenced by latest fashion trends whereas Sterns’ is more traditional.

Dedicated local jewellery retailers stock a full range of products. As the price tablesshowed, there are tiers of dedicated local jewellery retailers each serving a differentprofile of customer. Nevertheless, each has a core range of firm favourites thatremain 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 thesehave included items such as Russian wedding rings, linked bangles22 and friendshiprings. New items are added to the stock regularly, usually every three months andthese additions represent an estimated 10% of the core range.

Dedicated tourist retailers target a different market. Located mainly in Cape Townand Johannesburg, these stores are reliant on visitors to the country. With respectto this market segment, the strength of the rand influences the level of jewellerypurchases.

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 visitorswill have available to spend on jewellery and keepsakes after they have paid fortheir holiday expenses such as hotel accommodation, meals and car hire. Thestronger the Rand, the less will be spent on jewellery.

Discussions with retailers indicated that tourists regularly anticipate buying a pieceof 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 havethe time to shop around and be selective.

‘Tourist retailers’ reported that their jewellery range is not 9 carat but 70% 18carat, and associated with good quality and sizeable diamonds and tanzanite, andto a lesser extent other stones. The remaining 30% is 14 carat. These retailers notedthat even visitors from the United Kingdom, who are accustomed to 9 carat goldjewellery, will opt for 14 carat when on holiday in South Africa. They also reportedthat diamond engagement rings feature high in their range.

Retailers in this sector have attempted to brand their companies rather than theirproduct. They acknowledged that their products lack an obvious and easilyidentified brand, and they attempt to ‘brand’ themselves by offering a superiorservice, including:

• 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.

IInnvveennttoorryy mmaannaaggeemmeenntt aanndd sseeccuurriittyyInventory management forms an important part of the retailer’s business as largevolumes of unsold stock represent a financial cost. Since the contents of shopwindows are financed, the unsold stock represents unrealised profits and locked-upcapital. 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.

QQuuoottaabbllee qquuootteess::“We don’t buy 6,000 pieces of the same item andshift them over six months. We buy a few items ofa wider range, viewing them more as a fashion thatwill move every two to three months.”BBuuyyeerr ffoorr aa ddeeddiiccaatteedd llooccaall rreettaaiilleerr

QQuuoottaabbllee qquuootteess::“The tourists visiting our shops don’t necessarilywant something with a strong African design – theycome more for the stones. They want a nice pieceof jewellery, a reminder of their trip that they willbe able to wear back home in the years to come.We cannot understand the preoccupation with theAfrican look among promoters and designers.”BBuuyyeerr ffoorr aa rreettaaiilleerr ssppeecciiaalliissiinngg iinn tthhee ttoouurriisstt ttrraaddee

Dedicated tourist retailers target a different market

Retailers in this sector have attempted to brandtheir companies rather than their product...



Our interviews revealed varying policies with respect to inventory management.Two of the dedicated local jewellery retailers prefer not to return stock to eitherrefiners 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 12months of the piece appearing in the show cases.

Dedicated tourist retailers will buy a collection and display it for three months intheir stores. If unsold within that period, the retailers will return the items to themanufacturer through resale.

Sending material for remelting is the least attractive alternative since they receiveback only the gold content, less the recycling fee, resulting in a financial loss to theretailer of the original manufacturers’ mark-up, the cost of holding the stock andthe recycling fees.

Whatever the policy towards inventory management among these retailers, theyattach no sentimental value to their stock. This differentiates them from the single-outlet independent retailer. A jeweller who is both manufacturer and retailer and, asa small business, carries a limited number of pieces, is more likely to hold unsoldstock for a period longer than is financially prudent. Having made it themselves,these retailers seem reluctant to acknowledge that a piece might not be thatpopular and appear reluctant to take the decision to cut their losses and send theitem back for recycling of the gold content.

In terms of stock loss, retailers reported that loss as a result of internal theft (theftby staff as well as shoplifting by customers) was minimal and estimated this atabout 1% of the value of the stock. This is because security is in place. Externaltheft in the form of armed robbery is more of a threat.

FFiinnaanncciiaall iissssuueessGiven that 64%23 of total retail jewellery sales in South Africa are generated bycompanies that belong to larger corporate groups offering a wide range ofconsumer durables, the majority of jewellery retail outlets do not suffer the samefinancial and cash flow constraints identified with jewellery manufacturing.Nevertheless, in the single-outlet, independent retailer, where typically the jewellerruns a small workshop on the same premises as the retail store, financial constraintssimilar to those suffered by the manufacturers apply, namely, lack of access toaffordable funding and recurring cash-flow issues.

Three of the large retailers (other than those such as Galaxy and NWJ where thebusiness is integrated from manufacturing through to retail), reported that theyfinancially assist their major manufacturing suppliers. This is done by forwarding tothe manufacturer payment to the value of the gold contained in an order, onplacement of the order, so that the manufacturer can pay in full for their rawmaterials. 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.

QQuuoottaabbllee qquuootteess::“Shoplifting is not an issue. The way we showcustomers the jewellery does not really give peoplea chance to pocket anything. But we have beenheld up at gun point.”DDeeddiiccaatteedd LLooccaall JJeewweelllleerryy RReettaaiilleerr

Dedicated tourist retailers will buy a collection anddisplay it for three months in their stores...

The majority of jewellery retail outlets do not sufferthe same financial and cash flow constraintsidentified with jewellery manufacturing...



With respect to terms offered by retailers to end-customers for jewellery, thevarious categories of retailer showed different business practices.

RReettaaiilleerr CCaasshh CCrreeddiitt IInntteerreesstt OOtthheerrDDiissccoouunntt ffaacciilliittiieess cchhaarrggeedd

((mmoonntthhss)) ppeerr aannnnuummMass Discount None None None NoneBrowns 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% NoneR5,000 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 for18 12.7% purchases

over R500Data Source: From retail stores.

44..33..55 RReellaattiioonnsshhiippss wwiitthh ssuupppplliieerrssThe vertically integrated jewellery retail companies, Galaxy and NWJ, have closerelationships with their suppliers, being separate businesses within the samecompanies. But the discount stores and other dedicated local jewellery retailers alsoexhibited a close alliance with suppliers in offering financial assistance by payingupfront for the gold contained in an order. This relationship also extends to designwork to the extent that large retailers will travel with manufacturers tointernational jewellery fairs to jointly look at the latest product ranges.

Discount stores order thousands of pieces of the same item of jewellery. Theycannot rely on the small manufacturer who may not have the capacity to producejewellery in this volume. They therefore concentrate on business relationships withthe large and medium-sized manufacturers in the country. They will, however, alsogive consideration to smaller orders produced by other manufacturers where theproduct line does not offer core designs but rather fashion goods that might sellquickly.

Dedicated local jewellery retailers carry a core range of many more different piecescompared with discount stores, and they do not order items in the same quantity.This allows them to order jewellery from the smaller manufacturers.

44..33..66 IImmppoorrttss All the retailers interviewed import jewellery product, both directly and throughwholesalers, particularly where the local industry is not geared to produce the latestdesigns. The discount stores noted that they import at peak periods, where the localindustry cannot supply the volumes needed swiftly enough. The two verticallyintegrated jewellery companies reported that at an exchange rate of R6 to theDollar, 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 localworkshops.

QQuuoottaabbllee qquuootteess::“We are always on the lookout for somethingdifferent – something with a ‘wow’ factor that willcatch on and become the latest fad. When takingon a new supplier, we look at a range and then ringaround the industry to check out the manufacturer.It is a very small world and everyone knowseveryone else.”BBuuyyeerr ffoorr aa ddiissccoouunntt ssttoorree

QQuuoottaabbllee qquuootteess::“Our suppliers are very protective of ourrelationship with them to the extent that they willover-carat their alloys rather than make themistake of under-carating. We have our stockassayed on a regular basis.” BBuuyyeerr ffoorr aa ddiissccoouunntt ssttoorree

Discount stores order thousands of pieces of thesame item of jewellery...

Dedicated local jewellery retailers carry a corerange of many more different pieces compared withdiscount stores...



MMaarrkk--uuppss aanndd ccoossttssIn addition to mark-ups to gold product added by the refiners and manufacturers,retailers apply their own mark-up to the final product. Variations betweencategories occur. All mark-ups cited here include VAT at 14%.

IInnddiiccaattiivvee rreettaaiill mmaarrkk--uuppss iinn tthhee SSoouutthh AAffrriiccaann jjeewweelllleerryy iinndduussttrryyIInnddiiccaattiivvee CCoommmmeennttssMMaarrkk--UUppss

Dedicated local jewellery retailers 250% For core productsUp to 350% For specialised

range and fast sellers

Dedicated tourist retailers 250% For core productsUp to 350% For specialised

range and fast sellers. Where diamonds are

included mark-ups can be higher

Discount stores 20% - 50% For non-core range100%-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 onmore expensive goods, and to experimental products where the retailer is yet to beconvinced of the ranges’ popularity. If a range then sells well, the retailer willconsider increasing the mark-up to the 320% level. In stores catering for tourists,mark-ups can exceed 350% if high quality stones, especially diamonds, areincluded.

A comparison between mark-ups achieved by the manufacturers and the retailersreveal a large differential in the retailers’ favour. This, however, does not imply thatthe retailer’s profits are proportionately higher. For retailers applying a 300% mark-up, the profit margin achieved for very basic 9 carat core product is 70% after costsof sales are accounted for, as well as cash discounts24 that might be offered. For thediscount stores that apply mark-ups of 50% to 150% (depending on the productline) the profit margin is lower, ranging from 6% to 33%.

The cost profiles of the major dedicated local retailers and the retail chains areshown below:

CCoosstt pprrooffiilleess ooff tthhee mmaajjoorr ddeeddiiccaatteedd rreettaaiilleerrss aanndd rreettaaiill cchhaaiinnss%%

Inventory 58.0Labour 14.1Rent/overheads 7.8Marketing 4.7Other 14.8TToottaall 110000..00Data source: Interviews.

24 See previous table which lists discounts offered ranging from 7% to 35% depending on the store and the ticketed price ofthe item.

QQuuoottaabbllee qquuootteess::“We don’t lose any money on jewellery. If we offer

‘buy a chain and get a free bracelet’, rest assuredthe cost of the bracelet is in our price.”BBuuyyeerr ffoorr aa ddiissccoouunntt ssttoorree

Retailers apply their own mark-up to the finalproduct...

The mark-ups applied by dedicated local jewelleryand tourist retailers are high, ranging from 250% to320%...



As with all analyses, the cost estimates have been made on a weighted averagebasis. Our analysis here showed that the cost of purchasing and holding inventorypredominates and represents 58% of the cost profile.

44..33..77 PPrriiccee eexxppoossuurree aanndd ffiinnaanncciiaall rriisskkAll the large retail stores reported that they are exposed to both the Dollar price ofgold and the Rand/Dollar exchange rate. Their exposure to the Dollar-based price ofgold relates to the extent to which they may be importing finished product frommanufacturers abroad. The dedicated tourist retailer is particularly exposed to thevalue of the Rand against other currencies as tourists visit with a budget fixed intheir local currency and the amount they have available to spend is then dictatedby the number of Rands that they can buy with their foreign currency.

None of the retailers interviewed expressed concern about the absence in SouthAfrica of financial mechanisms to offset their gold price risk. None were aware thatthe JSE Limited offers a Krugerrand contract25 and they were unfamiliar with theworkings of gold futures and options contracts traded by the internationalexchanges such as COMEX/Nymex.

Since 64% of the value of total jewellery retail sales is from retail stores that are apart 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 commercialgroups, either have to fund their business from profits generated or to borrow, andare thus in the same position as the manufacturers with respect to raisingaffordable credit. They echoed the concerns voiced by the manufacturers of havingto pay 2-3% above the prime interest rate, as well as having to provide collateral ofup to 120% of the value of the loan.

25 See Chapter 5 for further details of the Krugerrand contract.

The cost of purchasing and holding inventoryrepresents 58% of the cost profile...

All the large retail stores reported that they areexposed to both the dollar price of gold and therand/dollar exchange rate...


CCHHAAPPTTEERR 55FFIINNAALL PPRROODDUUCCTT:: CCOOIINNSS,, IINNDDUUSSTTRRIIAALL EENNDD UUSSEESS AANNDD IINNVVEESSTTMMEENNTT

CCoonntteennttss::

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

55


CCHH

AAPPTTEERR 55



CHAPTER 5FFIINNAALL PPRROODDUUCCTT:: CCOOIINNSS,, IINNDDUUSSTTRRIIAALL EENNDD UUSSEESS AANNDD IINNVVEESSTTMMEENNTT

Apart from jewellery, other end uses of gold in South Africa include coins, dentalalloys and electronic components. In 2004, the fine gold used in these sectors was:

FFiinnee ggoolldd uussaaggee iinn SSoouutthh AAffrriiccaa 22000044NNoonn--JJeewweelllleerryy AApppplliiccaattiioonnss tt %% ooff gglloobbaall

ffaabbrriiccaattiioonnCoin/medal fabrication 2.93 1.98Dental alloys 0.04 0.07Electronics 0.01 0.004TToottaall 22..9988 00..4499Data source: Virtual Metals.

In South Africa, these sectors are small, accounting collectively for 0.87% of SouthAfrican gold mine output in 2004 and 0.49% of global consumption in thesesectors.

55..11 TTHHEE SSOOUUTTHH AAFFRRIICCAANN CCOOIINN IINNDDUUSSTTRRYY

In 2004, fabrication of gold coins in South Africa accounted for 2.93t of fine goldrepresenting 1.96% of total gold consumed in international coin and medalfabrication.

The following tables show coin fabrication and sales in tons of fine gold between2002 and 2004.

SSoouutthh AAffrriiccaann ccooiinn ffaabbrriiccaattiioonn 22000022 -- 22000044FFiinnee ggoolldd -- tt 22000022 22000033 22000044Krugerrand bullion 0.76 1.81 2.34Krugerrand proofs 0.22 0.19 0.18Proteas 0.09 0.02 0.19Naturas 0.18 0.15 0.18R1 0.01 0.02 0.01R2 0.03 0.02 0.03Medallions 0.00 0.00 0.00TToottaall 11..2299 22..2222 22..9933Data source: SA Mint, Universal Mint and Gold Reef City Mint.

SSoouutthh AAffrriiccaann ccooiinn ssaalleess 22000022 -- 22000044FFiinnee ggoolldd -- tt 22000022 22000033 22000044Krugerrand bullion 0.91 2.18 2.87Krugerrand proofs 0.19 0.15 0.17Proteas 0.05 0.01 0.18Naturas 0.13 0.15 0.18R1 0.01 0.01 0.01R2 0.03 0.02 0.02Medallions 0.00 0.00 0.00TToottaall 11..3333 22..5511 33..4433Data 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 zerofabrication and usage since the gold volumes involved are less than 10kg.

55..11..11 TThhee SSoouutthh AAffrriiccaann MMiinntt CCoommppaannyy ((PPttyy)) LLttdd aanndd CCooiinn WWoorrllddThe South African Mint Company (Pty) Ltd is a wholly-owned subsidiary of theSouth African Reserve Bank (SARB). It was established on 1 September 1988 and inOctober 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 SouthAfrican Mint can produce both legal tender and commemorative gold coins,although currently all the gold coins issued are legal tender. Decisions with respectto current and future coin programmes are taken by the Government at Cabinetlevel. The SARB requires Cabinet approval for planned coin issues, details of whichare published annually in the Government Gazette. The coins are then struck by theSA Mint and made available for purchase by the public. The SA Mint currently

In 2004, fabrication of gold coins accounted for2.93t of fine gold, about 1.96% of total goldconsumed in coin fabrication worldwide...



produces several legal tender gold coins, namely Krugerrands, Naturas, Proteas andthe R1 and R2 cultural coin series.

Coin World (a wholly-owned subsidiary of SA Mint) is a retail outlet and museumon the premises of the South African Mint. All the analysis that follows regardingthe SA Mint relates to the Coin World business of the Mint only, and not the Mintin its entirety, since the Mint’s main function is to strike and distribute thecountry’s legal tender coinage.

55..11..22 OOtthheerr mmiinnttss aanndd ccooiinn pprroodduucceerrssIn addition to the SA Mint, there are two other companies that strike gold coins.Their products are commemorative medals and medallions and not legal tendercoins. These are the Cape Mint and the Gold Reef City Mint.

The Cape Mint, located in Cape Town, strikes commemorative gold coins to orderfor export. The Cape Mint collaborates with the Universal Mint, a coin sales brokerwith no actual production facility, on certain of these export projects. In 2004,these companies collectively struck coins for the Cook Islands and Uganda tocommemorate various national milestones.

The mark-ups for these issues are not made public but the manufacturing costswere reported to be R18 per coin irrespective of the coin size. These costs pertainto gold coins and exclude packing and shipping charges.

Buyers of coins from the Universal Mint and the Cape Mint are required to pay upfront for the purchase of the gold on placement of their order. The terms for thebalance of the payment, including minting, delivery cost etc, are then 30 days afterdelivery of the coins.

The Gold Reef City Mint in Johannesburg also strikes gold medals, medallions andcommemorative 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 frommarketing its own products, the Gold Reef City Mint also markets Krugerrands.While the client base for these Krugerrands is mainly local purchasers, touristsvisiting Gold Reef City also buy from this source. The mark-ups applied to the coinssold to tourists also reflect a commission paid to the tour operators who ensurethat tourists visit the mint.

Interviews conducted with these mints indicated that they are operating at wellunder capacity although they declined to indicate their current rates of minting.Should demand for coin products increase, they would be able to meet ordersthrough increasing existing capacity utilisation.

55..11..33 EEmmppllooyymmeenntt pprrooffiillee ooff tthhee ccooiinn sseeccttoorrAn analysis of staffing in the South African coin sector follows. The figuresassociated with the SA Mint staff relate directly to Coin World and not to staffinvolved with the striking and issuing of monetary coins in circulation.

CCooiinn sseeccttoorr SSttaaffff pprrooffiilleeNNuummbbeerr %%

Men 40 48.0Women 42 52.0TToottaall 8822 110000..00Data 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%.

In addition to the SA Mint, there are two othercommercial minting facilities operational in SouthAfrica...



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 preparingthe blanks, striking the coins and polishing and packing the finished product.Another 16% are involved in marketing, leaving 7% and 4% involved in theadministrative and technical sides of the business respectively.

55..22 CCOOIINN PPRROODDUUCCTTSS

Coins manufactured by the South African Mint Company are distributed for sale viaCoin World, Rand Refinery and 10 local dealers throughout the country. Accordingto the SA Mint, the active local market for gold coins totals 10,000 buyers of which6,000 are regular purchasers. These buyers are either investors or collectors.

55..22..11 KKrruuggeerrrraannddssKrugerrands were first minted on 3 July 1967. They have been produced and soldlocally and internationally every year since. They are legal tender coins of 22 carator 916.67 parts per 1,000 gold (the remaining 83.33 parts per 1,000 made up ofcopper).

Krugerrands were first minted in one size only – one full troy ounce (31.1035grams) of fine gold. From 1980, three other coins, termed fractionals, wereintroduced – the 1/2 ounce, the 1/4 ounce and the 1/10th ounce. Since the launchof 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 thebullion Krugerrand and the proof Krugerrand. While the design of the coins isidentical, there is a difference in quality and price.

The term ‘proof’ is not a grade, but a term applied to particular coins. These coinshave the raised part of their design in a matt or sand-blasted finish while thebackground of the coin has a highly polished or mirror finish. The dies used to strikeproofs are usually sand-blasted first and then the area of the die that correspondsto the coin’s background is polished. Prior to striking proofs, the coin blanks arespecially polished. The blanks are then hand-fed on to the stamping press and afterbeing double struck (two stampings or strikings of the die to give a perfect finishwith the sharpest image), the proof coins are then sealed in capsules or gift setsand allocated a certificate of authenticity which states the number of proof coinsstruck in that year. For a collector, a proof Krugerrand would be termedinternationally FDC, which stands for ‘fleur de coin’ – a coin with no blemishes andof 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 onthe bullion Krugerrand.

In contrast, bullion Krugerrands are not double struck and they are sold not insealed capsules but in presentation gift boxes.

The coin blanks for Krugerrands are manufactured and supplied exclusively by RandRefinery and coins are struck to order. The reason for Rand Refinery’s exclusivity islargely historical since, in the early years of the Krugerrand, it was the only primaryrefinery operating in South Africa.

On receipt of the coin blanks, the SA Mint strikes the bullion coins and then sendsthem to Rand Refinery or other outlets for distribution and sale. The conversioncharge (the cost of striking the coin from the blank) levied by the SA Mint is R2.60per coin, irrespective of the size of the coin. The SA Mint strikes and markets itsown proof Krugerrands. Any coin blanks subject to mis-strikes during the mintingprocess are returned to Rand Refinery for remelt.

Krugerrands have been produced and sold locallyand internationally since 1967...

The coin blanks for Krugerrands are manufactured,and supplied exclusively by Rand Refinery...



The price of the bullion Krugerrand is linked to the international gold price with afixed premium, while proof Krugerrands, including fractionals, are offered in limitedquantities 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 amaximum of 500,000oz of fine gold per annum.

Krugerrand specifications are as follows:

KKrruuggeerrrraanndd ssppeecciiffiiccaattiioonnssFFaaccee vvaalluuee MMaassss GGoolldd ccoonntteenntt GGoolldd

RRaanndd gg ppaarrttss ppeerr ccoonntteenntttthhoouussaanndd gg

1 oz 10 33.9305 917 31.1041/2 oz 5 16.9653 917 15.5521/4 oz 2.5 8.4826 917 7.7761/10 oz 1 3.3931 917 3.11

SSeerrrraattiioonnss MMiinn ddiiaamm MMaaxx ddiiaamm MMiinn tthhiicckk MMaaxx tthhiicckk mmmm mmmm mmmm mmmm

1 oz 180 32.61 32.77 2.74 2.841/2 oz 150 26.93 27.07 2.12 2.221/4 oz 140 21.94 22.06 1.79 1.891/10 oz 115 16.45 16.55 1.25 1.35Data 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 asfollows:

KKrruuggeerrrraanndd mmaarrkk--uuppss %%1 oz coin 31/2 oz coin 51/4 oz coin 71/10 oz coin 9Data source: SA Mint.

In June 2005, the mark-up on a proof Krugerrand was calculated at 42% above thegold price.

The level of these mark-ups far exceeds the level of mark-ups on gold bars, and goldcoins are not a cost-efficient means of retail investment in gold, but therefore tendinstead to be purchased as commemorative gifts or by collectors.

The fractional coins have never been as popular as the full ounce coins and areusually purchased on a one-off basis with many of them destined to be set injewellery, normally pendants. Krugerrands are also sold in full sets, containing one ofeach size coin. The ratio of full ounce Krugerrands to fractional coins (both bullionand proof coins) in terms of the number of coins minted is tabulated below.

KKrruuggeerrrraannddss -- ffrraaccttiioonnaall rraattiiooss -- %%NNuummbbeerr ooff bbuulllliioonn ccooiinnss ssttrruucckk

22000022 22000033 220000441 oz 41.6 62.3 100.01/2 oz 0.0 16.1 0.01/4 oz 27.1 1.7 0.01/10 oz 31.2 19.9 0.0TToottaall 110000..00 110000..00 110000..00

The price of the bullion Krugerrand is linked to thegold price...



KKrruuggeerrrraannddss -- ffrraaccttiioonnaall rraattiiooss -- %%NNuummbbeerr ooff pprrooooff ccooiinnss ssttrruucckk

22000022 22000033 220000441 oz 31.0 26.2 25.51/2 oz 25.1 19.1 17.81/4 oz 19.0 26.0 30.21/10 oz 25.0 28.6 26.5TToottaall 110000..00 110000..00 110000..00Data source: Calculated from SA Mint.

According to the SA Mint, sales of Krugerrands are currently split equally betweenlocal buyers and those coins destined for export. This ratio is affected by twofactors, namely the international gold price and the Rand/Dollar exchange rate. Theperformance of the Rand against the Dollar affects investment decisions on thepart of local buyers. The international gold price affects offshore investors’ buyingdecisions.

When the Krugerrand was first introduced in 1967, it was the first bullion legaltender coin of its kind. It was the leading gold coin sold worldwide at the time thatgold coins were the principal medium for retail investment in gold. Peak sales of187t occurred in 1978, but falling retail interest in gold and progressive sanctionsimposed on South African goods saw Krugerrand sales decline.

Between 2002 and 2004, sales of Krugerrands again increased off a low base at arate of 45% per annum. Sales of the US Eagle bullion coin1 showed similar but notquite as strong growth, at 30% per annum. Buoyant international gold prices andheightened interest in gold as an investment throughout this period appear to haveencouraged greater interest in these coins.

The SA Mint holds inventory of Krugerrands for up to one year. After this, theunsold coins are remelted at the SA Mint and restruck into new coins with thecurrent date. They are not returned to Rand Refinery. Rand Refinery also holdsinventory of Krugerrands and hence the Refinery’s reported sales of coins can be inexcess 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 tobuy back Krugerrands from the general public. These coins are not resold but areeither taken back into the country’s gold reserves2 or are sent back to Rand Refineryfor remelt. By law, members of the public can return unwanted coins to any branchof the South African Reserve Bank. In practice, this rarely happens since the holderof the coin would receive only the fine gold Rand value of the coin and would losethe premium initially paid for the coins.

55..22..22 TThhee NNaattuurraa ccooiinn sseerriieess The Natura gold coin series was launched in 1994 as South Africa’s first 24 caratgold coin. Three series have been issued since: the Big Five from 1994-1998, theMonarchs of Africa from 1999-2001 and, in 2002, the Wild Cats of Africa. Thedetails are as follows.

BBiigg FFiivvee1994 Lion1995 Rhinoceros1996 Elephant1997 Buffalo1998 LeopardMMoonnaarrcchhss ooff AAffrriiccaa1999 Kudu2000 Sable2001 OryxWWiilldd CCaattss2002 Cheetah2003 Lion2004 Caracal

1 Directly comparable, as the Eagle is also 22 carat.2 See Chapter 6 for further details covering South Africa’s gold reserves.

Sales of Krugerrands are split equally between localbuyers and those destined for export...



NNaattuurraa ccooiinn ssppeecciiffiiccaattiioonnssFFaaccee vvaalluuee DDiiaamm MMaassss MMeettaall ccoonntteenntt

RR mmmm gg ppaarrttss ppeerr tthhoouussaanndd1 oz 100 32.69 31.107 999.91/2 oz 50 27.00 15.553 999.91/4 oz 20 22.00 7.777 999.91/10 oz 10 1.50 3.110 999.9Data Source: SA Mint.

55..22..33 TThhee PPrrootteeaa ccooiinnssThe Protea gold coin series was launched in 1986 and was initially struck in 22carat gold. Since 1998, however, the series has been struck in 24 carat. In the years1987, 1989 and 1990 no Protea coins were issued.

The details of the Protea issues are as follows:1986 Centenary of the Gold Rush1988 500th Anniversary of Bartholomew Diaz’s

Circumnavigation of the Cape of Good Hope1989 300th Anniversary of the Landing of the Huguenots1990 150th Anniversary of the Great Trek1991 Tribute to 100 years of SA Nursing1992 Centenary of Minting in SA1993 200 Years of Banking in SA1994 Centenary of Nature Conservation in SA1995 Centenary of Railway Links1996 The New Constitution1997 South African Women1998 Year of the Child1999 The Mining Industry in SA2000 The Wine Industry in SA2001 The Tourist Industry in SA2002 Soccer and World Summit2003 Cricket2004 10 Years of Democracy

PPrrootteeaa ccooiinn ssppeecciiffiiccaattiioonnss ((2244 ccaarraatt ccooiinn))FFaaccee VVaalluuee DDiiaamm MMaassss MMeettaall ccoonntteenntt

RR mmmm gg ppaarrttss ppeerr tthhoouussaanndd1 oz 25 32.69 31.107 999.91/10 oz 50 16.50 3.11 999.9R1 Silver 1 32.70 15 Ag 925Data source: SA Mint.

55..22..44 TThhee RR11 aanndd RR22 ccooiinn sseerriieessThe R1 gold coin was introduced in 1997 as a legal tender 24 carat proof qualitycoin. The coin depicts cultural diversity in South Africa as follows:1997 Heart transplant (30th anniversary)1998 The San – the Lost People1999 The Zulu culture2000 The Xhosa culture2001 The North and South Sotho cultures2002 The Tswana culture2003 The Tsonga culture2004 The Venda culture



RR11 ccooiinn ssppeecciiffiiccaattiioonnssFFaaccee VVaalluuee DDiiaamm MMaassss MMeettaall ccoonntteenntt

RR mmmm gg ppaarrttss ppeerr tthhoouussaanndd1/10 oz 1 16.50 3.11 999.9Data source: SA Mint.

The R2 gold coin was also introduced in 1997 as a legal tender 24 carat proofquality coin. The themes since then have been as follows:1997 Mrs Ples – Almost Human1998 Coelacanth – The Living Fossil1999 Thrinaxodon – The Mammal-like Reptile2000 Little Foot – Most complete skeleton found2001 Gondwana – Continental drift2002 Robben Island2003 Greater St Lucia Wetland Park2004 Ukhahlamba-Drakensberg Park

RR22 CCooiinn SSppeecciiffiiccaattiioonnssFFaaccee vvaalluuee DDiiaamm MMaassss MMeettaall ccoonntteenntt

RR mmmm gg ppaarrttss ppeerr tthhoouussaanndd1/4 oz 2 22.00 7.777 999.9Data source: SA Mint.

The target market of the Naturas, Proteas and the R1 and R2 coins is the smallinvestor and collector. With respect to Naturas and Proteas, the design is changedevery three to four years. This is timed to maintain the interest of the collector butwithout offering too many new designs, which would price the collector out of themarket.

The R1 and R2 gold coins are re-launched with a new design every year. At 1/10thof an ounce and 1/4 of an ounce respectively, they are affordable enough tosupport annual issues. The fact that these four coin issues are struck in 24 caratgold not only differentiates them from the Krugerrand but also allows for directcomparison (in terms of caratage and hence, price) between them and otherinternational bullion coins that are 24 carat – for example, those bullion coinsstruck and marketed in Canada and Australia.

The SA Mint buys 24 carat grain from Rand Refinery and produces its own coinblanks, from which it strikes the coins in-house to meet demand for the four 24carat coin programmes. The mark-up on the coins is 30% and the gold represents95% of input costs to the SA Mint.

55..33 DDEENNTTAALL AALLLLOOYYSS

According to the South African Medical and Dental Council (now known as theHealth Professions’ Council of South Africa), there are 3,500 registered dentists inthe country. Dentists themselves do not have to hold permits to work with goldalloys since they work with pre-ordered, made-to-measure inlays only, supplied byindependent dental laboratories. Only in instances where a dentist maintains hisown laboratory will that practice require a permit; otherwise, it is the dentallaboratories that hold the precious metal permits.

The South African Police Service Diamond and Gold Branch reports that 427 validdental licences had been issued in the country as at 2004. Of the total, 23 wereissued in the year, implying an increase of 5.7% compared with 2003.

The target market for the Natura, Proteas and R1and R2 coins is the small investor and collector...



A regional breakdown of these permits is shown below for 2003 and 2004. In termsof number of permits issued, this aspect of the gold business appears to beconcentrated in the Cape region, with more than half of the dental permits on issuein 2004 issued in the Western Cape.

NNuummbbeerr ooff vvaalliidd ddeennttaall ppeerrmmiittss22000033 22000044 %% ooff ttoottaall ttoottaall 22000044 ttoottaall

Western Cape 231 231 54.1Gauteng 128 147 34.4KwaZulu-Natal 24 24 5.6Mpumalanga 11 13 3.0Eastern Cape 10 11 2.6North West 0 1 0.2Free State 0 0 0.0Limpopo 0 0 0.0Northern Cape 0 0 0.0TToottaall 440044 442277 110000Data source: Virtual Metals analysis of South African Police Service data.

Gold usage in dental treatment cannot be expected to be a material growth sectorowing 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 thegold as a dental material. A survey of medical insurers revealed only one thatcompensated members for payment of gold used in dental work, and in thatinstance, only to ‘premium’ members. A similar lack of growth potential is mirroredinternationally as medical insurers in countries such as Germany have, over time,amended their insurance cover to patients, discouraging the use of gold in dentaltreatment.

In terms of scrap generation, dental alloys are frequently returned to recyclers forremelt since the manufacture of a dental construction generates a very high level ofwastage, estimated by recyclers at 75% to 90% per inlay.

Dental alloy can vary in caratage and colour and is applied according to thecustomer’s specifications.

DDeennttaall pprroodduuccttss DDeessccrriippttiioonnAlloys Star cast -

110, 200, 400, 550, 602Starbond -

515G, 780G, 860G, 575G, 730G, 750GData source: Musuku Beneficiation Systems.

Discussions with refiners and recyclers revealed that, in 2004, no more than 0.04tof fine gold was purchased by the local dental industry. Dentists reported that thissector had shown no growth in recent years due to insurers’ exclusion of gold indental treatment.

Gold usage in dental treatment is not agrowth sector...



55..44 EELLEECCTTRROONNIICCSS

The level of gold usage in the manufacture of electronic components in South Africais insignificant. The refiners reported that they supplied collectively 0.01t to SouthAfrican companies manufacturing components for a variety of electronic hardware,including switches and connectors. This represents less than 0.004% of the globaltotal of 250t3 of fine gold destined for use in electronics.

Research revealed five companies that either manufacture or assemble electroniccomponents using gold. One, Bosco Printed Circuits (Pty) Ltd, dominates, althoughits exact market share could not be established. The company uses gold inmanufacturing the ‘fingers’ which connect external cards to computer hardware andin instances where superior connections are required in telecommunicationshardware. The gold is applied through electroplating.

Printed circuit boards (PCBs) are manufactured in South Africa but discussions withthe industry revealed that these PCBs do not contain gold. Where high performancePCBs, which require gold usage, are needed, they are imported.

55..55 IINNVVEESSTTMMEENNTT

Until recently, South Africans were limited in the ways that they could invest ingold. They could (and still can) buy coins in the form of Krugerrands, Proteas orNaturas. However, while bullion coins have a place for the collector, they are notconsidered a competitive alternative in an investment portfolio. This is because thepremium 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 aDollar or Rand denominated gold futures contract, they could trade the Krugerrandfutures 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.

55..55..11 TThhee JJSSEE LLiimmiitteedd’’ss KKrruuggeerrrraanndd ccoonnttrraaccttThe JSE Limited offers a Rand-denominated futures contract based on theKrugerrand through which the public and institutions such as pension funds cantake an investment exposure to gold, other than buying coins or gold miningequities. The contract specifications are:

CCoonnttrraacctt KKrruuggeerrrraanndd ffuuttuurreessCode KGRDUnderlying instrument 1 KrugerrandExpiry dates & times 17h00 on 3rd Thursday

of March, June, September & December or previous business day if a public holiday

Quotations In whole Rands to 2 decimalsExpiry valuation method Official closing price as determined by the

JSE LimitedSettlement method Physical deliveryClearing house fees Futures R2.50Data source: JSE Limited.

3 Virtual Metals global industry estimates for 2004

QQuuoottaabbllee qquuootteess::“To work with a crown that will eventually weigh5g of gold, the dentists have to begin with at least 20g of alloy. The balance gets recycledimmediately.”RReeccyycclleerr

QQuuoottaabbllee qquuootteess::“I don’t see any growth potential in the SouthAfrican electronics manufacturing industry. Weimport components from the Far East cheaper thanwe could ever manufacture them here.”EElleeccttrroonniicc ccoommppoonneenntt mmaannuuffaaccttuurreerr

Historically, South Africans have been limited in theways that they could invest in gold...



Krugerrand futures have failed to become a liquid and actively traded contract. Thereason for this is not clear. It is possible that, in the past, private investors who werelikely to invest in gold other than equities would have bought Krugerrands andtherefore there was little reason for them to make use of the futures contract. Inother words, those who wanted bullion coins would have bought them outright andthose investors who might make use of a futures contract would not have aninterest in bullion coins. This does not, however, explain why the institutions havenot made use of this contract since fund managers are permitted to place up to10% of their funds in Krugerrands.

Discussions with portfolio managers reveal that they have invested neither in thephysical coins nor the futures contract; turnover figures bear this out. A reason forthis is the loss of the initial premium payable on the purchase of the coins once thecoins 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.

55..55..22 AABBSSAA NNeewwGGoolldd GGoolldd BBuulllliioonn DDeebbeennttuurreeAn 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 anounce) as simply as the investor could trade in the equities of exchange-listedcompanies. Gold ETFs are funds, the sole asset of which is physical gold, and thevalue of which is fully backed by physical gold, held as allocated metal by anominated custodian. The shares are traded on a stock exchange just as any otherexchange-listed security. The cost of buying into a gold ETF is the ‘spread’4 as with anormal share purchase, plus brokerage charges. There is then an annualmanagement fee of between 0.3% and 0.4% compared with the 3% premium overgold for buying a one ounce Krugerrand. Gold ETFs are designed to be cost effectiveand to provide investors with a secure way to invest in gold.

On 2 November 2004, ABSA Bank launched a gold ETF in South Africa called theNewGold Gold Bullion Debenture, the third such ETF after similar launches of ETFsin Australia (on the Australian Stock Exchange) and the United Kingdom (on theLondon Stock Exchange). Two similar products were launched in the United Statesshortly afterwards, one by State Street Global Advisors, called streetTRACKS GoldTrust and one underwritten by Barclays Bank Plc called the iShares COMEX GoldTrust.

4 The difference between the bid and offer (buy or sell) price on the underlying asset.

Gold ETF launched in South Africa inNovember 2004...



The South African product5, issued by a public company called NewGold IssuerLimited, 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 SARands. The price of the debenture closely follows the international gold price. Thespecifications are:

NewGold Gold Bullion DebentureListing JSE LimitedIssuer NewGold Issuer Ltd,

Reg Number 2004/014 199/06 JSE Code GLDPrice ZAR price of 1/100th troy ounce

of fine goldEntitlement Initially 1/100th troy ounce of fine gold,

reduced daily by the management feeUnderlying asset Gold kept in 400 oz London Good Delivery

Bars in allocated formCustodian Rand RefineryAdministered ABSA Investment Management Services

(AIMS)Minimum investment Lump sum and ad hoc investments -

R1,000Recurring or monthly debit order investments - R300

Fee structure - Management: 0.4%pa accrued NewGold Gold Bullion Debentures daily debited in gold

Creation and redemption: 0.15%Brokerage and statutory fee: standard brokerage fees apply

Fee structure - Lump sum and ad hoc investments: Initial NewGold investment plan 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%

Data source: ABSA Bank.

Immediately after its launch on 2 November 2004, purchases in the South AfricanETF took the assets to 3t of gold, before declining slightly. Buyers of the productwere local pension funds and financial institutions. Since its launch, progress hasbeen slow. The product is traded in the smallest of the four gold investmentmarkets which are now home to ETFs and therefore it stands to reason that incomparison with the other ETFs, its offtake has been the smallest. The actualofftake of all four ETFs traded are compared in the accompanying table.

EETTFF OOffffttaakkee iinn MMeettrriicc TToonnss ooff FFiinnee GGoollddLLaauunncchh AAvveerraaggee AAvveerraaggee ddaaiillyy TToottaall ooffffttaakkee tt

DDaattee ttrraaddeedd ddaaiillyy ooffffttaakkee tt ((aatt 3300 JJuunnee vvoolluummee tt 22000055))

Australia 28-Mar-03 0.04 0.01 7.89UK 9-Dec-03 0.75 0.14 46.95South Africa 2-Nov-04 - 0.01 2.87US (SSGA) 18-Nov-04 6.74 1.15 181.51US (Barclays) 28-Jan-05 0.2 0.12 12.42TToottaall 225511..6644Source: 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 thelonger-running Australian ETF. Both products are nevertheless dwarfed by the UKETF, and especially the State Street Global Advisors US fund offtake.

5 http://www.absabrokers.co.za/Individual/0,2999,2762,00.html#newgold



NewGold is currently subject to a ceiling on the number of debentures that ABSAcan create – up to 500,000oz worth of debentures per annum. Should the bankwish to generate more, it would require prior permission from the Minister ofFinance.

With respect to the ability to take physical delivery on redemption of thedebentures, investors wishing to do so would need to hold a valid precious metalspermit as required by the Mining Rights Act. Only blocks of 400,000 debentures ormore (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 byABSA to be supportive of NewGold in South Africa, since Barclays has its own ETFin the United States, and is committed to the ongoing marketing andadministration of these investment products.


CCHHAAPPTTEERR 66

TTRRAANNSSFFOORRMMIINNGG TTHHEE IINNDDUUSSTTRRYY:: LLEEGGIISSLLAATTIIVVEE,, FFIISSCCAALL AANNDD FFIINNAANNCCIIAALL CCOONNTTEEXXTT

CCoonntteennttss::

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

CCHH

AAPPTTEERR 66

66

Photograph courtesy: AngloGold Ashanti Limited



CHAPTER 6TTRRAANNSSFFOORRMMIINNGG TTHHEE IINNDDUUSSTTRRYY:: LLEEGGIISSLLAATTIIVVEE,, FFIISSCCAALL AANNDD FFIINNAANNCCIIAALL CCOONNTTEEXXTT


Key legislation affecting the South African gold industry is considered in thischapter, 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 to dateand 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 togold mining, for example, on mine health and safety. It would, however, be outsidethe scope of this study to provide a complete overview of all of the variouslegislative measures that impact on the sector, and these aspects of the legislativeframework for the industry have not therefore been covered.

The gold industry is additionally subject to a number of legislative and regulatorymeasures that address the issue of transformation, for example on Black EconomicEmpowerment (BEE), employment equity and skills development. This chapterdescribes these measures and their impact on the South African gold industry.

66..22 KKEEYY LLEEGGIISSLLAATTIIOONN AAFFFFEECCTTIINNGG TTHHEE GGOOLLDD IINNDDUUSSTTRRYY

The mining industry is by far the largest participant in the South African goldbusiness, in terms of investment, numbers employed, annual turnover, net assetvalue and contribution to the local economy. The legislation highlighted in thissection applies primarily to the mining industry, although many of its provisionsalso have an impact on refining and jewellery manufacturing.

66..22..11 TThhee MMiinniinngg RRiigghhttss AAcctt 2200 ooff 11996677 aanndd tthhee PPrreecciioouuss MMeettaall BBiillllHistorically, the Mining Rights Act of 1967 (specifically Chapter XVI) has had asignificant impact on the way the South African gold business has evolved, as itprohibited private individuals and institutions from holding gold in any form otherthan bullion coins or jewellery1.

In other jewellery manufacturing economies, jewellery manufacturers were able tobenefit from the existence of private gold holdings in their own or neighbouringcountries (in the case of Italy, for example, significant holdings exist in neighbouringSwitzerland). These private holdings, typically lodged with commercial banks, led tothe development of an active gold-lending market. The existence of such a marketwas an enabling factor in the growth of the jewellery manufacturing sector, asjewellers were able to borrow gold from commercial banks at relatively low leaserates.

The Mining Rights Act regulates the possession and trade of gold in businesseswhere 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 remainingchapter of the Mining Rights Act still in place. The Precious Metals Bill, which iscurrently in the process of Parliamentary approval and which will replace theremaining sections of the 1967 Mining Rights Act still in force, aims to reduce theadministrative procedures relating to the possession and trade of gold as a rawmaterial that are imposed by the Act. It stops short, however, of total deregulationof the metal.

1 Bullion coins are gold coins (usually 22 or 24 carat). All bullion coins currently minted in South Africa are legal tender. Referto Chapter 5 for a full explanation and description of these coins.

This body of legislation has had a significant impacton the gold industry and will continue to shape itsevolution...

The Mining Rights Act of 1967 has had a significantimpact on the way the South African gold businesshas evolved...



The Bill amends the definition of wrought and unwrought metal in the MiningRights Act and introduces new categories of licences for users of precious metals. Interms of the Bill, gold is considered unwrought if it is unrefined or has been refinedto a purity of up to but not including 99.95%. Semi-fabricated metal is defined asmetal 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 andPrecious Metals Regulator (a new position to be created by the Bill).

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 25years and are renewable for further periods of 25 years;

• beneficiation licences, which authorise the holder to buy, receive, change, addvalue to and dispose of semi-fabricated metal. Beneficiation licences are grantedfor 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 butwhich are granted for a period of five years, renewable on application to theRegulator for further periods of five years.

Holders of refining licences are required to keep a register of all transactions inprecious metals and to submit this register quarterly to the Regulator.

Holders of beneficiation licences and Jewellers’ permits are obliged to submitannual financial accounts prepared in accordance with Generally AcceptedAccounting Pratice (GAAP) to the Regulator, no later than 90 days after the endof each financial year.

It is anticipated that the Bill will be passed into law in early 2006.

66..22..22 TThhee MMiinneerraall aanndd PPeettrroolleeuumm RReessoouurrcceess DDeevveellooppmmeenntt AAcctt 2288 ooff 22000022South Africa’s economic policies are based on the principles of private enterpriseand the free market, thus allowing for the development of commerce withoutundue State intervention. After the election of the first representative governmentin 1994, it was recognised that the country’s mineral and mining policies requiredreview as the majority of the population had largely been excluded fromparticipating in the ownership and management of the mining industry.

This review began in April 1995 and the ensuing process involved representativesfrom government, mining companies, the junior mining sector, labour, andassociated communities, and culminated in the release of a White Paper, A Mineralsand Mining Policy for South Africa, in October 19982.

The policies that were presented in that White Paper were then embodied in theMPRDA, which was passed into law in October 2002 and promulgated (thusbecoming law) in May 2004.

The MPRDA is the primary act of Parliament that governs mining activity in SouthAfrica. Under this Act, a new mineral rights regime has been introduced in terms ofwhich ‘new-order’ rights replace so-called ‘old-order’ prospecting and mining rightsthat were issued under the Minerals Act 50 of 1991. All old-order mining rightsmust be converted within a period of five years (that is by 2009) of the Act havingbecome law3.

2 All these groups collectively became known as the stakeholders and it is to them that this review refers when mentioningthe stakeholders.

3 Old-order rights refer to all old-order prospecting rights and old-order mining rights.

The Bill, in its current form, allows for threecategories of licences for the acquisition, possessionor disposal of precious metals in unwrought andsemi-fabricated form...

The MPRDA is the primary act of Parliament thatgoverns mining activity in South Africa...



The MPRDA is based on the principle of state custodianship of mineral andpetroleum resources. Prospecting, exploration and mining rights for all minerals nowvest in the state and applications for those rights have to be made directly to thestate. This is in contrast to the previous legislative regime, where mineral rightswere privately-owned, though with significant restrictions such as the need toobtain government approval before the minerals in question may be exploited.

Under the MPRDA, mineral rights have become an important instrument inachieving transformation in ownership and management in the mining industry.This transformation goes beyond the mine gate as the Act also stipulates thatholders of mineral rights should contribute towards the socio-economicdevelopment of host communities and communities that contribute their labour tothe industry.

Transitional provisions in the MPRDA facilitate the conversion of existing, old-order,prospecting and mining rights to new-order prospecting and mining rights. Forsuccessful conversion, applicants are required to satisfy the objectives of theMPRDA as set out in the Mining Charter.

NNeeww--oorrddeerr mmiinniinngg rriigghhttssThe most important right for operating a commercial mine in South Africa is thenew-order mining right which can be granted by the Ministry of Minerals andEnergy 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), includingwomen, to enter the mining industry and will promote employment andadvance the social and economic welfare of all South Africans; and

• the applicant complies with the Mining Charter.

Once the mining right is allocated, security of tenure is guaranteed for up to30 years as long as the conditions under which the right was granted continue tobe 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, hadconverted all its old-order mineral rights to new-order rights. Another gold miningcompany, Harmony, had converted old-order mineral rights for two ofits operations, subject to certain conditions to be fulfilled by Harmony.

The MPRDA is based on the principle of statecustodianship of mineral and petroleum resources...

Mineral rights have become an importantinstrument in achieving transformation in ownershipand management in the mining industry...

Once allocated, a mining right guarantees securityof tenure for up to 30 years...



PPrroossppeeccttiinngg aanndd ssmmaallll--ssccaallee mmiinniinngg ppeerrmmiittssIn addition to the core new-order mining right, the following prospecting and small-scale mining permits are provided for in the new legislation.• RReeccoonnnnaaiissssaannccee ppeerrmmiissssiioonnss allow the holder to carry out searches for minerals

by geological, geophysical and/or photogeological surveys, including remote-sensing techniques. They are valid for two years.

• PPrroossppeeccttiinngg rriigghhttss enable the holder to search for minerals by methods whichdisturb the surface or subsurface. Prospecting rights confer exclusivity to applyfor a renewal, a mining right and the right to remove and dispose of any mineralto which the right relates. The Minister of Minerals and Energy may, dependingon the type of mineral and extent of the project, request the applicant toexpand the opportunities for HDSAs to participate in management andownership. Prospecting rights are granted for a term of up to five years and maybe renewed once, if good reasons are provided, for a period not exceeding threeyears.

• MMiinniinngg ppeerrmmiittss are suitable for small-scale mining operations. They may beissued if the mineral in question can be mined optimally within a period of twoyears and the mining area does not exceed 1.5 hectares in area. A permit is validfor a maximum period of two years, and may be renewed up to three times forone year. It does not afford the holder any exclusivity, and cannot be transferredor disposed of.

• RReetteennttiioonn ppeerrmmiittss are granted for prospecting rights holders who can show thatmining is uneconomic due to market conditions at the time. The permit allowsprospecting rights to be extended for a period not exceeding three years. It canbe renewed once for two years and is not transferable.

66..22..33 TThhee BBrrooaadd--BBaasseedd SSoocciioo--EEccoonnoommiicc EEmmppoowweerrmmeenntt CChhaarrtteerr ffoorr tthheeMMiinniinngg IInndduussttrryy ((TThhee MMiinniinngg CChhaarrtteerr))

The Mining Charter, an integral part of the regulatory framework governing themining sector, provides a means by which the historical, social and economicinequalities in South Africa’s mineral industry can be addressed. The explicitobjectives 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 mineralresources;

• utilise the existing skills base of the mining industry for the empowerment ofHDSAs;

• 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 theregulatory framework governing the mining sector,provides a means by which the historical, social andeconomic inequalities in South Africa’s mineralindustry can be addressed...



The Mining Charter scorecard sets targets and a timetable for addressing theseobjectives in seven core areas of activity. These seven areas and the relevantscorecard undertakings in each area are summarised in the following table:

Human resource development - Improving opportunities for employees to become functionally literate andnumerate

- Implementation of career developmentpaths for HDSA employees, including skillsdevelopment

- Systems for mentoring empowermentgroups

Employment equity - Publication of employment equity plansand annual progress reports

- Establishment and implementation of aplan to achieve 40% HDSA participation inmanagement within five years

- Identification and fast-tracking of a talentpool

- Establishment and implementation of aplan to achieve 10% participation ofwomen in mining within five years, and15% within 10 years

Migrant labour - Agreements to ensure non-discriminationagainst foreign migrant labour

Mine community and - Formulation of integrated rural development development plans for communities

where mining takes place andimplementation of these plans in co-operation with Government

Housing and living conditions - Improvement of standards of housing,including upgrading of hostels, conversionto family units and promotion of homeownership for mine employees

- Improved nutrition for mine employeesProcurement - Preferred supplier status for HDSAs

- Identification of current levels ofprocurement from HDSAs andcommitment to increase spend with HDSA suppliers

Ownership and joint ventures - 15% HDSA ownership of equity orattributable units of production in fiveyears 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 theMining Charter which does not have to be met in full in order for miningcompanies to qualify for conversion to new-order mining rights. It is also the onlyprovision of the Charter which can be used by mining companies to offset MiningCharter commitments on HSDA ownership. Achievement of the beneficiation targetunder the Mining Charter allows companies to offset a proportion of the 26% 10-year Mining Charter target on ownership and joint ventures. This provision alsostates that companies have to identify current levels of beneficiation of productand indicate the level to which this will have to be grown in order to qualify foroffset. At the time of publication of this review, neither the extent of thebeneficiation offset nor the beneficiation levels to be achieved by miningcompanies in order to qualify for offset had been determined.

The provision on reporting states that companies have to report annually oncompliance with the commitments of the Mining Charter.

The Mining Charter scorecard sets targets and atimetable for addressing these objectives...



66..22..44 TThhee MMiinneerraall aanndd PPeettrroolleeuumm RRooyyaallttyy BBiillllThe 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.

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.

It proposes that mineral producers (including gold) pay a royalty on mineralproduction. Royalties may be fixed at different levels in order to take account of therelative profitability of the different industries.

A fundamental criticism of the Bill is that the proposed royalty is to be levied onrevenue and not profit. It is argued that this reduces the value of mineral assets thatcan be mined econimically. Supporters of a royalty on revenue maintain that a revenuefocus is necessary as mineral producers might otherwise state profit figures in a waywhich would enable the company to reduce or avoid royalty payments.

Critics of the proposals also claim that a structure which fixes the level of royaltypayments according to the type of mineral to be mined is too simplistic. They arguethat it should not be assumed that all diamond mining is more profitable than allplatinum mining, and all platinum mining than all gold mining.

In February 2005, the Minister of Finance told Parliament that a second draft ofthe 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 andsmall-scale mining.

If passed, royalties will be levied from 2009 in order to dovetail with the miningcompanies’ conversion to the new-order mineral rights regime as laid out bythe MPRDA.

66..33 TTRRAANNSSFFOORRMMIINNGG TTHHEE IINNDDUUSSTTRRYY:: BBLLAACCKK EECCOONNOOMMIICC EEMMPPOOWWEERRMMEENNTT,,EEMMPPLLOOYYMMEENNTT EEQQUUIITTYY AANNDD SSKKIILLLLSS DDEEVVEELLOOPPMMEENNTT

Prior to 1994, much of South Africa’s economic wealth was concentrated in thehands of white South Africans. Post apartheid, government has developed policiesto promote the more equitable distribution of wealth in a free market context, byactively supporting and favouring the economic empowerment of HDSAs.

66..33..11 BBllaacckk EEccoonnoommiicc EEmmppoowweerrmmeenntt ((BBEEEE))A BEE Commission was established in May 1997 under the auspices of the BlackBusiness Council (now merged into Business Unity South Africa), a bodyrepresenting 17 black business and professional organisations.

The concept of the BEE Commission arose from a resolution taken at the BlackManagement Forum National Conference, held in 1997. The prevailing view wasthat HDSAs themselves should direct and take charge of a new vision for BEE, aprocess that, until then, had been controlled by the private sector. The Commissionwas not established as a legal entity and had no legislative powers. Its main rolewas to co-ordinate the consultative process out of which its recommendations aresubmitted to government.

At the end of 2001, the Commission submitted a report to the government inwhich 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

The Bill is based on the principle that South Africa’smineral resources are non-renewable and that theybelong to the nation, with the State as custodian...



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 blackpeople to achieve sustainable development and prosperity.

The Commission’s report and recommendations were adopted by the Government’sEconomic and Transformation Committee (ETC) on 3 March 2001 and specifictargets were set for BEE for the 10-year period to 2011.

The Broad-Based Black Economic Empowerment Act of 2003 and its associatedcodes of good practice were published in two phases, the first of which wasreleased on 1 November 2005. The Act is the key item of legislation introduced byGovernment to effect its empowerment objectives. The Act and its associated codeswill 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 subjectto the codes initially, but will be expected to align itself to the codes ahead of theexpiry of the mining charter in 2014.

Two other items of legislation which were put in place in order to facilitateachievement 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 SouthAfrican gold industry.

66..33..22 TThhee EEmmppllooyymmeenntt EEqquuiittyy AAcctt 5555 ooff 11999988The purpose of the Employment Equity Act is to achieve equity in the workplace bypromoting equal opportunity and fair treatment in employment by eliminatingdiscrimination. 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 disadvantagesin employment experienced by designated groups and to ensure their fairrepresentation in all occupations and levels in the workforce. Designated groups areblack, coloured or Indian people, women, or people with disabilities.

Affirmative action is defined as measures intended to ensure that suitably qualifiedemployees from designated groups have equal employment opportunities and areequitably represented in all occupations and levels in the workforce.

The Act identifies designated employers as those who employ 50 people or more orthose whose turnover is above a certain threshold (R7.5 million in the case ofmining and R10 million in the case of manufacturing). It includes municipalities andstate organisations, although the defence force, national intelligence and revenueservices are exempt.

The Act therefore applies to most South African gold mining companies and both ofthe primary refiners. It also applies to medium and large jewellery retailers andmanufacturers. Most of the small manufacturers and retailers, and some of thesecondary refiners, are exempt by virtue of the size of their payrolls and turnover.

The Act stipulates that designated employers shall promote affirmative actionwithin their organisations in accordance with an employment equity plan.

Each employment equity plan must set out the steps the designated employerintends taking to achieve employment equity over the next one to five years. To dothis, the designated employer needs to analyse its workforce profile, as well as itsemployment practices and policies. In drawing up the plan, the employer mustconsult with unions and employees to gain consensus with respect to its contents.

The purpose of the Employment Equity Act is toachieve equity in the workplace by promoting equalopportunity and fair treatment in employment byeliminating discrimination...



Employment equity plans must be submitted to the Department of Labour on anannual 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 compensationor impose fines for non-compliance with the terms of the Act. The Act provided forthe establishment of a Commission of Employment Equity on 14 May 1999. Theeight members of this Commission are nominated by voting members of Nedlac4

who represent organised labour, commercial entities, the State and entities ofcommunity and development interests in the Development Chamber of Nedlac.

The Commission oversees the implementation of employment equity on a nationallevel, reporting annually on emerging trends, progress on implementation of theemployment equity legislation and the challenges faced by government, employersand employees in dealing with equity issues in the workplace.

66..33..33 TThhee SSkkiillllss DDeevveellooppmmeenntt AAcctt 9977 ooff 11999988The Act is aimed at developing and improving the skills of employees in theworkplace.

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 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 trainingstandards and qualifications must be achieved and how courses should beaccredited. 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 theMining Qualifications Authority (MQA) is one;

• Education and Training Quality Assayers (ETQA), which oversee the quality ofeducation and training. Any provider of educational services must be registeredwith the ETQA;

• Sector Education and Training Authorities (SETAs) covering each sector of theSouth African economy. Members of a SETA are drawn from trade unions,government and bargaining councils. SETAs replace the old industry trainingboards; and

• the Skills Development Fund, which funds projects identified in the nationalskills development strategy as national priorities or other projects related to theachievement of the purposes of the Skills Development Act as determined bythe Director-General.

4 National Economic Development and Labour Council.

The Skills Development Act is aimed at developingand improving the skills of employees in theworkplace...



The Skills Development Act applies to all employers except for the public service,religious organisations or charities, public entities that receive more than 80% oftheir funding from Parliament and employers whose total payroll is less thanR250,000 per annum, or those who do not have to register in terms of the IncomeTax Act. Affected employers must pay an amount equal to 1% of their workers’gross pay as a skills development levy5. This levy is paid to the SETA and the SkillsDevelopment Fund to be redistributed back to individual companies in the form oftraining grants and associated finance.

SETAs are the recipients of 80% of the revenue and the Skills Development Fundreceives the remaining 20%. SETA programmes pay grants directly to employers inthe sectors in which they operate. The Skills Development Fund finances trainingprogrammes identified as priorities on a national level.

For more information on the role of SETAs and training and skills transfer in thegold industry, refer to Appendix 3.

66..44 TTAAXXAATTIIOONN

There are various categories of taxation applicable to South African business andcommercial entities. This section deals with corporate tax and Value-Added Tax(VAT), as they relate to the gold industry.

66..44..11 CCoorrppoorraattee ttaaxxCorporate tax is levied on income derived by South African resident companies ontheir worldwide income. Dividends received from foreign companies are exempt.

For tax rate purposes, a distinction is made between gold mining companies andnon-gold mining companies. Mining income derived from gold is taxed at differenttax rates from non-gold mining income.

Non-gold mining companies are taxed at the basic rate of 29%6 on gross incomeless deductions (as per the Income Tax Act). In addition to the basic rate, asecondary tax on companies (STC) of 12.5% is payable on the net amount ofdividends declared by the company.

With respect to branches of foreign-owned companies conducting mining activitiesin 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-minebasis at a sliding rate, which increases and decreases in line with that particularmine’s profitability.

The origin of a distinct taxation formula for gold mining companies lies in thefollowing 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 projectand first production;

- the nature of individual orebodies, which means that there are significantvariances 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.



The formula used to determine the rate of income tax which a gold miningcompany pays on its taxable income is known as the ‘gold tax formula’. For the taxyear 2005/6, it is as follows:

GGoolldd ttaaxx ffoorrmmuullaa aass aatt 22000055//0066PPrrooffiitt ttoorreevveennuuee rraattiioo AAvveerraaggee ttaaxx rraattee %%5 0.0010 22.5015 30.0020 33.7525 36.0030 37.5035 38.5740 39.3845 40.0050 40.50Data source: AngloGold Ashanti.

This rule means that each mine’s tax rate is calculated separately and applied tothe taxable mining income derived from that particular gold mine.

In the case of all gold mining income, capital expenditure is deductible in full fromgold mining income in the year in which it is incurred. This contrasts with the ruleapplicable to capital expenditure incurred in the manufacturing sector where it isdeductible over five years or over an agreed period of depreciation.

Capital expenditure may only be deducted from the mine for which the expenditurewas incurred. Any capital expenditure in excess of taxable profits may be carriedforward to subsequent years of assessment, but can still only be set off against thetaxable 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 thatexcess capital expenditure can be set off against 25% of the taxable income ofanother mine in the same year.

66..44..22 VVaalluuee--AAddddeedd TTaaxx ((VVAATT))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 asa going concern, international transportation and the supply of certain unpreparedfoodstuffs.

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-addedtax 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 cycle7 - a factor cited by thejewellery manufacturers, especially the smaller ones, as adding to cash-flowproblems in their companies.

7 In other parts of the world, for example the UK, VAT operates on a 3-month cycle.

This rule means that each gold mine’s tax rate iscalculated separately and applied to the taxablemining income derived from that particular goldmine...



The mining industry does not pay VAT on export sales and is entitled to a refund inrespect 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 finishedjewellery, jewellery alloys and semi-fabricated jewellery - are subject to VAT, at thestandard rate.

66..55 FFIINNAANNCCIINNGG TTHHEE SSOOUUTTHH AAFFRRIICCAANN GGOOLLDD BBUUSSIINNEESSSS

66..55..11 TThhee mmiinniinngg aanndd rreeffiinniinngg sseeccttoorrMining and refining of gold are capital-intensive processes that require substantialfinancing. Mining projects are associated with long lead times, and because of thedeep level, hard-rock nature of South African gold mining, local gold mining isparticularly capital-intensive.

These projects are normally funded internally by the company itself, or by raisingcapital on the equity market, or by a combination of both. Where banks approveloans, it is common for those banks to expect the mining company to put in placesome form of gold price hedging programme8 in order to protect the viability of theproject in the event of lower gold prices in future. Gold hedging programmes areexplained more fully in Appendix 4.

66..55..22 TThhee jjeewweelllleerryy sseeccttoorrOne of the constraints on growth of the South African gold jewellery manufacturingsector has been the absence of cost-competitive facilities for the financing ofprecious metals in the fabrication pipeline.

Financing of gold working capital in jewellery manufacturing is a problematic issuefor manufacturers worldwide. Unlike other manufacturing industries (such astextiles for example), gold jewellery manufacturers have to deal with the high costof working capital, over and above other conventional financial outlays necessary inestablishing a business. The high cost of gold and the periodic volatile nature of itsprice render it particularly expensive and potentially risky for a manufacturer tohave financial exposure to the gold tied up in the manufacturing process, in finishedproduct or in inventory.

This issue is not therefore unique to the South African jewellery manufacturingsector. There are two reasons, however, why financing of gold working inventoryposes a particular problem for South African gold jewellery manufacturers.

In established gold manufacturing countries such as Italy, the commercial bankingsector typically has an active bullion lending business. Long-standing relationshipsexist between the local banks and the jewellery industry. The local commercialbank will complete a credit rating of the local jewellery manufacturer and based onthese results will issue a letter of credit or guarantee against the metal loan. Thebullion bank or the local commercial bank will then lend the gold to themanufacturer.

This kind of lending scheme has not developed in South Africa. One of the reasonsfor this, as highlighted earlier in this chapter, has been the absence of private goldholdings in the South African economy, a result of the prohibition on private goldownership. Such schemes allow manufacturing jewellers to benefit from goldlending rates based on the gold lease rate, which is typically lower than monetaryinterest rates.

8 Hedging to minimise price risk involves locking in the price the producers receive or the consumer pays for future settle-ment. See Appendix 4 for a more detailed explanation.

One of the constraints on growth of the SouthAfrican gold jewellery manufacturing sector hasbeen the absence of cost-competitive facilities forthe financing of precious metals in the fabricationpipeline...



South African manufacturers therefore have to rely on standard bank loanagreements for financing working gold inventory. South Africa is a high interest rateenvironment and South African manufacturers are therefore also penalised by theinterest rate environment in which they operate relative to manufacturers in otherparts of the world.

The graph illustrates the difference between gold lease rates, the basis for goldlending schemes in established jewellery manufacturing economies such as Italyand Dubai, and South African monetary interest rates.

LLooaann ccoossttssThe cost of financing gold in process to South African manufacturers is at asubstantial premium to overseas competitors. South African jewellery manufacturerspay prime interest rates plus a 2% to 3% risk premium. As at mid-2005, the primeoverdraft interest rate in South Africa stood at 10.5%, implying a total loan cost ofbetween 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 thesame as – international methods of financing are in place.

The details are confidential to those local manufacturing jewellers but it is believedthat 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 tocover 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 jewellerymanufacturers, for example in Italy and Turkey, would have access to this type offinancing.

CCoollllaatteerraall rreeqquuiirreemmeennttssMany South African jewellery manufacturers report that, in order to finance thepurchase of gold, local banks require them to lodge collateral equivalent to 120% ofthe value of the loan. This collateral covers possible fluctuations in the value of thegold price, and hence in the value of the metal borrowed, as well as the Rand/Dollarexchange rate.

International gold loans also require collateral cover to protect the lender from goldprice volatility. Details of this are decided between the parties concerned, butinterviews 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 thejewellery manufacturer and on the quality of their business relationship. Since thisis confidential between the parties, there is no norm that can be cited for thejewellery manufacturing industry.

In February 2005, Standard Bank in the UK announced its intention to launch a newgold financing scheme targeted at the jewellery market in Dubai. The bank notedthat there would be no cash margin requirements, variation or margin calls. At thetime of writing this report, full details of the new scheme had yet to be madepublic.

QQuuoottaabbllee qquuootteess::“Credit is the key. If a manufacturer cannot getcredit, he cannot grow his business. And the key tocredit is reputation.”IInntteerrnnaattiioonnaall bbuulllliioonn bbaannkkeerr



IInnssuurraanncceeFull insurance coverage of metal in stock and in the fabricating pipeline is a pre-requisite for any gold loan internationally. Those South African jewellery fabricatorsinterviewed noted that while they had insurance cover for third party liability andstock in transit, the premiums associated with insuring jewellery inventories andmetal in the manufacturing pipeline make such insurance prohibitive. The absenceof insurance has implications for a fabricator’s ability to participate in goldfinancing schemes.

TThhee RRaanndd RReeffiinneerryy GGoolldd CCoonnssiiggnnmmeenntt AAggrreeeemmeenntt The Rand Refinery has in place a consignment agreement through which jewellerymanufacturers can borrow fine gold. This gold consignment agreement is not ascheme designed to fund working gold inventory but facilitates the funding ofinventory of finished goods, enabling manufacturers to produce jewellery inanticipation 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 ouncegold price based on the London fix of the day of invoice. VAT is then added interms 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 anyoneauthorised by Rand Refinery access to these records;

• the collateral for gold borrowed is finished product lodged with Rand Refineryfor the term of the loan; and

• any amount falling due for payment by either of the parties bears interest atthe prime rate plus 2% calculated on the due date until date of payment in full.

TThhee AAnnggllooGGoolldd AAsshhaannttii//GGoolldd FFiieellddss//BBAAEE SSyysstteemmss//SSaaaabb GGoolldd AAddvvaannccee SScchheemmee AngloGold Ashanti, Gold Fields, BAE Systems and Saab have developed a GoldAdvance 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 internationalmanufacturers;

• significantly increase the volume and value of South African jewellerymanufacture and exports; and

• attract new investors and entrants into the jewellery manufacturing sector inSouth Africa.

The initial intention is that the Gold Loan Scheme shall have sufficient collateral tolend up to 1,000kg of fine gold, but this may be increased as the capacity of thelocal jewellery manufacturing industry to absorb this lending and to provideguarantees develops.

The Rand Refinery has in place a consignmentagreement through which jewellery manufacturerscan borrow fine gold...

The initial intention is that the Gold Loan Schemeshall have sufficient collateral to lend up to 1,000kgof fine gold...



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 NationalIndustrial 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 willapprove 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/Saaband a South African Rand guarantee from the two mining companies;

• the borrowing jeweller will be required to provide security for the remainingone-third of the collateral required in the form of non-gold security;

• Standard Bank will lend the gold to the jewellery manufacturer from its ownbalance sheet;

• once a due diligence has been completed on the borrower by Standard Bank, asmanager of the scheme, and the criteria met, the application will be submittedto the scheme committee for approval. The pricing of each loan will bedetermined on a case-by-case basis;

• once approved by the scheme committee, Standard Bank will manage the loanand operate a margining mechanism to ensure that the value of the collateraladvanced to the manufacturer does not fall below a level that significantlyincreases 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%, thejeweller will need to advance sufficient funds to restore the value of thecollateral to the original cover ratio; and

• administrative costs of the loan including the costs of the due diligence (creditevaluation and physical/insurance audit), the cost of legal documentation andongoing monitoring and administration of the loan, are for the account of thejewellers.

66..66 TTHHEE RROOLLEE OOFF GGOOVVEERRNNMMEENNTT MMIINNIISSTTRRIIEESS AANNDD AASSSSOOCCIIAATTEEDD EENNTTIITTIIEESS IINN TTHHEE GGOOLLDD IINNDDUUSSTTRRYY

66..66..11 DDeeppaarrttmmeenntt ooff TTrraaddee aanndd IInndduussttrryy ((DDTTII))Since 1994, the DTI has had as a core objective the re-integration of South Africainto 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.

Central to the DTI’s policies are the development of small, medium and microenterprises (SMMEs). To this end, the DTI runs a number of other investmentschemes, classified broadly into those that offer:• investment support;• small business development;• increasing competitiveness;• training and skills transfer ;• innovation and technology; and• export assistance.

Since 1994, the DTI has had as a core objective there-integration of South Africa into the globaleconomy...



A number of these incentive schemes are open to the various sectors of the localgold industry, and are suited to the jewellery manufacturers. In general, however,uptake of these incentive schemes on the part of the jewellery manufacturingsector is low.

The various programmes run by the Department of Trade and Industry are asfollows:

SSmmaallll,, MMeeddiiuumm EEnntteerrpprriissee DDeevveellooppmmeenntt PPrrooggrraammmmee ((SSMMEEDDPP))The Small Medium Enterprise Development Programme (SMEDP) is open to localand foreign companies, close corporations, co-operatives, sole proprietorships andpartnerships investing up to R100 million in land, buildings, plant and equipment fornew projects or in expanding existing businesses.

The programme offers cash incentives for small- or medium-sized businesses inSouth Africa, especially those relating to manufacturing. It aims to encourage theestablishment of new projects and the expansion of existing projects, by subsidisingthe 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 thefirst two years of an acquisition of specified assets calculated on a sliding scale. Anadditional investment grant is payable in the third year provided that wagesamount to at least 30% of the manufacturing costs. All incentives under thisscheme are tax-exempt.

A survey of 383 companies in Ekurhuleni Metro in mid-2003 by the CorporateStrategy and Industrial Development research project at the University of theWitwatersrand found that the SMEDP was the most widely-used incentiveprogramme, at 7% of firms. It also found firms using it were 27% more likely tohave recorded employment growth and 55% more likely to have high outputgrowth than those not taking advantage of the programme. This research did notestablish what proportion of uptake was associated with the gold industry.

FFoorreeiiggnn IInnvveessttmmeenntt GGrraannttThe Foreign Investment Grant encourages foreign entrepreneurs to invest in newmanufacturing entities in South Africa. Grants are extended for the qualifying costsof moving machinery and equipment from abroad into South Africa. It issupplementary to the investment grant of the SMEDP.

To qualify, foreign companies must be registered as incorporated legal entities inSouth Africa. The scheme specifically excludes investors from the Southern AfricanDevelopment Community (SADC) and the South African Customs Union (SACU).

The grant is limited in that it excludes used or second-hand machinery andequipment, as well as new machinery and existing technology.

Grants of up to a maximum of R3 million per project are considered and are offeredas a one-off to a foreign entity entering the South African market. The grant cannotexceed the actual cost of relocating the machinery, or of 15% of the value of therelocated machinery, whichever is the lower.

The level of up-take by the gold business of these investment grants is not certain.

SSkkiillllss ssuuppppoorrtt pprrooggrraammmmeeManaged jointly by the DTI and the Department of Labour, this programme makesavailable grants for training and development and the increase of skills levels amongemployees. 50% of the training costs are subsidised, up to a maximum of 30% ofthe company’s total wage bill.

The Small Medium Enterprise DevelopmentProgramme (SMEDP) is open to local and foreigncompanies, close corporations, co-operatives, soleproprietorships and partnerships investing up toR100 million in land, buildings, plant and equipmentfor new projects or in expanding existingbusinesses...

The Foreign Investment Grant encourages foreignentrepreneurs to invest in new manufacturingentities in South Africa...

The skills support programme makes availablegrants for training and development and theincrease of skills levels among employees...



The programme is designed to enhance other incentive schemes such as the SMEDPand companies that qualify for that programme automatically qualify for the SkillsSupport Programme.

The grant is payable to new projects or to the expansion of existing ones. There areno restrictions on the type of training that can be offered. All grants under thisscheme are payable for up to three years and are tax-exempt. The level of up-takeby the gold business of this support programme is not certain.

NNaattiioonnaall EEmmppoowweerrmmeenntt FFuunndd ((NNEEFF))The National Empowerment Fund was established in 1998 to promote, throughgrants, economic equality and transformation in the South African economy. Itcommenced 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 maybe considered.

The recipients of funding include new enterprises, businesses that are expandingand the BEE transformation of existing businesses.

After initial difficulties and criticism over the slow disbursement of funds, (onlyR5 million had been spent by 2004), the Government announced in August 2004that this initiative would be boosted over the following 12 to 18 months with thecapitalisation of the NEF to R2 billion.

The level of uptake of this funding by the gold business is uncertain.

66..66..22 IInndduussttrriiaall DDeevveellooppmmeenntt CCoorrppoorraattiioonn ((IIDDCC))The IDC is a self-financing national development finance institution whose primaryobjectives are to contribute to the generation of balanced, sustainable economicgrowth in Africa and to the economic empowerment of the South Africanpopulation, thereby promoting economic prosperity for all citizens. The IDC achievesthis by promoting entrepreneurship through the building of competitive industriesand enterprises based on sound business principles.

Corporate Profile and VisionThe 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 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 ofthe 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.

The National Empowerment Fund was established in1998 to promote, through grants, economicequality and transformation in the South Africaneconomy...

The IDC is a self-financing national developmentfinance institution whose primary objectives are tocontribute to the generation of balanced,sustainable economic growth in South Africa and tothe economic empowerment of the South Africanpopulation, thereby promoting economic prosperityfor all citizens...



FinancingThe aims of the IDC with respect to the sector are to provide funding to small andmedium-sized mining, mineral beneficiation and jewellery manufacturingenterprises and to play a leading role in the development of commerciallysustainable 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-equity9;• limited recourse finance10;• commercial loans;• wholesale finance;• share warehousing11;• export/import finance;• short-term trade finance; and • guarantees.

The procedures adopted by the IDC are as follows:

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.

Initial screening

Basic assessment

Decision-making (Investment committee)

Legal agreements

Disbursement

Post-investment management

* Memorandum of understanding

Feasibility completed

Term sheet

Due diligence

*MOU/Co-operation agreement

Feasibility study

Feasibility not fully investigated

The aims of the IDC with respect to the sector are toprovide funding to small and medium-sized mining,mineral beneficiation and jewellery manufacturingenterprises...



On receipt of an application, an initial screening will be undertaken to ensure thatall the required basic information has been submitted to enable the IDC to fullyassess the application. This basic assessment establishes whether the IDC normsregarding 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 theapplication. The duration of this visit will normally be between three and fiveworking days. With respect to decision-making, applications of up to R10 millionare considered weekly by a Credit Committee. The Executive Management meetsweekly to consider applications above R10 million up to R60 million. The IDC’sBoard of Directors generally meet on a monthly basis to consider applications forlarger amounts.

An agreement will be forwarded to the applicant for signature after the applicationhas been approved. After all conditions precedent to the loan (which could includethe registration of bonds) and other formalities of the loan agreement have beencomplied 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 amutually agreed plan, to include Board representation, relationship maintenanceand strategic value-added support.

Support for the Mining and Jewellery SectorsSupport for the gold industry at the IDC was initially facilitated by two StrategicBusiness Units (SBUs) namely the Resources and Beneficiation SBU and theEntrepreneurial Mining and Jewellery SBU. These two SBUs merged inJuly 2005 to form the Mining SBU.

The focus of the Mining SBU is firstly on larger projects with greater involvementfrom IDC staff, mainly equity type transactions augmented by other financialinstruments. The IDC becomes involved in project development, typically at theend of feasibility, and includes mining projects as well as large-scale mineralbeneficiation projects.

Secondly, the SBU is involved in small, medium and large scale mining and jewelleryprojects that are already in or beyond the implementation phase and include thetransfer of ownership to black economic empowerment (BEE) parties, preferentialprocurement to BEE and SME service providers to the mining industry.

According to the IDC, the entity’s total mining exposure, as at June 2005, was asfollows:

MMiinniinngg eexxppoossuurree aass aatt JJuunnee 22000055 RRaanndd SSeeccttoorr vvaalluuee %% 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 TToottaall 55,,666600,,666677,,441155 110000..00 Source: Industrial Development Corporation

The primary focus of the Mining SBU is on largerprojects with greater involvement from IDC staff...

Secondly, the SBU is involved in small, medium andlarge scale mining and jewellery projects that arealready in or beyond the implementation phase...



The IDC’s approval rate for gold jewellery projects (measured in terms of thenumber of applications approved relative to the total applications received) is about20%. Finance was mainly provided for working capital and a small portion for plantand equipment.

The challenges faced by the IDC in dealing with gold jewellery financingapplications, 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 isneither new nor specific to the IDC. The IDC requires a minimum of 40% of theloan to be secured.

With respect to incomplete business concepts, the IDC gives applicants theopportunity to address areas of the business plan which have not met IDC criteriaafter the initial business plan has been assessed.

Of concern to the IDC is the fact that applications for jewellery manufacturingloans frequently fail to show full enough appreciation of the required marketing ofthe final product. While the business plans may address the product and themanufacturing component, some of the applications fail to demonstrate fullunderstanding of the targeted market and the necessary strategies which need tobe implemented in order to achieve the envisaged market share.

In terms of management, the IDC reports that potential newcomers to jewellerymanufacturing need to demonstrate sufficient management skills (technical,financial and marketing) and understanding of the jewellery industry in order tosuccessfully implement a jewellery project.

66..66..33 TThhee SSoouutthh AAffrriiccaann RReesseerrvvee BBaannkk ((SSAARRBB))South Africa’s central bank, the South African Reserve Bank (SARB), was originallythe sole purchaser and marketer of local gold production. In recent years, especiallywith the partial lifting of exchange controls, the Reserve Bank has withdrawn fromthis role in the gold market.

In terms of the Reserve Bank Act of 1989, SARB still has the following powers andfunctions 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 orloss 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.

South Africa’s central bank, the South AfricanReserve Bank (SARB), was originally the solepurchaser and marketer of local gold production. Inrecent years, especially with the partial lifting ofexchange controls, the Reserve Bank has withdrawnfrom this role in the gold market...



Until December 1997, SARB was the sole marketer of all South African goldproduction. 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 goldminers permission to sell all their output in the open international markets andgradually 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 theinternational gold market.

To date, the SARB still purchases and markets limited amounts of production fromthe smaller mines, and continues to manage the country’s reserve position. Thisstood at 124t at the end of June 2004.

South African gold holdings as a percentage of total reserves have fallen sharplysince 1997, in line with the increase in the country’s non-gold reserves, which arepredominantly held in Dollars.

The increase in gold reserves in June 2000 was the result of a $500 million gold-denominated syndicated loan facility put in place internationally by the SARB anddrawn down over a period of three years.

SARB is also permitted to place limited amounts of gold on deposit withcommercial banks. The volume of gold varies but does not exceed 10t (320,000oz).Given that total gold lending internationally (national central banks and officialinstitutions such as the Bank for International Settlements) currently amounts to3,770t, 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 forsale through NewGold Issuer Limited, the public company issuing the goldExchange Traded Fund (ETF)12 recently launched by Absa in the country. Thistonnage 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 farthe most famous is the Krugerrand but also on offer are the Protea series and theNatura series. Details of these coins can be found in Chapter 5.

12 See Chapter 5 for a full description of NewGold and an analysis of all Exchange Traded Funds.


CCHHAAPPTTEERR 77

TTRRAADDEE

CCoonntteennttss::

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

CCHH

AAPPTTEERR 77

77

Photograph courtesy: AngloGold Ashanti Limited


Since 1994, the value of South Africa’s exports hason average risen by 12% per year...

In value terms, the contribution of mining to SouthAfrican exports has fallen from 50% in 1994 to 32%in 2004...


CHAPTER 7TTRRAADDEE

South Africa is a major importer and exporter of a wide range of goods and servicesand 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, SouthAfrica is an important participant in the international gold market.

77..11 TTRRAADDEE

77..11..11 SSoouutthh AAffrriiccaa aass aann iinntteerrnnaattiioonnaall ttrraaddiinngg ppaarrttnneerrSince the first democratic elections in 1994, the value of South Africa’s totalexports has on average risen by 12% per year, while the value of total imports hasrisen by 15% on average per year.

In value terms, the contribution of mining to South African exports has fallen from50% in 1994 to 32% in 2004. In contrast, the importance of the manufacturingsector 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 Africanexports. The proportion of exports to Asia, currently 24%, can be expected to risewith increased demand for raw materials from China.

The United States, United Kingdom and Japan are the top importers of SouthAfrican goods and services in value terms, representing collectively 33% of the totalof 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 thanexports, with Asia and Europe accounting for 80% of goods imported in 2004.

77..11..22 CCuussttoommss aanndd eexxcciissee aanndd tthhee iimmppoorrtt aanndd eexxppoorrtt ooff ggoolldd ttoo aanndd ffrroomm SSoouutthh AAffrriiccaa

The analysis of gold imports and exports into and from South Africa differentiatesbetween the authorities’ definitions of ‘monetary gold’ (bars), ‘coin’ and ‘other finegold 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 CommodityDescription and Coding System (HCDCS or HC) in the recording and reporting of alltrade data.

1 See Chapter 2 for details.

South Africa, as a major importer and exporter ofgoods, has long-standing trade relationships with anumber of countries...


CHAPTER 7TTRRAADDEE

The HCDCS codes relevant to the gold industry are shown in the following table:

HHaarrmmoonniisseedd ccoommmmooddiittyy ddeessccrriippttiioonn aanndd ccooddiinngg ssyysstteemm ((ggoolldd))71.08 Gold Unwrought, semi-fabricated

or powder form71.08.10 Non-monetary71.08.11 Powder71.08.12 Other unwrought71.08.13 Other semi-manufactured form71.08.13.1 Bars, rods, plates, sheets and strip71.08.13.2 Foil71.08.13.9 Other71.08.20 Monetary71.13 Jewellery71.18 CoinData source: Department of Trade and Industry

To collate a summary of imports and exports of fine gold into and out of SouthAfrica, the trade figures associated with the above HCDCS codes going back to1999 were analysed. In each year, analytical anomalies with the official data wereencountered. These are listed below and it should be noted that they are in no wayunique to South Africa. Similar anomalies are encountered in the analysis of tradestatistics 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 inkilograms or vice versa. Further, there were instances where there were notonnage 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 thesituation. Examining the more detailed statistical database provided by Customsand Excise still left a number of unanswered questions:

22000044 DDTTII ttrraaddee ddaattaaGGoolldd eexxppoorrttss CCooddee 77110088 RRaanndd vvaalluuee %% Origin of goods unknown 28,053,783 99.9India 24,496 0.1UK 3,439 0.0Hong Kong 271 0.0US 58 0.0TToottaall 2288,,008822,,004477 110000..00Data source: Department of Trade and Industry website.

• there were instances of South Africa importing metal to itself, with no clearexplanation for this. These figures may have represented semi-fabricatedjewellery exported for finishing and then re-imported into the country for sale,but this is only conjecture; and


CHAPTER 7TTRRAADDEE

• while Customs and Excise appear to collate the data on a monthly basis, thedata is only published on an annual basis. Due to concerns about accuracy, andlack of data with respect to the volumes as described above, analysis ofvolumes was therefore based on the Rand values. On an annual basis, theanalyst was then obliged to apply an average Rand gold price for the year,taking into account the Rand/Dollar exchange rate and the international goldprice in Dollars.

Given these concerns, the analysis of trade figures has relied more on the value oftrade (in millions of Rand) than on the quoted volumes (in grams, kilograms ortons).

This approach addresses the concerns about the volumes but raises other concernswith respect to the interpretation of the values. Obviously, the exchange rate usedgreatly affects the calculation of the final gold tonnages. Even using end-perioddata as opposed to averages can greatly influence the outcome, particularly whenthe 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 isthe potential for a margin of error.

77..11..33 RReessuullttss ooff tthhee ccuussttoommss ddaattaa aannaallyyssiiss

EExxppoorrttss ooff ggoolldd ffrroomm SSoouutthh AAffrriiccaaAccording to the trade figures collated by Customs and Excise, annual exports offine gold from South Africa between 1999 and 2004 were as follows, expressed inthe calculated tonnages from the Rand values:2

FFiinnee ggoolldd eexxppoorrttss ffrroomm SSoouutthh AAffrriiccaa 11999999--22000044 ((tt))MMoonneettaarryy ggoolldd CCooiinn JJeewweelllleerryy

1999 452 1.07 1.812000 451 0.48 2.482001 414 0.47 2.842002 418 0.39 3.702003 408 0.42 4.502004 421 0.72 5.07Data Source: Virtual Metals’ Analysis of Customs and Excise data.

Exports of fine gold in bars (monetary gold) totalled 421t in 2004, up from 408t in2003. Exports of fine gold coins and medallions totalled 0.72t, up from 0.42t theprevious year.

Fine gold exports in the form of jewellery product have risen over the past fiveyears at an annual average of 23%, albeit from a very low base in 1999 of thecalculated Rand value equivalent of 1.81t.

This increase in exports of gold jewellery has occurred despite a volatile Rand, withthe exchange rate against the Dollar depreciating by 20% annually between January1999 and December 2001, before appreciating by 24% a year between January2002 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 theappropriate HCDCS code which gives an annual value in billions of Rand. This was divided by the average Rand gold price in therespective year to give a tonnage figure. Allowance was then made for the mark-up on the various gold products where appropriate.

Exports of fine gold in bars totalled 421t in 2004...

Fine gold exports in the form of jewellery have risenover the past five years...


CHAPTER 7TTRRAADDEE

The stronger Rand has made South African gold jewellery exports more expensive.Interviews with the gold jewellery manufacturers who produce primarily for theexport market confirmed that, in recent years, the strong currency has affectedtheir ability to export final product.3 As manufacturing costs became moreexpensive in the wake of the stronger Rand against the Dollar, these manufacturersadjusted their marketing to recapture more of the local market in the face ofdeclining overseas market share.

In effect, the strong Rand also placed pressure on domestically-focused localfabricators as they now have to compete with local manufacturers who werepreviously targeting the export market.

The effect of the strong Rand aside, the increase in the levels of fine gold exports ofjewellery reveals some potential for local fabricators to break into the overseasmarkets, although from a low base.

Details gained from the interviews with the primary manufacturers tied in closelywith the Customs and Excise figures. Cumulatively, the 20 fabricators interviewedreported exporting at least 4.1t of fine gold in 2004. In addition, according to theresearch, 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 bymanufacturers who were not interviewed although, given the fabrication samplecovered 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 importantconsiderations.

• South Africa enjoys favoured nation status with the USA via the African Growthand Opportunity Act of 2002 (AGOA)4, which allows South African goldjewellery fabricators to export their finished product to the USA free of importduties. This gives South African jewellery manufacturers a 6% cost advantageover their European and Far Eastern competitors, on whom the 6% duty islevied for jewellery product destined for the USA. The predominance of theUnited States as an importer of manufactured jewellery (62% of the totalamount of jewellery exported from South Africa in 2004) is partly a function ofSouth Africa benefiting from AGOA status with that country.

• Under the South African/European Trade Development and Co-operationAgreement (TDCS)5, a Free Trade Area (FTA) between South Africa and theEuropean Union is being developed through the gradual abolition of import andexport tariffs between the two trading partners. Import and export duties aregradually 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 duty-free into Europe. Therefore, over the next six years, the European market willgradually open up to South African jewellery manufacturers at an increasinglyattractive fiscal rate.

This reciprocal removal of trade duties between South Africa and the EuropeanUnion is, however, a double-edged sword. It implies that European jewellerymanufacturers will, in turn, be able to import their products into South Africa,ultimately duty-free. This will gradually remove the 20% fiscal protection currentlyin 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.

The strong Rand has placed pressure on localmanufacturers targeting the South African market...


CHAPTER 7TTRRAADDEE

The following table details the proposed reciprocal reduction in import and exporttariffs agreed between the European Union and South Africa:

PPhhaassee--ddoowwnn bbeettwweeeenn tthhee EEuurrooppeeaann UUnniioonn aanndd SSoouutthh AAffrriiccaaRReecciipprrooccaall ttaarriiffff IImmppoorrtt//eexxppoorrtt ttaarriiffff %%2004 20.02005 17.62006 15.02007 12.62008 10.02009 7.62010 5.02011 2.62012 0.0Data source: TDCS.

The reduction of tariffs applies to jewellery fabricated from gold, silver and PGMs.6

The implication is that locally produced precious metal jewellery will eventuallyenjoy access to this market, free of import duties.

Apart from South Africa’s traditional major trading partners, there is an increasingtrend for jewellery manufacturers to seek trade outlets with other markets. Sub-Saharan Africa has been cited as a potential market with manufacturersinvestigating possible business opportunities in countries such as Nigeria, Ghanaand Mali. The reasons given for this interest in other African countries are largelyassociated with increased levels of overall business being conducted and jewellerybeing perceived as one of many opportunities for increased trade. Althoughmanufacturers intend to consider other African markets as a potential destinationfor their jewellery product, little in the way of business in these areas appears tohave been generated to date.

IImmppoorrttss ooff ffiinnee ggoolldd ttoo SSoouutthh AAffrriiccaaTrade figures collated by Customs and Excise indicate that annual imports of finegold by product, between 1994 and 2004, were as follows, expressed in thecalculated tonnages from the Rand values:

FFiinnee ggoolldd iimmppoorrttss ttoo SSoouutthh AAffrriiccaa 11999944--22000044 ((tt))MMoonneettaarryy ggoolldd CCooiinn JJeewweelllleerryy

1999 0.00 2.68 0.852000 0.03 1.67 1.162001 0.01 0.96 0.872002 0.07 0.71 0.672003 0.00 0.46 0.742004 0.00 0.32 1.28Data source: Virtual Metals Analysis of Customs and Excise data.

It should be noted that no data was available on imports of non-South African goldproduction known to be refined in South Africa. This is because ownership of mineproduction remains with the mine and is not passed on to the refinery when thedoré is delivered for refining. However, once manufactured (mainly into bars), theseproducts are recorded as exports from South Africa, irrespective of the country oforigin of the gold.

Imports of fine gold coins in 2004 were recorded at 0.32t and imports of goldjewellery 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 jewelleryexports, 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

Increasing trend for jewellery manufacturers to seektrade outlets outside traditional markets...


CHAPTER 7TTRRAADDEE

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 goldjewellery7 came from Hong Kong and China, which accounted for one third of totalimports.

This increase in imports of jewellery product from China and Hong Kong appears tobe 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 tofluctuations in the Rand/Dollar exchange rate, rising in times of Rand strength andfalling when the Rand weakens against the Dollar.

With the stronger Rand, especially between 2002 and 2004, the trade reported asharp increase in the number of commercial entities importing finished jewelleryinto the country. More seriously, many claimed that the strength of the Rand wasencouraging 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 inthe official trade statistics and it must be assumed that the official figures that arepresented here understate the true levels of gold jewellery entering the country,possibly by a wide but unverifiable margin.

77..11..44 EExxppoorrtt ccoonnssiiddeerraattiioonnss aanndd ssttrruuccttuurraall iinniittiiaattiivveess

TThhee SSoouutthh AAffrriiccaann//EEuurrooppeeaann TTrraaddee DDeevveellooppmmeenntt aanndd CCoo--ooppeerraattiioonn aaggrreeeemmeenntt ((TTDDCCSS))The South African/European Trade Development and Co-operation Fund (TDCS)provides for the creation of an FTA between the European Union and South Africaby no later than 31 December 2012. By this date, 90% of all trade between the twopartners will be free of customs duties. The European Union will remove duties on95% of South Africa’s exports to the European Union over 10 years. Similarly, SouthAfrica will remove duties on 86% of the European Union’s exports to South Africaover a 12-year period.

It should be noted that the phase-out of the duties takes place over a differenttime horizon – the reduction of duties as they apply to South African fabricatedgoods for export to Europe takes place more quickly than the reduction of dutieson European manufactured goods for export into South Africa. The implication hereis that South Africa will have a limited window of opportunity during which localmanufacturers will benefit from being able to export to Europe at a lower rate oftax compared to European manufacturers exporting to South Africa. From 2012,however, the zero-rate tax rate will apply to both trading partners.

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 tariffheading.

The duty phase-out allowed for by the TDCS has important implications for thelocal jewellery industry and a table of the phase-down was presented earlier in thischapter.

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.

QQuuoottaabbllee qquuootteess::“I reckon at least another 50% over the officialimport figures is being brought in through the greenchannel in suitcases. It is killing the localmanufacturer who has overheads to pay.”JJeewweelllleerr mmaannuuffaaccttuurreerr



QQuuoottaabbllee qquuootteess::“I am importing finished product. Even withduties, VAT and a clearance cost, I can land verysimilar goods in South Africa cheaper than I canmake the stuff.”JJeewweelllleerryy mmaannuuffaaccttuurreerr




QQuuoottaabbllee qquuootteess::“I reckon at least another 50% over the officialimport figures is being brought in through the greenchannel in suitcases. It is killing the localmanufacturer who has overheads to pay.”

”Smuggling can be an individual coming into thecountry wearing 10 tennis bracelets or it can be moreorganised in which case the volumes are huge.”JJeewweelllleerryy mmaannuuffaaccttuurreerr

Duty phase-out as a result of TDCS has importantimplications for the local jewellery industry...


CHAPTER 7TTRRAADDEE

TThhee AAffrriiccaann GGrroowwtthh aanndd OOppppoorrttuunniittyy AAcctt ooff 22000000 ((AAGGOOAA))AGOA was signed into law in the USA on 18 May 2000 as Title 1 of The Trade andDevelopment Act of 2000. Since then the Act has been amended twice – on 6August 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 theireconomies and build free markets. These incentives are in the form of tradebetween the country and the USA free of duties, and quotas on specified productlines. It provides reforming African countries with the most liberal access to theAmerican market available to any country with which the USA does not have a FreeTrade Agreement.

AGOA originally covered the eight-year period from October 2000 to September2008, but amendments signed into the law by President George Bush in July 2004further extend AGOA to 2015. AGOA builds on existing USA trade programmes byexpanding the duty-free benefits previously available only under the GeneralisedSystem of Preferences (GSP) programme. Duty-free access to the United Statesmarket under the combined AGOA/GSP programme now stands at approximately7,000 product tariff lines.

AGOA allows access to the USA market, free of import duty, for the 37 Africancountries designated as eligible, South Africa included. Those qualifying are chosenaccording to various pre-defined criteria, including evidence of progress towards thefollowing:• 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: exports from the USA toSouth Africa greatly exceed USA exports to other Sub-Saharan countries.

Between 2001 and 2003, the percentage of South African exports to the USAcovered by AGOA or the GSP provisions rose steadily from 21% in 2001 to 32% in2002 and 34% in 2003. In 2004 it fell back to 30%. However, in value, it continuesto 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 toNigeria. While exports from Nigeria were heavily weighted in favour of oil and oil-related products, exports from South Africa comprised a diverse range of productsof which jewellery was but one, accounting for 1% of the total. However, this totaldoes not include monetary gold exports to the US, as South African Customs donot break this data series down by country of destination.

By sector, minerals and metals were the largest single category of exports to theUSA under AGOA, comprising 36% of exports by value. This share is, howeversomewhat smaller than the minerals and metals sector’s share of the total SouthAfrican exports (including AGOA and non-AGOA).

The USA is one of South Africa’s major tradingpartners...


CHAPTER 7TTRRAADDEE

VVaalluuee 000000 $$ 22000044TToottaall EExxppoorrttss TToottaall

eexxppoorrttss uunnddeerr iimmppoorrttss ttoo UUSSAA AAGGOOAA ffrroomm UUSSAA

Minerals and metals:excluding monetary gold 3,874,580 639,845 111,320Transportation 649,459 539,144 867,566Chemicals 394,724 219,428 501,563Agricultural products 224,955 148,976 189,052Machinery 192,044 16,630 381,997Textiles and apparel 180,505 119,622 31,612Misc. manufactures 87,064 57,648 56,774Forest products 81,951 24,615 96,648Energy 55,282 – 113,402Electronics 47,434 14,237 474,776Footwear 1,024 890 1,460Data Source: AGOA.

AATTAA CCaarrnneett The ATA Carnet system is an internationally operated and recognised means offacilitating trade and streamlining customs procedures for temporary export of avariety of products. The system operates under the international customsconventions 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 coverscommercial samples, professional equipment and goods for exhibit and return tothe country of origin.

In practice, and specific to the local jewellery industry, the ATA carnet is issued bythe South African Chamber of Business (SACOB) to South African exhibitors ofjewellery 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 taxesfor temporary importation purposes in the country of destination. The exhibitor, inorder to be issued with the appropriate ATA carnet, has to comply with SACOBregulations by photographing, tagging, weighing and valuing each item of jewelleryand 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.

For local jewellers wishing to export their goods temporarily, the ATA Carneteliminates VAT payments and customs duties on their return. Carnet holders also donot have to post any securities at customs. Holders can make customsarrangements ahead of travel, visit more than one country on the same carnet anduse 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 orother 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 feeof R500.

Dollars

South Africa is one of 59 countries in which ATAcarnets are issued and accepted...

In 2000, some 200,000 carnets were issued globally,valued at $12 billion...


CHAPTER 7TTRRAADDEE

In addition, the temporary exporter must lodge a cheque or bank guarantee for50% of the value of the goods for export. This is fully refundable on re-importationof the goods. While the ATA carnet system assists jewellers who intend to exhibitoverseas as temporary exporters, the requirement for a cheque or bank guaranteeto 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, acting in accordancewith international customs conventions. The fees paid to SACOB as a Section 21Company8 for the service go to covering the costs of printing and issuing thecarnets, as well as to the associated insurance of the goods and administrative fees.SACOB does make an undisclosed profit on issuing carnets.

TTrraaddee aanndd IInnvveessttmmeenntt SSoouutthh AAffrriiccaa ((TTIISSAA))Trade and Investment South Africa, (TISA), is an agency working under the auspicesof the Department of Trade and Industry (DTI). It is designed to provide a ‘one-stopshop’ for investors and exporters at a national level.

As a service delivery agency that combines trade and investment promotion, TISA ispositioned to assist the DTI so that it may maximise the synergies betweeninvestment and export. TISA operates out of the DTI in South Africa and out of 50diplomatic offices globally, providing core market information and identifyingmarketing 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) andthe development of small, medium and micro enterprises (SMMEs). TISA also co-ordinates provincial development initiatives.

While TISA appears to have made progress in encouraging South African presenceinternationally via trade exhibitions, the overall concept has some way to go beforeits stated objectives are met. As yet, the local jewellery industry is not fully awareof the incentives offered through TISA. This lack of awareness is not confined toTISA services but also extends to those training incentives which are offered, forexample, by the MQA.

In this regard, South Africa is competing with initiatives such as the DMCC9 in Dubaiwhich was established in 2002. The DMCC is an industrial development zoneoffering one-stop refining and trading facilities for the precious metals and diamondindustries. The DMCC offers investors a number of incentives, the most relevant ofwhich for this discussion is a 50-year tax free status for investors with respect toboth personal and income tax, no foreign exchange controls and no restrictions oncapital repatriation.

IInndduussttrriiaall DDeevveellooppmmeenntt ZZoonneess ((IIDDZZss))The DTI’s Industrial Development Zone (IDZ) Programme is designed to encourageinternational competitiveness in South Africa’s manufacturing sector. The IDZprogramme was established under the Manufacturing Development Act No 187 of1993 as amended in 2000.

An IDZ is a purpose-built industrial estate linked to an international airport or portthat contains a Controlled Secured Area (CSA). A CSA is exempt from duties, VATand import duties on machinery and assets.

8 A company established not for profit.9 Dubai Metals & Commodities Centre.

TISA concentrates on the manufacturing sector andthe development of small, medium and microenterprises...

SACOB is the country’s only issuing and grantingassociation...

An IDZ is a purpose-built industrial area...


CHAPTER 7TTRRAADDEE

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 thetransfer 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 currently four IDZs at different stages of development.

The first IDZ is the Coega Industrial Development Zone near Port Elizabeth whichtook its first tenant in May 2005. While it is operational, it is too early to evaluateits success. The second is in Richards Bay and is under development. The third isELIDZ, the East London Industrial Development Zone, which was first granted alicence to operate in March 2003. In July 2005 it was announced that the ELIDZwas finalising the first phase of its infrastructural development and had attractedthree investors, the largest of which was a glass manufacturer. This IDZ is focusingon the automotive, agricultural and pharmaceutical sectors and not on the preciousmetals industries. The fourth is a proposed IDZ at Johannesburg InternationalAirport, the details of which are given below, since the proposal relates directly tothe local gold industry.

TThhee PPrrooppoosseedd JJoohhaannnneessbbuurrgg IInntteerrnnaattiioonnaall AAiirrppoorrtt ((JJIIAA)) IIDDZZA consortium led by Mintek, the Airports Company of South Africa (ACSA), Blue IQand Rand Refinery, has been set up to establish a Precious Metals/JewelleryManufacturing Precinct. The precinct would be designated as an IDZ and consist oftwo centres – one at JIA within the High Security Zone on a five hectare plot; theother at Rand Refinery on the 2.5 hectare Gold Zone site. This IDZ is specificallydesigned for the manufacture and export of jewellery products.

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 producedjewellery;

• 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 jewelleryrelated 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 ofprecious metal/mineral product, as well as the exchange of scrap and refinedproduct.

As at the time of wriring, construction is scheduled to begin in February 2006.

There are four IDZs at different stages ofdevelopment...

The proposed IDZ at Johannesburg InternationalAirport relates directly to the local gold industry...


CHAPTER 7TTRRAADDEE

77..22 TTOOUURRIISSMM

South Africa had 6,677,839 visitors in 2004; this industry is still relatively small inglobal terms. The vast majority of those who arrived in the country were fromwithin Africa to seek employment and therefore cannot be considered tourists.

The country is ranked by The Economist (World in Figures, 2006) as the 25th mostpopular holiday destination. In international terms this may seem small. Accordingto The Economist, tourist numbers amount to only 1/12th of the numbers visitingFrance and one-third of the numbers visiting Germany.

Tourist arrivals 2004 % change on000’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’ destinationssuch as the USA, Australia or Thailand. South Africa receives more visitors thanAustralia or Brazil, but fewer than Thailand, Mexico or the USA. In reviewing data onSouth African tourist arrivals, it needs to be borne in mind that many visitors toSouth Africa are from neighbouring countries, and visit South Africa with theintention of purchasing basic commodities and white goods, rather than for thepurpose of tourism.

Tourist arrivals 2004 % change on000’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 countrieswith historical connections with South Africa. The fact that the UK features high onthe list of countries of origin of visitors is a function of the colonial history of SouthAfrica 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 thatthe two markets show strong similarities.

AAPPPPEENNDDIICCEESS

CCoonntteennttss::

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

AAPPPPEENN

DDIICC

EESS

88

GOLD SURVEY 2005 149

GOLD SURVEY 2005 150

APPENDIX 1TTHHEE IINNTTEERRVVIIEEWW LLIISSTT

GGoolldd RReevviieeww IInntteerrvviieeww LLiisstt SSeeccttoorr CCoommppaannyy//ddeeppaarrttmmeennttBanking/Finance ABSA Bank LtdBanking/Finance Industrial Development Corporation (IDC)Banking/Finance Standard Bank Plc (Dubai)Coins SA Mint Company/Coin WorldCoins Universal MintConsultants 9 DotsGovernment Department of Minerals and EnergyGovernment Department of Trade and IndustryGovernment South African Customs and ExciseGovernment South African Revenue ServiceGovernment South African Police Service -

Diamonds and GoldGovernment South African Reserve BankHallmarking Sheffield Assay Office UKIndustrial Bosco Printed Circuits (Pty) LtdIndustry Body Chamber of Mines of South AfricaIndustry Body Jewellery Council of South AfricaIndustry Body SA Chamber of Business (SACOB)Industry Body South African Mining Development Association

(SAMDA)Jewellery Manufacturing Alan Mair Manufacturing JewellersJewellery Manufacturing Andreas Salver Manufacturing JewellersJewellery Manufacturing Angelo's Manufacturing JewellersJewellery Manufacturing Creative Gold Manufacturing JewellersJewellery Manufacturing Daberon Manufacturing JewellersJewellery Manufacturing Haglund JewellersJewellery Manufacturing Michael's Designs ccJewellery Manufacturing OroAfrica (Pty) LtdJewellery Manufacturing Orofino GioielliJewellery Manufacturing Peter Scott Jewellers ccJewellery Manufacturing Piero G Manufacturing JewellersJewellery Manufacturing Pneuma JewellersJewellery Manufacturing Rob's WorkshopJewellery Manufacturing Schwartz JewellersJewellery Manufacturing Sid Forman Manufacturing Jewellers (Pty) LtdJewellery Manufacturing Silmar Marketing SA (Pty) LtdJewellery Manufacturing Simon Efune ManufacturersJewellery Manufacturing Studio C Manufacturing JewellersJewellery Manufacturing Subsaharan LivingstoneJewellery Manufacturing/Retailing Galaxy JewellersJewellery Manufacturing/Retailing Natal Wholesale JewellersJewellery Manufacturing/Retailing Tourvest GroupJewellery Retailing Foschini GroupJewellery Retailing Mass DiscountersLabour Union National Union of MineworkersMining AngloGold Ashanti LtdMining Gold Fields LtdMining Harmony Gold Mining Company LtdMuseum/Cultural Gold of Africa MuseumMuseum/Cultural Gold Reef City MintPrimary Refining Musuku Beneficiation Systems (Pty) LtdPrimary Refining Rand Refinery LtdPublications Jewellers' NetworkRetailing Woolworths (Pty) LtdSecondary Recycling Cape Precious MetalsSecondary Recycling First AssaySecondary Recycling Metal ConcentratorsSecondary Recycling Perkins Metal RecoveryTechnical Council for Scientific and Industrial

Research (CSIR)Technical MintekTraining Tshwane University of TechnologyTraining Vukani-Ubuntu Community Development

ProjectsTraining Witwatersrand University of Technology

QQuuoottaabbllee qquuootteess::“Apart from the VM team, I would like to extend aspecial thank you to the following who went theextra mile with this review. Gwyn Fourie of VM,Lebo Mogotsi of Lebone Resources, Claire Minnittof 9 Dots, Lynne La Croix of Alan Mair, MargotRudolf of the Foschini Group, Patrizia Tennent ofMusuku, Adél Botha of Rand Refinery and CathyLapping of Ernst & Young.

In keeping with the rest of this Review, I completedan analysis of this data sample noting that 100%of those who went the extra mile were women.”PPrriimmaarryy rreesseeaarrcchheerr

AACCKKNNOOWWLLEEDDGGEEMMEENNTTSS

Many people have assisted with the compilation ofthis review and their contribution and support isgratefully appreciated. To all the industry players whoparticipated in the interview process – a very specialthank you!


AAPPPPEENNDDIIXX 22

TTHHEE SSOOUUTTHH AAFFRRIICCAANN EECCOONNOOMMYY IINN AANNIINNTTEERRNNAATTIIOONNAALL CCOONNTTEEXXTT

CCoonntteennttss::

A2.1 ECONOMIC CENTRES, DEMOGRAPHICS AND

CONSUMER PROFILES 152

A2.2 LEGISLATIVE AND FINANCIAL INFRASTRUCTURE 153

A2.3 THE ECONOMY IN MORE DETAIL 154

AAPPPPEENN

DDIIXX

22

88


APPENDIX 2TTHHEE SSOOUUTTHH AAFFRRIICCAANN EECCOONNOOMMYY IINN AANN IINNTTEERRNNAATTIIOONNAALL CCOONNTTEEXXTT

South Africa’s lead economic indicators are as follows:

Basic Economic Indicators2003 2004

GNI per capita ($) 2,780 3,630GNI per capita ($ PPP) n/a 10,960Economic 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 6.45Balance 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.

AA22..11 EECCOONNOOMMIICC CCEENNTTRREESS,, DDEEMMOOGGRRAAPPHHIICCSS AANNDD CCOONNSSUUMMEERR PPRROOFFIILLEESS

South Africa is the ninth largest country in Africa, and the 25th largest in the worldby land area. At 1.22 million square kilometres, it is just under one-eighth the sizeof the USA but more than twice the size of France and five times larger than theUK. In terms of population, it is the fourth largest country in Africa, and the 26thlargest country in the world.

South Africa’s population density is 37.2 people per square kilometre, comparedwith 134 for China and 245 for the UK.1

Urbanisation has been a characteristic of demographic flows, especially over thepast 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 44.8mAnnual growth rate 2.0%Population/Sq Km 37.2Population under 15 34%Birth Rate/1,000 22.6Death Rate/1,000 16.9Unemployment (2002) 29.5%Urban Population 57.7%Life expectancyMen 45.1 yrsWomen 50.7 yrsAdult LiteracyMale 87%Female 85%Source: United Nations.

1 Data Source: CIA World Fact Book, 2003.



The unemployment rate, measured using the official expanded definitions2, hastended to increase since 1995, although it fell slightly in 2004. In September 20043

(the latest available data), the official rate was 26.2%, or 4.1 million people. Womenhave a slightly higher official unemployment rate of 30.2% compared to 23.1% formen. There is little difference, however, in the official unemployment rate for urbanand non-urban areas. The official expanded rate, which includes ‘discouragedworkers’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 1995to 71% in 2004, while employment in the informal sector has grown from 14% oftotal employment in 1995 to 20% in 2001. In the absence of formal sectoremployment growth, the burden of absorbing the country’s expanding labour forcefalls on the informal sector.

While there are no statistics to shed reliable light on the size of the informalsector and the contribution it makes to the South African economy, discussionswith academics, commerce and government suggest that its contribution isconsiderable and increasing.

Household expenditure% of total 2000 1995Food 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%TToottaall 110000%% 110000%%Data Source: Income and Expenditure Surveys, Statistics South Africa.

AA22..22 LLEEGGIISSLLAATTIIVVEE AANNDD FFIINNAANNCCIIAALL IINNFFRRAASSTTRRUUCCTTUURREE

South Africa has in place a modern and democratic constitution. It also has a long-established judicial system operating within first world financial and commercialinfrastructures.

At the end of 2003, South Africa had the 18th largest stock market in the world interms of capitalisation, and the largest in Africa.

The country still has exchange controls in place although, since 1994, certain ofthese controls have been relaxed and further market liberalisation is anticipated.

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 spe-cific 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 tocalculate it from the underlying data.



Stock market capitalization$bn

US 14,266UK 2,412China 681Italy 615Australia 586India 279South Africa 268Mexico 123Turkey 68Austria 55Poland 37Zimbabwe 24Data source: The Economist World in Figures.

AA22..33 TTHHEE EECCOONNOOMMYY IINN MMOORREE DDEETTAAIILL

The formal South African economy, with the exception of 1998, has seenreasonably solid GDP growth over the last 10 years. In 2004 it recorded a GDPgrowth rate of 3.7% (see chart on previous page).

Despite relatively robust economic growth, the fiscal authorities have kept inflationunder control, as the chart on the previous page reveals, for both consumer andproducer prices. This was achieved largely through the management of interestrates.

The country’s foreign reserves are currently at record highs, in part as aconsequence of the strong Rand. Reserves have increased since 1997 and by mid-2005 stood at more than $15 billion. Nevertheless, fast rising imports mean thatthe number of months’ imports covered by reserves has remained essentiallyunchanged 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, thelowest they have been since 1981. Real interest rates, in other words after adjustingfor inflation, are 2.8% (CPI-X5 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-yearhighs 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 Dollarbefore rebounding to highs of R5.6 in December 2004. It currently (September2005) trades at R6.7 to the Dollar.

While the movements in the Rand were influenced by the fortunes of the Dollaritself, some of the Rand’s performance can be attributed to internal financial andeconomic circumstances specific to South Africa.

These currency movements have had an impact on the local gold industry. Thestrength of the Rand has placed a number of gold mining companies under pressuredespite substantially higher Dollar-denominated spot gold prices. While the Dollargold price has increased steadily from May 2000, the strengthening of the Randagainst the Dollar has entirely offset those Dollar-denominated gains.

Thus, the gold price in Rands received by the local gold mining industry since early2003 has made serious inroads into the revenues earned, threatening the future ofa 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.


AAPPPPEENNDDIIXX 33

TTRRAAIINNIINNGG AANNDD SSKKIILLLLSS TTRRAANNSSFFEERR

CCoonntteennttss::

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

AAPPPPEENN

DDIIXX

33

88

Photograph courtesy: AngloGold Ashanti


APPENDIX 3TTRRAAIINNIINNGG AANNDD SSKKIILLLLSS TTRRAANNSSFFEERR

AA33..11 LLEEGGIISSLLAATTIIOONN

The Government has put legislation in place to ensure training, development ofskills and skills transfer in South Africa. The legislation applies to all sectors of thegold value chain. The Skills Development Act of 1998 and the Skills DevelopmentLevies Act of 1999 address skills development in South Africa in a structuredmanner.

The Skills Development Act aims to equip South Africans with the skills to succeedin the global market and to offer opportunities to individuals and communities forself-advancement to enable them to play a productive role in society while theSkills Levies Act provides the infrastructure to fund the necessary training and skillsdevelopment.

Together, these acts provide a framework for the collection of funds throughtraining levies payable by employers in South Africa (see Chapter 6 for details) andthe disbursement of the funds via two mechanisms - Sector Education and TrainingAuthorities (SETAs) and the National Skills Fund (NSF) which account for 80% and20% respectively of the disbursement of funds.

The beneficiaries of the Skills Development Act are all South Africans who requiretraining, with a focus on unemployed or under-employed South Africans who are 16years of age or older, or Historically Disadvantaged South Africans (HDSAs). Trainingprojects funded by the NSF focus on national training priorities and usually targetHDSA individuals but the Department of Labour notes that the emphasis should beas follows:• women;• HDSAs; and• people with disabilities.

AA33..22 AAUUTTHHOORRIITTIIEESS IINNVVOOLLVVEEDD WWIITTHH TTRRAAIINNIINNGG

AA33..22..11 SSeeccttoorr EEdduuccaattiioonn aanndd TTrraaiinniinngg AAuutthhoorriittiieess ((SSEETTAAss))As a consequence of the skills development legislation, 27 SETAs1 have beenestablished to administer the scheme’s funds and to manage national skillsdevelopment.

The SETAs, established in March 2000, are managed by the Department of Labourand are responsible for the distribution of funds accumulated from the traininglevies paid by employers in the specific sectors in which they operate. SETAs arealso tasked to oversee the quality assurance of training provided within their sectorand the accreditation of training providers. All SETA qualifications are accredited bythe South African Qualifications Authority2 (SAQA), and must be reflected on theNational Qualifications Framework (NQF). This framework plots all the availablequalifications in South Africa and identifies them in terms of requirements and levelof qualification.

Each sector in the economy has its own SETA, including Government departments.Participants in SETAs are representatives from trade unions, Government andindustry representative bodies from the specified sector (stakeholders).

The South African government recognises the need to have industry relatedqualifications. As an integral part of the process, SETAs oversee StandardsGenerating Bodies (SGBs). The SGBs are representative groups tasked with thecreation of standards according to which training must be undertaken. These bodiesinclude industry representatives, organised labour and government. The SGBs createstructures for the necessary qualifications and then present them through theirrelevant 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.



Within its sector, a SETA must develop and implement a skills development plan, beresponsible for quality controls of SETA projects and of training provided by itsaccredited 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 ontraining programmes. The skills development levies paid by employers aredistributed as follows:

• NSF projects receive and distribute 20% of the total skills levies through projectsdeemed 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 theemployer with its staff)3;

• 50% - Provided to constituents after proof has been provided of the trainingdelivered; and

• 10% - Discretionary grants such as learnerships, apprenticeship training etc.

Contributions to skills development through the training levy on the part ofemployers in the private sector became compulsory on 1 April 2000. Thisrequirement applies to employers who are registered with the South AfricanRevenue Services (SARS) for tax purposes, or to employers with a payroll in excessof R250,000 annually4. The levy rate is equivalent to 1% of the total payroll and thecollection of the funds is administered by SARS.

Skills development levies are held in a separate fund from which 80% is distributedto the different SETAs and the remaining 20% is paid to the NSF. The SETAs thenpay grants to employers who appoint Skills Development Facilitators who have tomeet specified criteria5. Thus the private sector can recoup part of its contributionto the skills levy through these grants.

AA33..22..22 MMiinniinngg QQuuaalliiffiiccaattiioonnss AAuutthhoorriittyy ((MMQQAA)) The MQA is a statutory body consisting of the State, employer and employeeorganisations in the mining industry. It was established as an outcome of theSouth African Qualifications Authority (SAQA) Act, (Act No. 58 of 1995) and theMine Health and Safety Act, (Act No. 29 of 1996).

The MQA’s key function is to promote the objectives of the Skill Development Actthrough implementation of the National Qualifications Framework (NQF)6 andadvise the Minister of Minerals and Energy on matters relating to education andtraining, standards and qualifications in the mining industry. To perform thisfunction, 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 unitstandards are registered with the SAQA, under which the MQA is governed. TheSETA 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 areexcluded 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 trainingreport 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.



Once SAQA has registered the learnership, skills programme or qualification, theSETA is then mandated to fund structured training programmes. To enter into alearnership, each learner must sign a three-way agreement with a workplaceprovider and an accredited training provider. This agreement forms a contractbetween the training provider, employer and learner and is lodged with the MQAbefore any funds are provided.

The contract details the responsibilities of each party and amongst others definesthe minimum payment a learner must receive during training. This new structureprovides full payment for the training, and the payment to the learner allows thelearner the necessary means to attend the training. If the learner is unemployed, heor she will also need to sign a fixed-term employment contract with the workplaceprovider in accordance to South African labour law.

Learnerships are primarily workplace learning programmes, supported by structuredinstitutional learning, which result in a qualification.

When learners have successfully been assessed against all the unit standards thatmake up a particular qualification, the MQA is responsible for issuing a qualificationcertificate to that learner. This certificate is only issued for qualifications that havebeen registered by SAQA and identified on the NQF.

There is a low level of uptake of MQA grants on part of the small and mediumjewellery enterprises. Of the 20 jewellery manufacturers interviewed, only sevennoted that they had MQA-financed students. Four of these were micro or smalljewellery manufacturers as defined in this review. Many of the jewellerymanufacturers 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 theywould continue with the learnership programme.

AA33..33 JJEEWWEELLLLEERRYY TTRRAAIINNIINNGG AANNDD SSKKIILLLLSS TTRRAANNSSFFEERR

Training in the design and manufacture of jewellery is formally provided viacertificates, diplomas and degrees by a number of institutions in South Africa.Training courses are also offered by private organisations and through internal skillstransfer by employees within the jewellery manufacturing sector. This sectionreviews these sources of skills and training.

AA33..44 IISSSSUUEESS FFAACCIINNGG TTHHEE JJEEWWEELLLLEERRYY IINNDDUUSSTTRRYY WWIITTHH RREESSPPEECCTT TTOO TTRRAAIINNIINNGGAANNDD SSKKIILLLLSS TTRRAANNSSFFEERR

Research revealed a number of concerns with respect to what the industry expectsfrom the training institutions and what the training institutions deliver in terms ofgraduate competency.

Throughout the interviews conducted for this review, a lack of understanding andcommunication between the training institutions and jewellery manufacturers wasdetected. This was particularly true with regard to the respective expectations ofthese two constituents regarding what training should be offered, the quality andstandard of the training, the course content, levels of anticipated expertise fromgraduates and students, as well as how the industry should perceive future trainingneeds and how it should be positioning itself to address identified trainingpriorities.

QQuuoottaabbllee qquuootteess::“We were not given any choice with respect to ourstudent and I was apprehensive. As it turns out, hisattitude is very positive – he is willing to learn andwe are careful to build up his confidence whenteaching him. While he is not fully qualified, he iscertainly able to take his place at my workbenchand be productive without ruining my equipment.”MMiiccrroo jjeewweelllleerryy mmaannuuffaaccttuurreerr

QQuuoottaabbllee qquuootteess::“We ask newcomers to make a plain but perfectwedding band. I then evaluate them firstly on theirattitude, then on the product and finally on the timeit took them to make it. Few seem to understand thatif you cannot produce a perfect band you cannot becapable of more intricate work.”MMaannuuffaaccttuurriinngg jjeewweelllleerr



Many jewellery manufacturers are critical of the standard and skill of graduates ofthe training institutions, their level of competency on the workbench and theirattitude towards their work.

The institutions themselves raised concerns about what the industry expects fromtheir graduates. This they deem unrealistically high and consider that criticism fromthe industry – that students are not fully tutored to take their place productivelyon a workbench – is unwarranted.

The institutions argue that jewellery-making is a combination of taught technicalskills, artistic flair and experience. In addition, while they could train a student to areasonable level of competency on a workbench, only a limited number of studentseach year would excel, particularly in the field of jewellery design.

The institutions also argue that manufacturers fail to consider the structure of thejewellery courses and that the industry fails to understand the lead times requiredin adjusting course content to meet industry requirements.

The MQA report of May 20037 noted that the most requested skill from thejewellery industry was design. In late 2004, interviews for this review revealed thatjewellery manufacturers were calling for practical applications and skills on thebench. There appears to be a lack of consensus on what the jewellery industryneeds.

As discussed in Chapter 4, the training institutions also raised a concern that thejewellery manufacturers were unwilling to acknowledge the certificates, diplomasand degrees held by their students. They suggested that the real reason behind thiswas a financial one in that, by not acknowledging the qualifications, the jewellerswere not obliged to pay these graduates the appropriate salaries. While manyjewellery manufacturers denied this, others noted that there was an element oftruth 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 themanufacturers. While the manufacturers provide the workbench experience andmentor staff on the workbench, employees do not necessarily receive formalised orstructured tuition on the workbench. Mentoring on the benches is necessary and avital component of gaining the experience needed to become a manufacturingjeweller. However, the process should not be confused with ‘training’ which impliesmore formal, structured course work as defined by the training institutions.

Secondly, mentoring that takes place in-house among the jewellery manufacturersappears to be very narrow. For example, a staff member might gain experience incasting or polishing, but receive no holistic exposure to the entire manufacturingand financial process within that business. As a result these employees are poorlyequipped to start a business in their own right, or would be limited to performingthe same function in another company.

7 A Skills Analysis of the Jewellery Manufacturing and Gemstone Processing Industries in South African By the Human ScienceResearch Council and Povey Mulvenna & Associates, pg 23.

QQuuoottaabbllee qquuootteess::“How can I spend time with an institution helpingtheir students when I am battling to keep my owncompany above water? I am so tied up withmanagement issues, mainly financial worries that Idon’t even have the time to do what I wasoriginally trained to do – design jewellery.”JJeewweelllleerryy mmaannuuffaaccttuurreerr

QQuuoottaabbllee qquuootteess::“Some years back the industry said it neededemphasis on design. Now it is calling for morepractical work. When it asks for something it wantsit immediately, without realising it takes years forus to be able to respond to these requests. Theindustry has no understanding of what goes intothe planning and structuring of an academic courseand there is no co-ordinated long-term planning orvision as to what the industry should be aspiring toin the long term. Therefore, there can be noconsensus about training needs.”FFoorrmmaall ttrraaiinniinngg iinnssttiittuuttiioonn



AA33..55 TTRRAAIINNIINNGG IINNSSTTIITTUUTTIIOONNSS

Six educational facilities offer formal courses in jewellery design and manufacture.Five of these were formerly known as technikons but have now been renamed asHigher Educational and Training Institutions (HETs) or universities of technology.

Apart from these training institutions, there are a number of community-basedorganisations that offer training courses in jewellery manufacturing. A number offercourses in gemmology, diamond sorting and cutting and watch-making. Thesetraining courses have been excluded from this analysis, which concentrates on gold.

Finally, the jewellery manufacturers themselves maintain that they offer in-housetraining 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 andmanufacture while the University of Stellenbosch offers a Bachelor of Arts degree injewellery design.8

In addition to these institutions, there are three SETA-accredited colleges that offercourses 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 work9:• design of jewellery;• model making for casting of jewellery;• making rubber moulds and casting moulds;• making waxes for rubber moulds and mould trees10;• 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 areapproximately R14,000 annually, although the total cost for first year students ishigher as they need to buy a jewellery tool box of basic tools and equipment, at acost of R5,000.

In 2004, 185 students were enrolled for the courses offered by thesenine institutions.

Enrolment numbers have been steady over the years, limited by capacityconstraints, specifically the number of workbenches available for training.Graduates from these institutions have found employment within the jewellerymanufacturing sector and among the private institutions offering training, such asVukani-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 stones10 Wax tree: a structure on which casting moulds are suspended.



AA33..55..11 CCoommmmuunniittyy--bbaasseedd jjeewweelllleerryy ttrraaiinniinngg pprrooggrraammmmeess There are a number of community-based jewellery training institutions andprogrammes. 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 (companiesoperating 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.

VVuukkaannii--UUbbuunnttuuIn 1999, Vukani-Ubuntu established South Africa’s first goldsmith trainingprogramme in a black township, Atteridgeville. The concept has been applied toother 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 companyhas received the ‘Impumelelo Award’, awarded by the DTI, recognising Vukani as oneof the top 300 black empowerment companies in South Africa.

The three-year jewellery design course trains inexperienced people to producejewellery and other crafts of saleable quality in the shortest possible time. Thecourse 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 isindustry focused.

The project has two divisions:• the training division, which trains students from previously disadvantaged

communities; and• the manufacturing division, which operates a hive12 in all the Vukani-Ubuntu

projects, drawing trainees and craftspeople from the local community andassisting them to produce finished product.

The hive represents an entire jewellery and crafts manufacturing infrastructureprovided by Vukani-Ubuntu.

11 Vukani-Ubuntu has also opened its first gemstone cutting and polishing programme at Galeshewe in Kimberley. This hand-book 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 viathe sharing of overheads and other fixed costs.



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 1999Sponsors AngloGold Ashanti

Nelson Mandela Children’s FundDe Beers

Pick & Pay FoundationNational Development Agency

Academy International Atteridgeville College

NedcorSouth African Breweries Inc

National Lotteries Fund Jewellery Council of South Africa

Management Vukani-UbuntuCapacity 1st Year 202nd Year 15Hive 10Location Atteridgeville, GautengPremised by Atteridgeville CollegeSustainable by 20061st Intake January 1999 – 20 learnersData source: Vukani-Ubuntu

The Atteridgeville Jewellery Project has achieved a 98% employment rate for itsqualifying graduates. A number of graduates have started their own jewellerymanufacturing businesses.

TThhee HHaarrmmoonnyy JJeewweelllleerryy SScchhoooollDate Established September 2000Sponsors UNOPS-SEHD*

Harmony GoldCooperazione Italiana

DTIManagement Harmony Gold (originally Vukani-Ubuntu)Capacity 1st Year 202nd Year 20Hive 20Location Virginia, Free StatePremised by Harmony Gold Mining Sustainable by 20051st Intake September 2000 – 20 learners*United Nations Office for Projects - Small Enterprise and Human Development.



The Harmony Jewellery School (previously the Virginia Jewellery Project) ismanaged by Harmony Gold Mining Company. The project was initially co-funded byUNOPS-SEHD and Harmony Gold Mining. Since then, the UNOPS-SEHD fundinghas expired and Harmony Gold Mining is now the primary funder. To date,Harmony Gold Mining has spent R5.3 million on the jewellery school, whichincludes refurbishment of the premises, the purchase of tools and equipment andthe cost of course design and management. Harmony Gold Mining also subsidisesthe 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 inpreparing students for the diploma.

The school operates as a satellite of the Central University of Technology of theFree State. The University of Technology provides the training diploma andHarmony Gold Mining provides the funding, infrastructure and management of theproject, as well as designing the course content. As of 2005, a total of 32 studentswere enrolled for the diploma and another 40 were enrolled for the learnershipprogramme, 12 of whom have MQA funding.

Four of the graduates are currently employed at the school as facilitators, assistingwith teaching and course development.

TThhee BBaarrbbeerrttoonn JJeewweelllleerryy PPrroojjeeccttDate Established May 2002Sponsors Umjindi Town Council

Local Economic Development FundAfrican Pioneer Mining

Department of Economic Affairs and Tourism(Mpumalanga Province)

Management Vukani-UbuntuCapacity 1st Year 202nd Year 20Hive 5Location Barberton, MpumalangaPremised by Umjindi Town CouncilSustainable by 20061st Intake February 2002 – 20 learnersData Source: Vukani-Ubuntu.

In addition to its specific training programme, Vukani-Ubuntu is actively involvedwith the communities in the vicinity of its projects. In Baberton, the projectincludes a jewellery retail facility and an African art gallery actively promoting thework of 33 local artists.



The Galeshewe Jewellery ProjectDate Established January 2005Sponsors Nelson Mandela Children’s Fund

Northern Cape Urban FET CollegeManagement Vukani-UbuntuCapacity 1st Year 13Location Galeshewe, KimberleyPremised by Northern Cape Urban FET CollegeSustainable by 20081st Intake April 2005 – 13 learnersData source: Vukani-Ubuntu

BBooppaa BBaatthhooBopa Batho means ‘Building People’ and is aimed at developing and training peoplefrom 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 andartisans are in place, covering skills in the mining industry as well as in jewellerymanufacturing.

Mintek is the lead service provider for this initiative and programmes cover school-based teacher training through to skills development in conjunction with tertiaryeducational institutions and industry. Programmes cover small-scale mining andjewellery 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 asrepresentatives of contributing organisations and institutions.

Bateman Africa has recently allocated five per cent of its shareholding to BopaBatho.

KKggaabbaannee PPrroojjeeccttKgabane, meaning ‘precious’, was initiated by the Department of Minerals andEnergy and is a partnership between Mintek, Harmony Gold Mining Company, theMQA and the People's Bank. It is an accredited jewellery training initiative housedat 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 aftertraining was not available.

In terms of the contract entered into with the MQA, Kgabane is required to train250 learners in 2004/2005, a majority of whom are to be rural women ofSouth Africa.



IImmffuunnddiissoo SSkkiillllss DDeevveellooppmmeennttThe 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 startedoperating 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 theCapricorn District Municipality of Limpopo Province (established in September,2004).

The two-year jewellery design and manufacturing training course promotes Africandesign 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 withbrass and then move on to working in silver and gold as the course progresses. Thefirst graduation ceremony took place in Cullinan on 14 April 2004 and the coursewas 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 Richesof Africa jewellery design competitions13 and in AngloGold Ashanti’s TraditionalAfrican Goldsmith Training programmes. Several of the Imfundiso students havewon prizes and scholarships associated with these projects.

AA33..66 JJEEWWEELLLLEERRYY CCOOMMPPEETTIITTIIOONNSS

In recent years, jewellery design competitions have been run in South Africa,sponsored by local gold companies. The objectives of these competitions includethe recognition and encouragement of local talent and the promotion of publicawareness of local jewellery design. The following section describes each of thecompetitions in more detail.

TThhee JJeewweelllleerryy CCoouunncciill ooff SSoouutthh AAffrriiccaa’’ss CCoolllleeccttiioonn AAwwaarrddss JJeewweelllleerryy CCoommppeettiittiioonnThe Collection Awards jewellery design competition was founded and sponsored bythe Jewellery Council of South Africa in 1994. In this annual event, the judgesevaluate the jewellery in terms of its commercial viability. The criteria includeinterpretation of an annual theme, wearability, manufacturing practicality and theinnovative use of materials.

13 See later for details.

QQuuoottaabbllee qquuootteess::“The industry should not underestimate theimportance of these competitions for our students.They allow the students to have creative freedombeyond the confines of their theoretical coursework. They really have fun but at the same timethey are gaining valuable design experience.”FFoorrmmaall ttrraaiinniinngg iinnssttiittuuttiioonn



The competition is open to Southern Africa’s practising jewellers, apprentices andstudents of jewellery design. The competition receives in excess of 1,000 entriesper annum.

The theme for the 2005 competition was ‘The Precious Palette’. Designers wererequested to draw their design from the world of colour.

Winners receive their awards at the Jewellex annual exhibition, after which thecollection is displayed at the International Jewellery London exhibition.

AAnnggllooGGoolldd AAsshhaannttii AAuuDDIITTIIOONNSS RRiicchheess ooff AAffrriiccaaIn 1999 AngloGold Ashanti14 established an annual South African gold jewellerydesign 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 designcompetition. The table that follows lists the number of entrants in the competitionsince its inception.

RRiicchheess ooff AAffrriiccaa ((nnooww AAnnggllooGGoolldd AAsshhaannttii AAuuDDIITTIIOONNSS RRiicchheess ooff AAffrriiccaa))NNuummbbeerr ooff EEnnttrriieess

11999999 22000000 22000011 22000022 22000033 22000044Entries 204 594 320 1,282 1,112 1,189Finalists 17 17 20 25 26 24Data source: AngloGold Ashanti.

Since its inception, a number of changes have been made to the competition withthe 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 inthe 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 longerperiod of exposure.

AngloGold Ashanti provides the gold used by entrants in their jewellery designs. Thecompany owns the final pieces of jewellery but the competition entrants maintainownership 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.



Once winners have been announced at the awards event, the winning pieces areexhibited at events held throughout South Africa and internationally. A total of 137events and exhibitions have been arranged both locally and internationally over thepast six years as the following table shows:15

RRiicchheess ooff AAffrriiccaa ((nnooww AAnnggllooGGoolldd AAsshhaannttii AAuuDDIITTIIOONNSS RRiicchheess ooff AAffrriiccaa)) PPuubblliicciittyy aanndd PPrroommoottiioonnss

EEaasstteerrnn && DDuurrbbaann JJoohhaannnnnneess-- RReeggiioonnaall IInntteerr-- TToottaallWWeesstteerrnn bbuurrgg wwiitthhiinn nnaattiioonnaall

CCaappee && PPrreettoorriiaa SSoouutthhAAffrriiccaa

1999 5 2 8 1 3 192000 3 1 11 1 4 202001 6 1 7 3 4 212002 8 2 4 2 4 202003 10 1 8 4 4 272004 7 4 9 5 5 30TToottaall 3399 1111 4477 1166 2244 113377Data source: AngloGold Ashanti

TTeexxttuurreess ooff AAffrriiccaaIn 2004, the SA Mint sponsored a competition, called ‘Textures of Africa’, aimed atpromoting jewellery designed specifically to incorporate the country’s 1/4 and1/10th ounce gold and silver coins. The Mint is now in the process of organising the2005 competition and intends to make this an annual event.

Participants submit a coin-related design in silver of no more than 80g. The reasonsbehind the decision to ask entrants to work in silver were two-fold: the lower costof silver for the sponsor of the competition, and the fact that most entrants werestudents who were still completing most of their practical work in silver and notgold. Subsequent commercial orders for the winning designs have, however, beenin gold.

The SA Mint received 130 entries. It drew up a list of finalists, and a panel ofindependent judges from the industry – including academics, marketers andmanufacturers – selected the winners. The pieces were judged on a number ofcriteria 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.


AAPPPPEENNDDIIXX 44

TTHHEE IINNTTEERRNNAATTIIOONNAALL GGOOLLDD MMAARRKKEETT

CCoonntteennttss::

A4.1 THE OVER-THE-COUNTER MARKET 171

A4.2 THE FUTURES EXCHANGES 172

A4.3 GOLD HEDGING AND PRICE PROTECTION 173

AAPPPPEENN

DDIIXX

44

88



APPENDIX 4TTHHEE IINNTTEERRNNAATTIIOONNAALL GGOOLLDD MMAARRKKEETT

Of the 445t1 of gold refined in South Africa in 2004, 97% was fabricated into bars2

and exported. These bars were destined either for direct export into India or wereshipped to international bullion banks3 for sale into the global gold market.

The international gold market is a 24-hour market that covers the trading of goldspot, gold forward contracts, over-the-counter derivative products and exchange-traded futures and options contracts in gold4. Consumers and producers interact viathe 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, withNew York’s physical business being overshadowed by its gold futures trade. Otherimportant markets are to be found in Mumbai, Tokyo, Hong Kong, Istanbul,Singapore, Dubai and Shanghai. Of the Asian centres, Tokyo is biggest in terms ofvolumes. 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 goldtraders everywhere, providing a mechanism for daily price benchmarking.Despite its name, this is close to an open auction process, with offers and bidsnetted 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 Londongold 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 aretransacted. Clients who wish to transact on the fix place orders with the bank orbullion dealer, who will either be one of the fixing members themselves, or anotherbullion dealer who will be in touch with a fixing member (and with the client, ifnecessary) while the fixing proceeds.

The fixing members net all orders before communicating their individual netinterest 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 membersthen relay this to their dealing rooms which are themselves in touch with allinterested 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 tothem. The gold price is adjusted up or down until all the buy and sell orders arematched and the price is declared fixed. The fix is therefore a full and fairrepresentation of all market interest at the time.

Outside the pricing mechanism of the London gold fixing, buying and sellingphysical gold in major bullion markets is a straightforward process for anyestablished company in the gold business. Most transactions are by electronic ortelephonic means. Payment for bullion trades is usually required in full by the endof the second working day after the spot contract has been executed. On receipt ofpayment, the bullion may be delivered or held in the dealer’s vault on behalf of theclient. 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 arelatively deep and liquid market. In addition, trading spreads (the differencebetween 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 apendix5 Which, from 5 May 2005, no longer happens in the London offices of N.M Rothschild but is now conducted via telephone.



AA44..11 TTHHEE OOVVEERR--TTHHEE--CCOOUUNNTTEERR MMAARRKKEETT ((OOTTCC))

The over-the-counter gold market (OTC) is a principal-to-principal market whichmeans trading occurs privately between the individual clients, free of the rigidity ofan exchange6. All risks, including those of credit, are between the two parties to atransaction. The flexibility of the OTC market, in contrast to the relative rigidity oftransactions on the exchanges, means that OTC trading accounts for the greatestportion of global trading in gold by far. It also provides confidentiality sincetransactions are conducted solely between the two principals involved.

The main centres for OTC dealings are London, New York and Zurich, which arewholesale markets, with the lowest transaction size typically not less than 1,000oz.In general, mining companies and central banks tend to transact their business OTCthrough counterparty banks in London and New York. These markets also servicemanufacturers of jewellery and industrial products, as well as investment andspeculative business. Zurich specialises in supplying physical gold to manufacturersof jewellery and industrial products. Centres such as Dubai and several cities in theFar East also transact important OTC business, typically involving jewellery andsmall bars (of one kilogram or less) for private investment in that region. A numberof bullion dealers have offices around the world. Most of the major bullion dealersare 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 bullionindustry, 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 maintainsan inventory of gold and silver refiners that meet these standards, known as theGood Delivery List7.

The LBMA has also developed and introduced a number of standard agreements fortransactions in gold. These cover the terms and conditions for forward, option andgold interest rate derivative transactions in the OTC market. The major advantageof standard documentation is that it defines market practice. Its utilisation bymembers of the LBMA avoids the need to continually negotiate and agree termsinvolved in bilateral agreements, and its broad acceptance also provides comfort toclients of the market.

Additionally, the LBMA maintains statistics, issues gold-related publications andruns an annual international gold conference.

The nine market-making bullion banks8 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 (seechart), although it remains the largest OTC market in the world. This decline hasbeen a function of many factors such as the reduction in producer hedging (whichis conducted on the OTC market), the declining profitability of bullion banking inthe 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 thegold market, although it is too soon to say whether this is a trend that willcontinue 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.



AA44..22 TTHHEE FFUUTTUURREESS EEXXCCHHAANNGGEESS

A gold futures contract is a standard agreement for a fixed amount of gold (usually100oz), that allows the buyer or seller to establish a price for futurereceipt/delivery. It is offered by an exchange and provides market participants witha means of minimising transaction costs and maximising profit potential oncommodities. The exchanges are non-profit making and self-governingorganisations9 that operate under a set of regulations which must be adhered to bytheir members and by those who buy and sell their contracts. Membership islimited and has to be purchased and renewed annually.

The exchanges do not trade in the commodities in which they offer contracts, butinstead provide market participants with the facilities and infrastructure to trade.The exchange operates as a clearing-house, playing the role of the buyer when aparticipant wants to sell and of the seller when he wants to buy. This eliminates therisk of the other side to the transaction failing to meet his/her obligations (knownas ‘counterparty risk’). The exchange ensures that it is able to meet the obligationsby requiring margin deposits from participants and payments which cover a portionof 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 – beforedealing can start on the next day of trading.

A margin is payable on all open positions on an exchange as a deposit or securityagainst 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 offutures contracts that have been entered into and are as yet not liquidated by anoffsetting transaction, or fulfilled by delivery.

As the accompanying chart shows, the largest gold futures trading exchange is theCommodity Exchange in New York (COMEX), which began trading gold inDecember 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 Exchangeand 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.



AA44..33 GGOOLLDD HHEEDDGGIINNGG AANNDD PPRRIICCEE PPRROOTTEECCTTIIOONN

Mining companies in South Africa, as elsewhere, may use the futures or forwardsmarkets in their metals (derivatives markets) to ‘hedge’ prices for future production,often for many years into the future. The primary motivation behind hedging is tomanage or reduce risk of unfavourable moves in revenue. By securing the price ofits gold production, a company achieves greater certainty of revenue for thecompany, 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 fordelivery on a fixed date in the future. In this way, therefore, the miner gains morecertainty over future revenues and/or cashflow.

Hedging is also put in place by mining companies, when required by a lending bankto reduce risk in the development (and hence project financing) of a new mine orexpansion.

The practice of hedging is not universal, and often controversial. Many miningcompanies do not hedge, arguing that their shareholders own gold mining sharesfor 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 alsoworks the other way, reducing the gains from a high price.

There have been well-publicised cases (though not in South Africa) where acompany’s hedge book has increased risk, by extending the company’s exposure tocredit beyond its capacity to service or manage that credit exposure in times ofgold price or interest rate votality.

For these reasons and others, the extent of gold hedging globally and in SouthAfrica has reduced significantly in the past four years10. In global terms, total globalhedge exposures/commitments decreased from a peak of 3,175t in the thirdquarter of 2003 (2.2 years of global production) to 1,651t in second quarter of2005 (1.1 years of production). Similarly, South African miners’ hedging has declinedover the same time period from 848t to 385t.

10 According to data from Virtual Metals/Mitsui Precious Metals/Haliburton Mineral Services


RREESSEEAARRCCHH DDIIRREECCTTOORRYY

FACT SHEETS ON MAJOR INDUSTRY PARTICIPANTSRREESSEEAARRCC

HHDD

IIRREECCTTOO

RRYY

88



RESEARCH DIRECTORYLLAARRGGEE PPUUBBLLIICCLLYY LLIISSTTEEDD GGOOLLDD PPRROODDUUCCEERRSS

CCOONNTTAACCTT DDEETTAAIILLSSAddressPhysical: Postal:11 Diagonal St. PO Box 62117Johannesburg Marshalltown2001 2107South Africa South Africa

Phone +27 11 637 6000Facsimile +27 11 637 6108E-mail [email protected] www.anglogoldashanti.com

CCOOMMPPAANNYYAngloGold Ashanti Limited was formed following the merger of AngloGold Limitedand Ashanti Goldfields Limited, which was completed on 26 April 2004. Thecombined company has 20 operations in 10 countries. AngloGold Limited wasformed in June 1998 through the combination of the gold assets of Anglo AmericanCorporation of South Africa and its associated companies. AngloGold Limited thenunderwent a major phase of restructuring. This involved the sale of more than halfof its South African shafts that did not fit in with the company’s long-termobjectives; it also involved the acquisition of interests offshore - in Australia, Northand South America and Africa. The merger with Ashanti Goldfields, a Ghanaiancompany, allowed AngloGold Limited to further diversify its interests in Africa withsubstantial ore reserves in sub-Saharan Africa. Ashanti Goldfields operated six minesin Ghana, Guinea, Tanzania and Zimbabwe. Subsequent to the merger, the FredaRebecca mine in Zimbabwe has been sold.

CCOOMMPPAANNYY OOPPEERRAATTIINNGG SSTTAATTIISSTTIICCSSPPRROODDUUCCTTIIOONN

22000033 22000044South Africa 3.281 Moz 3.079 MozRest of the world 2.335 Moz 2.973 MozTToottaall 55..661166 MMoozz 66..005522 MMoozz

RREESSEERRVVEESS AANNDD RREESSOOUURRCCEESS aass aatt 3311 DDeecceemmbbeerr 22000044Reserves 79 MozResources 218 Moz

Mineral Resources and Ore Reserves are reprinted in accordance with theAustralasian Code for reprinting of Mineral Resources and Ore Reserves (JORC2004) together with the South African Code for the reprinting.

CCOOSSTTSS AANNDD EEXXPPEENNDDIITTUURREESS22000033 22000044

Total cash costs $214/oz $268/ozExploration expenditure $38m $44mCapital expenditure $449m $585m

Data Source: AngloGold Ashanti FY2004 Annual Report, Human Equity Report

AAnnggllooGGoolldd AAsshhaannttii LLttdd

MMAANNAAGGEEMMEENNTTChairman P R EdeyChief Executive Officer R M Godsell

LLIISSTTIINNGGSSJSE Limited, London Stock Exchange, New York StockExchange, Australian Stock Exchange, Ghana StockExchange, Euronext Brussels, Euronext Paris


Data Source: AngloGold Ashanti FY2004 Annual Report, Human Equity Report

MMIINNEE OOPPEERRAATTIINNGG SSTTAATTIISSTTIICCSSTToottaall ccaasshh ccoossttss PPrroodduuccttiioonn

SSoouutthh AAffrriiccaa 22000033 22000044 22000033 22000044$/oz $/oz oz oz

Great Noligwa 213 260 812,000 795,000Kopanang 249 317 497,000 486,000Tau Lekoa 304 432 322,000 293,000Savuka 467 523 187,000 158,000Mponeng 269 386 499,000 438,000TauTona 207 311 646,000 568,000Ergo* 373 436 203,000 222,000*Closed in March 2005OOtthheerr ooppeerraattiioonnssArgentina 143 157 209,000 211,000Australia 243 271 432,000 410,000Brazil 131 130 323,000 334,000Ghana - 293 - 485,000Guinea - 443 - 83,000Mali 158 211 577,000 475,000Namibia 274 348 73,000 67,000Tanzania 183 225 331,000 570,000USA 223 225 390,000 329,000

DDEEMMOOGGRRAAPPHHIICC PPRROOFFIILLEE –– SSOOUUTTHH AAFFRRIICCAAFFYY22000044 TToottaall %% HHDDSSAA %% FFeemmaalleeSenior management 193 12 5Professionals 981 24 12Technicians 1,979 42 21Clerks 1,373 84 30Craft & related trades workers 3,852 58 13Machinery operators 9,814 99 4Elementary occupations 19,599 99 3Permanent 37,791 89 6Non-permanent 8,328 89 2TToottaall ssttaaffff 4466,,111199 8899 66

Total numbers employed at AngloGold Ashanti post business combination withAshanti: 65,400, of which 50,737 are employees and 14,663 are contractors.


AAnnggllooGGoolldd AAsshhaannttii LLttdd



CCOONNTTAACCTT DDEETTAAIILLSSAddressPhysical: Postal:EBSCO House 4 PO Box 390299 Pendoring Avenue MaraisburgBlackheath 1700Johannesburg South AfricaSouth Africa

Phone +27 11 219 8700Facsimile +27 11 476 2637E-mail Ilja.graulich.za.drdgold.comWeb www.drdgold.com

CCOOMMPPAANNYYDRDGOLD Limited (formerly Durban Roodepoort Deep Limited) was established in1895. It owns and operates the Blyvooruitzicht mine in South Africa. The company’sNorthWest operations, which comprised the Buffelsfontein and Hartebeestfonteinmines, were closed during 2005. The Blyvooruitzicht mine is located in theCarletonville goldfield in the Witwatersrand area and has been in operation since1942. 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 announcedgives 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 inthe Porgera joint venture with Placer Dome, both of which are located in PapuaNew Guinea. The company also holds a 45.33% stake in Emperor Mines Ltd whichowns and operates the Vatukoula underground mine in Fiji, as well as a number ofprospective gold exploration areas.

OOPPEERRAATTIINNGG SSTTAATTIISSTTIICCSS

PPRROODDUUCCTTIIOONN FFYY22000055South Africa 0.362 Moz 53%Australasia 0.317 Moz 46%CGR 0.09 Moz 0.01%TToottaall 667799 MMoozz 110000%%

CGR figures represent the Group’s 40% attributable portion of Crown GoldRecoveries Ltd.

RREESSEERRVVEESS AANNDD RREESSOOUURRCCEESS as at 30 June 2005Reserves 6.553 MozResources 36.611 Moz

CCOOSSTTSS AANNDD EEXXPPEENNDDIITTUURREESSFFYY22000055 FFYY22000044

Total cash costs $379/oz $349/ozExploration expenditure – $1.65mCapital expenditure 22.7m $26.9m

Data Source: DRDGOLD Ltd, FY2004/2005 Annual Report

DDRRDDGGOOLLDD LLttdd

MMAANNAAGGEEMMEENNTTNon-executive Chairman Paseka NcholoChief Executive Officer Mark Wellesley-Wood

LLIISSTTIINNGGSSJSE Limited, London Stock Exchange, New YorkStock Exchange, Australian Stock Exchange, GhanaStock Exchange, Euronext Brussels, Euronext Paris

Bank of New York (ADRs)

Soges Dewaay SA

JP Morgan Chase

Other

121

2 85

Shareholders (%)


Data Source: DRDGOLD Ltd, FY2004/2005 Annual Report


South Africa

Australasia

26

74

Regional production profile (%)


FFYY22000044 FFYY22000055 FFYY22000044 FFYY22000055$/oz $/oz oz oz

SSoouutthh AAffrriiccaaBlyvooruitzicht 453 453 233,094 161,878Northwest 400 508 341,561 199,850Crown (40% attributable) 343 395 51,982 45,424ERPM (40% attributable) 367 411 44,896 44,600

OOtthheerr OOppeerraattiioonnss::AustralasiaPorgera (20% of the joint venture) 196 186 147,475 195,394Tolukuma 259 348 85,715 76,314Emperor (45.33% attributable) – 431 – 45,426

DDEEMMOOGGRRAAPPHHIICC PPRROOFFIILLEE FFYY22000055 %% HHDDSSAA %% FFeemmaalleeCorporate 35% 25%Crown operations 30% 4.9%ERPM operations 27% 3.2%Blyvoor operations 15.6% 1.6%TToottaall SSttaaffff 2288..66%% 22..77%%

Source: DRDGOLD Annual Report 2005

DDRRDDGGOOLLDD LLttdd



CCOONNTTAACCTT DDEETTAAIILLSSAddressPhysical: Postal:24 St Andrew’s Rd Postnet Suite 252Parktown Private Bag X305002193 Houghton, 2041South Africa South Africa

Phone +27 11 644 2400Facsimile +27 11 484 0626E-mail [email protected] www.goldfields.co.za

CCOOMMPPAANNYYGold Fields was formed in 1998 following the merger of the assets of Gold FieldsSouth Africa Ltd and Gencor Ltd. The company has operations in Africa andAustralia. In South Africa, Gold Fields owns and operates the Driefontein, Kloof andBeatrix 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 issituated in the Free State province on the southern part of the Witwatersrand Basinand produces more than 650,000oz of gold annually.

In Ghana, Gold Fields has a 71.1% interest in the Tarkwa and Damang opencast andheap leach operations. Together these low cost operations produce more than830,000oz of gold annually. Another 650,000 oz of gold are produced in Australia atGold Fields’ 100% owned St Ives and Agnew operations.


PPRROODDUUCCTTIIOONN FFYY22000055South Africa 2.804 Moz 67%Rest of world 1.354 Moz 33%TToottaall 44..115588 MMoozz 110000%%

RREESSEERRVVEESS AANNDD RREESSOOUURRCCEESS aass aatt 3300 JJuunnee 22000055Reserves 64.8 MozResources 174.5 Moz


Total cash costs $302/oz $331/ozExploration expenditure $29m $32mCapital expenditure $419m $324m

Data Source: Gold Fields Ltd FY2004/2005 Annual Report

MMAANNAAGGEEMMEENNTTChairman C ThompsonChief Executive Officer I Cockerill

LLIISSTTIINNGGSSJSE Limited, London Stock Exchange, New YorkStock Exchange, Euronext Brussels, Euronext Paris,Swiss Exchange

Norilsk Nickel

Bank of New York(unrestricted DRs)

Old Mutual Group

Public InvestmentCommissioner

Other Shareholders

6

19

20

50

5

Shareholders (%)

GGoolldd FFiieellddss LLttdd


Data Source: Gold Fields Ltd FY2004/2005 Annual Report


FFYY22000044 FFYY22000055 FFYY22000044 FFYY22000055SSoouutthh AAffrriiccaa $/oz $/oz oz oz Driefontein 311 330 1,141,000 1,163,000Kloof 341 379 1,038,000 1,037,000Beatrix 356 406 625,000 642,000

OOtthheerr ooppeerraattiioonnssGhana:Tarkwa 194 230 540,000 550,000Damang 243 222 299,000 308,000

AAuussttrraalliiaa::St Ives 188 297 513,000 543,000Agnew 255 226 144,000 202,000

DDEEMMOOGGRRAAPPHHIICC PPRROOFFIILLEEFFYY22000055 %% HHDDSSAASenior management 15Professionals 57Technicians 50Clerks 96Service & sales 96Craft & related trades 57Machinery operators 100

Total Staff: 43,000


South Africa Australia

Ghana

17

19 64


GGoolldd FFiieellddss LLttdd



CCOONNTTAACCTT DDEETTAAIILLSSAddressPhysical: Postal:First Floor Suite No. 14 The High Street Private Bag X1Melrose Arch Melrose ArchJohannesburg Johannesburg

Phone +27 11 684 0140Facsimile +27 11 684 0188E-mail [email protected] www.harmonygold.co.za

CCOOMMPPAANNYYHarmony Gold Mining Company was formed in 1950 as a Rand Mines managedcompany to exploit the single Harmony mine lease. In 1995, the company wasestablished as a seperate entity following the demise of Rand Mines.

Harmony’s operations are primarily situated in South Africa in the Free State,Evander, Randfontein and West Rand regions of the Witwatersrand Basin. Harmonyalso has a number of operations and exploration prospects in Australia and PapuaNew Guinea.


PPRROODDUUCCTTIIOONN FFYY22000055South Africa 2.978 Moz 90%Rest of world 0.338 Moz 10%TToottaall 22..996655 MMoozz 110000%%

RREESSEERRVVEESS AANNDD RREESSOOUURRCCEESS aass aatt 3300 JJuunnee 22000055Reserves 54.14 MozResources* 521.4 Moz*Reported in FY2005 Annual Report


Total cash costs $412/oz $360/ozExploration expenditure $12m $15mCapital expenditure R140.8m $126.7m

Data Source: Harmony Gold Mining Limited FY2004/2005 Annual Report

MMAANNAAGGEEMMEENNTTChairman P MotsepeChief Executive Officer B Swanepoel

LLIISSTTIINNGGSSJSE Limited, London Stock Exchange, New YorkStock Exchange, Euronext Brussels, Euronext Paris,Berlin Stock Exchange

African Rainbow Minerals

Alan Gray

Merrill Lynch

Sanlam

Other

5

14

2059

2

Shareholders (%)

HHaarrmmoonnyy GGoolldd MMiinniinngg CCoommppaannyy LLttdd


Data Source: Harmony Gold Mining Limited FY2004/2005 Annual Report

MMIINNEE OOPPEERRAATTIINNGG SSTTAATTIISSTTIICCSSFFYY22000044 FFYY22000055

CCaasshh ccoossttss CCaasshh ccoossttssPPrroodd ((oozz)) (($$//oozz)) PPrroodd ((oozz)) (($$//oozz))

Target 53,434 215 209,847 273Tshepong 390,474 264 380,695 309Masimong 234,307 326 159,981 452Evander 2 86,172 376 48,764 635Evander 5 48,103 335 47,093 411Evander 7 92,505 356 130,009 284Evander 8 109,513 363 151,936 304Cooke 1 104,168 304 79,101 426Cooke 2 90,761 789 54,441 122Cooke 3 134,003 374 116,300 435

Leveraged shafts 1,295,315 400 841,280 511

Elandsrand 250,581 402 207,371 478Doornkop 65,234 353 52,695 512Surface operations 208,744 343 188,904 449

Australasian operations 338,288 327 296,848 337Note: 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

DDEEMMOOGGRRAAPPHHIICC PPRROOFFIILLEEFFYY22000055 TToottaall %% HHDDSSAA %% FFeemmaalleeSenior management 234 18 8Professionals 1,028 39 6Technicians 7,165 66 6Clerks 1,635 93 32Machinery operators 17,898 99 1Semi-skilled 25,032 97 4TToottaall ssttaaffff 5522,,999922 9922 44


South Africa

Australasia

11

89


HHaarrmmoonnyy GGoolldd MMiinniinngg CCoommppaannyy LLttdd



CCOONNTTAACCTT DDEETTAAIILLSSAddressPhysical: Postal:28 Harrison Street PO Box 61719Johannesburg Marshalltown 2001 2107South Africa South Africa

Phone +27 11 688 5000Facsimile +27 11 834 9195E-mail [email protected] http://www.westernareas.co.za

CCOOMMPPAANNYYWestern Areas is a South African incorporated mining company with one principalgold mining asset, which is a 50% interest in the South Deep joint venture in theWitwatersrand basin. South Deep’s other 50% partner is Placer Dome SA, a SouthAfrican subsidiary of Canadian miner Placer Dome.


PPRROODDUUCCTTIIOONN FFYY22000044South Africa 0.224 Moz

RREESSEERRVVEESS AANNDD RREESSOOUURRCCEESS aass aatt 3311 DDeecceemmbbeerr 22000044Reserves 28.9 MozResources 48.5 Moz

CCOOSSTTSS AANNDD EEXXPPEENNDDIITTUURREESSFFYY22000044

Total cash costs $301/ozExploration expenditure $1.5 mCapital expenditure $110.6 m

DDEEMMOOGGRRAAPPHHIICC PPRROOFFIILLEEFFYY22000044 TToottaall %% HHDDSSAASenior 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%TToottaall SSttaaffff 44,,991144 9933%%

MMAANNAAGGEEMMEENNTTChief Executive Officer(Acting) JC Lamprecht

LLIISSTTIINNGGSSJSE Limited

JCI Gold Ltd

Standard Bank Nominees

Anglo South Africa (Pty) Ltd

Other

12

30

38

20

Shareholders (%)

WWeesstteerrnn AArreeaass LLttdd

Data Source: Western Areas Ltd FY2004 Annual Report


BBEEMMAA GGOOLLDD CCOORRPPOORRAATTIIOONNAddress Subsidiary Petrex (Pty) Ltd

Grootvlei MineGrootvlei RoadSpringsJohannesburgSouth Africa

Phone +27 11 815 5484Facsimile +27 11 815 6218E-mail [email protected] www.bema.com

CEO C JohnsonOperations Consolidated Modderfontein

GrootvleiNigel

Listings TSX, AMEX, AIM

CCAALLEEDDOONNIIAA MMIINNIINNGG CCOORRPPOORRAATTIIOONNAddress Toronto registered:

Unit 9, 2145 Dunwin DriveOntarioCanadaL5L 4L9

Phone +905 607 7543Facsimile +905 607 9806E-mail [email protected] www.caledoniamining.com

CEO S HaydenOperations Barbrookes Mines Ltd

Eersteling Gold Mining Co. LtdListings TSE, NASDAQ, DAX

CCEENNTTUURRIIOONN GGOOLLDD HHOOLLDDIINNGGSS IINNCCOORRPPOORRAATTEEDDAddress West Tower, Second Floor

Sandton SquareSandton2146South Africa

Phone +27 11 881 5563Facsimile +27 11 881 5611E-mail [email protected] www.centuriongold.com

Chairman & CEO A JohnsonOperations Primrose Gold Mine

Omaruru Exploration (Pty) LtdSallies Gold Mine

Listings NASDAQ

RESEARCH DIRECTORYOOtthheerr PPrroodduucceerrss ((<<66tt aannnnuuaall pprroodduuccttiioonn))



CCRREEWW GGOOLLDD CCOORRPPOORRAATTIIOONNAddress Abbey House, Wellington Way

WeybridgeSurreyKT13 0TTUK

Phone +44 193 226 8755Facsimile +44 193 226 8756E-mail [email protected] www.crewgroup.com

President & CEO J VestrumOperations Barberton Mines:

FairviewNew ConsortSheba Mines

Listings TSE, OSE

MMAATTTT TTRRAADDIINNGG ((PPTTYY)) LLTTDDAddress Private Bag X29

Piet Retief2380KwaZulu-NatalSouth Africa

Phone +27 34 413 2013Facsimile +27 34 413 2079

Operations Klipwal Gold Mine

MMEETTAALLLLOONN GGOOLLDDAddress Metallon House

161 Revonia RoadSandtonJohannesburgSouth Africa

Phone +27 11 784 8099Facsimile +27 11 784 4601

Web www.metallongold.com

Operations South Africa:Agnes mine

Zimbabwe:Arcturus mineHow mineMozawa mineRedwing mineShamva mine

MMIINNEE WWAASSTTEE SSOOLLUUTTIIOONNSS ((PPTTYY)) LLTTDDAddress 2 Sherborne Road

ParktownJohannesburg2193South Africa

Phone +27 11 718 7260Facsimile +27 11 726 1029E-mail [email protected] www.minewaste.com

CEO R PlaistoweOperations Chemwes project

(Formerly Stilfontein gold plant)



MMOOGGAALLEE GGOOLLDD ((PPTTYY)) LLTTDDAddress 14 Tweelopies Road

Krugersdorp1740South Africa

Phone +27 11 660 9638Facsimile +27 11 660 8132E-mail [email protected] www.mogalegold.co.za

Operations Luipaardsvlei Estates reclaimationSSAALLEENNEE MMIINNIINNGG GGRROOUUPPAddress Modder Bee Road

BenoniJohannesburg1500South Africa

Phone +27 11 423 1202Facsimile +27 11 423 1230

Chairman D SalterOperations Gravelotte Mines Ltd

SSIIMMMMEERR AANNDD JJAACCKK MMIINNEESS LLTTDDAddress 5 Press Avenue

Selby2025South Africa

Phone +27 11 880 0390Facsimile +27 11 837 3840

Operations Lily MineTransvaal Gold Mining Estates

TTHHEE AAFFRRIIKKAANNDDEERR LLEEAASSEE LLTTDDAddress Empire Park

Block A55 Empire RoadParktownSouth Africa

Phone +27 11 482 3605Facsimile +27 11 482 3604E-mail [email protected] www.aflease.com

CEO N FronemanOperations East Rand Operation

Afrikander OperationListings JSE, NASDAQ (ADRs)

TTHHIISSTTLLEE MMIINNIINNGG IINNCCOORRPPOORRAATTEEDDAddress Main Office Block

Two ShaftPresident Steyn MineWelkom9460South Africa

Phone +27 57 391 9000Facsimile +27 57 391 9047E-mail [email protected] www.thistlemining.com

CEO W McLucasOperations President Steyn Gold MineListings TSE, AIM


CCOONNTTAACCTT DDEETTAAIILLSSAddressPhysical: Postal:Refinery road PO Box 565Industries West Germiston Germiston 1401 1400South Africa South Africa

Phone +27 11 418 9000Facsimile +27 11 418 9234E-mail [email protected] www.gold.co.za

CCOOMMPPAANNYYRand Refinery was established in 1921 and is the largest single site gold and silverrefinery in the world. The refinery processes newly mined gold ore annually fromboth local and international sources and treats precious metals scrap fromelectronic waste, dental alloys, medical waste, jewellery process scrap and recycledjewellery. Rand Refinery markets and generates a number of products primarily barsfor the international gold market, jewellery alloys for the local gold jewelleryfabricators, and coin blanks for South Africa's legal tender coin programmes.

PPRROODDUUCCTT RRAANNGGEEGGOOLLDD BBAARRSS

MMaassss FFiinneenneessssGold bars 400oz >995/999.9

1,000g >995100oz >995100g 99910 tola 9995 tola 99910 tael 99995 tael 9999

Minted bars 10g 999.950g 999.9100g 999.9

Silver bars 1,000 oz 999

CCOOIINNSSCoin blanks Size (mm) 32.77, 27.07,

22.06, 16.55Carat/Fineness 9, 18, 22 & 24

999 (pure silver)Other coins/ Manufactured to orderMedallionsKrugerrands Size (mm) 32.77, 27.07,

22.06, 16.55Carat 22

GGOOLLDD AALLLLOOYY GGRRAAIINNCCaarraatt CCooddee CCoolloouurr MMeellttiinngg HHaarrddnneessss

rraannggee °°CC9ct 09DD Yellow 900-950 Semi-Soft

09J Yellow 880-960 Medium090A5 Yellow 980-1000 Medium09CW Med. White 980-1050 Medium09LX White 950-1000 Semi-Soft09RJ Rose 960-1000 Medium

14ct 14J Yellow 935-980 Medium14LX White 980-1020 Semi-Soft14RJ Rose 960-1000 Medium

18ct 18J Yellow 930-980 Medium18D Yellow 970-1000 Semi-Soft18SW Soft White 1100-1250 Soft

22ct 22J Yellow 950-980 Medium

OOTTHHEERRWire and plate: manufactured to order from 9 to 24 carat.

MMAANNAAGGEEMMEENNTTNon-Executive Chairman T M L SetiloaneManaging Director A M MuirDirector Global Markets C J KennyDirector Business Services G L Millet

GGOOOODDSS DDEELLIIVVEERRYY SSTTAATTUUSSLondon Bullion Market Association (LBMA) GoodDelivery Status.One of five refineries in the world to have beenappointed by the LBMA as a Good Delivery Referee,responsible for the testing of samples from GoodDelivery refiners in support of the LBMA's GoodDelivery system.

SSEERRVVIICCEESSRReeffiinniinngg: uses the Miller Chlorination Process topromote mine gold bullion to London 'GoodDelivery' standards.RReeffiinniinngg FFeeeedd: Doré from gold mines in SouthAfrica, West and East Africa and South America.SSmmeellttiinngg: treats primary and secondary low-gradegold bearing by-product material to recover gold,silver and platinum group metals.Electrolytic refining: Rand Refinery is able toproduce high purity products using this process.Processes include carbon incineration, silverelectro-refining.OOtthheerr: Rand Refinery offers an assaying service inaddition to secure storage facilities and onwardfreighting of gold and other precious metals andstones.

The Rand Refinery quotes Rand-denominated pricesfor the refinery's gold products to its localcustomers, set on a twice-daily basis. The RandRefinery price is used by the secondary recyclers asa benchmark by which the recyclers calculate theirown prices to customers.

RESEARCH DIRECTORYPPRRIIMMAARRYY RREEFFIINNEERRSS

RRaanndd RReeffiinneerryy LLttdd


RESEARCH DIRECTORYPPRRIIMMAARRYY RREEFFIINNEERRSS

MMAANNAAGGEEMMEENNTTChief Executive Officer D Young

SSHHAARREEHHOOLLDDEERRSSOriginally jointly owned by Harmony Gold MiningCompany and Mintek. Now 100% wholly-ownedsubsidiary of Harmony.

GGOOOODDSS DDEELLIIVVEERRYY SSTTAATTUUSSAwarded London Bullion Market Association GoodDelivery Status in September 2005.

SSEERRVVIICCEESSRReeffiinniinngg:: The refinery uses the Mintek Minataurrefining process.

RReeffiinniinngg ffeeeedd:: cathode slime. The refinery uses asolvent extraction process which can also treatsilver refining anode slimes, doré and jewelleryscrap. All feed is sourced from South Africa.

PPrroodduucctt ssaalleess:: Musuku offers a range of bars,jewellery alloys, semi-manufactured jewelleryproducts, gold and silver based industrial products,5 9's gold and an extensive range of dental alloys.Musuku does not produce coin blanks for thestriking of South African legal tender coins.

CCOONNTTAACCTT DDEETTAAIILLSSAddressPhysical: Postal:4 Peltier Drive Building 18Sunninghill Park Sunninghill Office ParkJohannesburg Peltier Drive

Sunninghill, SandtonJohannesburg

Phone +27 11 461 7800Facsimile +27 11 461 7801E-mail (General enquiries) [email protected] www.musuku.com

PPRROODDUUCCTT RRAANNGGEEGGOOLLDD BBAARRSS

MMaassss FFiinneenneessssGold bars 100g 999

1kg 995

GGOOLLDD AALLLLOOYY GGRRAAIINNCCaarraatt CCoolloouurr DDeessccrriippttiioonn9ct Yellow Casting & Bench

White Casting & BenchRed Casting & Bench

10ct Yellow Casting & BenchWhite Casting & BenchRed Casting & Bench

14ct Yellow Casting & Bench18ct Yellow Casting & Bench

White Casting & Bench

GGOOLLDD && SSIILLVVEERR PPLLAATTEE,, WWIIRREE && SSTTRRIIPPPPrroodduucctt WWiiddtthh ((mmmm)) TThhiicckknneessss ((mmmm)) PPuurriittyyPlate 10 to 50 0.2 to 1.0 9-24ctStrip 0.6 to 2.6 0.04 to 0.8 9-24ctWire 0.2 to 2.0 diam. 9-24ct

SSOOLLDDEERR BBLLOOCCKKSS && PPAASSTTEESSPPrroodduucctt DDeessccrriippttiioonn

Silver Easy, medium & hardGold 9ct Red Easy

9ct White Medium9ct Yellow Extra easy, easy,

medium, hard14ct yellow Easy, medium, hard18ct White Easy, medium, hard18ct Yellow Easy, medium, hard960, 1020, 1200,1300, 1400,

Platinum 1500, 1600 Easy, medium, hard, extra hard9, 10, 14, 18 ctYellow Easy, medium (65% & 80% alloy

content)

DDEENNTTAALL RRAANNGGEEPPrroodduucctt DDeessccrriippttiioonn PPuurriittyyDental Alloys: Casting & Bonding 2 % to 92 %Star Range alloys, catering for gold content.Aurex Range all dental restorationMusuku Range work Dental Wires Round and half round 17 and 20 ct Dental Solders Wire pieces & reels. 49 to 74 % gold content

MMuussuukkuu BBeenneeffiicciiaattiioonn ssyysstteemmss


RESEARCH DIRECTORYRREECCYYCCLLEERRSS

FFIIRRSSTT AASSSSAAYY ((PPEETTEERR SSTTAANNLLEEYYAASSSSAAYYSS ((PPTTYY)) LLTTDD))

CCAAPPEE PPEECCIIOOUUSS MMEETTAALLSS MMAANNAAGGEEMMEENNTTManaging Director S Eades

CCOONNTTAACCTT DDEETTAAIILLSSAddressPhysical: Postal:Link Close PO Box 37128Montague Gardens Chempet7441 7442

Phone +27 11 551 2066Facsimile +27 11 552 1598

BBUUSSIINNEESSSS DDEESSCCRRIIPPTTIIOONNCape Precious Metals is an assayer and recycler of all precious metals includingsilver from x-ray film, gold from the jewellery industry and platinum group metalsfrom industrial waste. The company has a well-established client base among thejewellery manufacturers, and sources material from hospitals in the form ofx-ray scrap.

MMAANNAAGGEEMMEENNTTManaging Director C Burger

CCOONNTTAACCTT DDEETTAAIILLSSAddressPhysical: Postal:87 Langerman Dr Postnet Suite 169Kensington South Private bag X19Johannesburg 2094 Gardenview 2047

Phone +27 11 616-7210Facsimile +27 11 622-8583E-mail [email protected]

CCOOMMPPAANNYY BBAACCKKGGRROOUUNNDDDate established 1998Number of outlets 1Number of staff 4

BBUUSSIINNEESSSS DDEESSCCRRIIPPTTIIOONNFirst Assay has two core businesses. The first offers a full assay service on a six-hourturn around time. The second is recycling of precious metals waste, primarily fromthe jewellery trade and supply to the trade of precious metals in return. Thecompany also refines mine output and dump retreatment material from smallmining ventures.


RESEARCH DIRECTORYRREECCYYCCLLEERRSS

PPEERRKKIINNSS MMEETTAALLSS RREECCOOVVEERRIIEESS ((PPTTYY)) LLTTDD

MMEETTAALL CCOONNCCEENNTTRRAATTOORRSS ((PPTTYY)) LLttddMMAANNAAGGEEMMEENNTTManaging Director B Stern

CCOONNTTAACCTT DDEETTAAIILLSSAddressCape Town JohannesburgPO Box 1142 PO Box 699Milnerton Ifafi7435 0260

Phone +27 12 305 3562Facsimile +27 12 305 3574E-mail [email protected]

CCOOMMPPAANNYY BBAACCKKGGRROOUUNNDDDate established 1990Number of outlets 2 Outlet locations Cape Town /North West ProvinceNumber of staff 45Ownership Private, family-owned

BBUUSSIINNEESSSS DDEESSCCRRIIPPTTIIOONNDeals only with the jewellery industry. A separate company supplies semi-manufactured products, alloys solders, gold potassium cyanide and rhodium platingand solutions. Supplies capital equipment for the manufacture of jewellery. Has thecapacity to recycle autocatalysts.

MMAANNAAGGEEMMEENNTTManaging Director I Perkins

CCOONNTTAACCTT DDEETTAAIILLSSAddressPhysical: Postal:2nd Floor PO Box 15637SA Jewellery Centre Doornfontein225 Main Street 2028Johannesburg

Phone +27 11 334 6263/6Facsimile +27 11 334 6947E-mail [email protected]

CCOOMMPPAANNYY BBAACCKKGGRROOUUNNDDDate established 1990Number of outlets 3Outlet locations Johannesburg, Cape Town and

Durban

BBUUSSIINNEESSSS DDEESSCCRRIIPPTTIIOONNPerkins is one of the larger secondary refineries with collection networks in CapeTown and Durban sending recycling material to the refinery in Johannesburg. Thecompany takes old jewellery scrap, filings and polishings, jewellery sweepings, washwaters as well as material from dump treatment companies. The company's pricesare benchmarked against the Rand Refinery price.


RESEARCH DIRECTORYJJEEWWEELLLLEERRYY MMAANNUUFFAACCTTUURREERRSS ((>>775500KKGG AANNNNUUAALL GGOOLLDD UUSSAAGGEE))

CCOONNTTAACCTT DDEETTAAIILLSSAddressPhysical: Postal:Refinery Road PO Box 20Germiston Germiston1400 1400South Africa South Africa


CCOOMMPPAANNYY BBAACCKKGGRROOUUNNDDDate establishedNumber of retail outlets NoneDistribution channels Direct to tradeNumber of staff 230-250Ownership 51% A Mair

BBUUSSIINNEESSSS DDEESSCCRRIIPPTTIIOONNOne of the big three fabricators in the country producing machine made and massproduced cast and pressed jewellery for both the local and export markets in a ratioof 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.

PPRROODDUUCCTT RRAANNGGEERRIINNGGSSPlain bands 9 carat yellow goldSignet rings 9 carat yellow goldStone set 9 carat yellow gold

EEAARRRRIINNGGSS AANNDD PPEENNDDAANNTTSSHoops 9 carat yellow goldStuds 9 carat yellow goldOthers 9 carat yellow goldCross 9 carat yellow gold

MMAANNAAGGEEMMEENNTTChief Executive Officer/ A MairManaging Director

EEMMPPLLOOYYMMEENNTT DDEEMMOOGGRRAAPPHHIICC PPRROOFFIILLEE Male/female 40:60Permanent/temporary 85:15

MMAANNUUFFAACCTTUURRIINNGG PPRROOCCEESSSSCast 25%Machine-made 70%Hand-made 5%

AALLAANN MMAAIIRR MMAANNUUFFAACCTTUURRIINNGG JJEEWWEELLLLEERRSS



MMAANNAAGGEEMMEENNTTChief Executive Officer S NathanManaging Director G Nathan

EEMMPPLLOOYYMMEENNTT DDEEMMOOGGRRAAPPHHIICC PPRROOFFIILLEEPermanent/temporary All permanent

MMAANNUUFFAACCTTUURRIINNGG PPRROOCCEESSSSChain and stamped jewellery 100%

CCOONNTTAACCTT DDEETTAAIILLSSAddressPhysical: Postal:170 Buitengracht St. PO Box 16 552Cape Town Vlaeberg8000 8018South Africa

Phone +27 21 480 9860Facsimile +27 21 423 5516E-mail (General enquiries) [email protected] www.oroafrica.com

CCOOMMPPAANNYY BBAACCKKGGRROOUUNNDDDate established 1945Number of retail outlets NoneDistribution channels Direct to tradeNumber of staff 160Ownership Family 75%

AngloGold Ashanti 25%

BBUUSSIINNEESSSS DDEESSCCRRIIPPTTIIOONNOroAfrica, meaning Gold of Africa, is South Africa's largest mechanisedmanufacturer of gold chain and stamped gold jewellery. Based in Cape Town, thepartnership 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 beingthe USA, followed by the UK, Europe, Australia and sub-Saharan Africa. It alsosupplies a range of jewellery, including earrings, pendants, necklaces, bracelets andrings to the local market.

PPRROODDUUCCTTSSGGOOLLDD CCHHAAIINNSSCaratage 9, 10, 14 and 18Colour Various, including yellow and whiteStyle Domed, supreme, figaro, marina, Singapore

Valentino, Cuban, curb, id bracelets etc.

CCOOMMPPAANNYY BBRRAANNDDSSOroAfrica has two company brands. The first is the Kwela range of jewellery aimedat connecting the buyer with the spirit of Africa. Kwela is designed and produced inAfrica, and shows the continent's environment, animals and people.

The second is ‘AU79 Pure Chemistry’, a brand focusing on a younger clientele. Itsname comes from the chemical symbol of gold (AU) and gold's number (79) in theperiodic table. The jewellery range has symbols inserted on each piece; a processthat has been patented and all the designs are under copyright.

OORROOAAFFRRIICCAA ((PPTTYY)) LLTTDD



EEMMPPLLOOYYMMEENNTT DDEEMMOOGGRRAAPPHHIICC PPRROOFFIILLEEMale/female 25:75Permanent/temporary All permanent

MMAANNUUFFAACCTTUURRIINNGG PPRROOCCEESSSSMachine-made chain 100%

MMAANNAAGGEEMMEENNTTManaging Director (RSA) D Merkin

CCOONNTTAACCTT DDEETTAAIILLSSAddressPhysical: Postal:H304, 2nd Floor P.O Box 10210 Melrose Boulevard Melrose ArchMelrose Arch 2076Atholl Oaklands RoadMelrose NorthJohannesburg2001

Phone +27 11 214 4100Facsimile +27 11 214 4104E-mail [email protected] www.silmar.it

CCOOMMPPAANNYY BBAACCKKGGRROOUUNNDDNumber of retail outlets None - supplier to the businessDistribution channels Direct to tradeNumber of staff 60Ownership Silmar SpA Italy

BBUUSSIINNEESSSS DDEESSCCRRIIPPTTIIOONNSilmar Marketing SA is part of the larger Silmar SpA group based in Italy. The SouthAfrican company is the largest manufacturer of machine-made chain gold chain.The company runs 150 chain-making machines all of which were imported intoSouth Africa. Silmar targets 50% to the local market and 50% for export mainly tothe USA under AGOA.

All 9 carat chain is sourced to local wholesalers and retailers, supplying all the majorretail chain stores. 10 carat and 14 carat is exported to the USA. The companydraws its own wire.

PPRROODDUUCCTTSSGold chain of various styles and caratage.

SSIILLMMAARR


RESEARCH DIRECTORYJJEEWWEELLLLEERRYY MMAANNUUFFAACCTTUURREERRSS ((<<775500KKGG AANNNNUUAALL GGOOLLDD UUSSAAGGEE))

MMAANNAAGGEEMMEENNTTManaging Director A Salver

CCOONNTTAACCTT DDEETTAAIILLSSAddressPhysical: Postal:Coachman’s Crossing P.O BOX 67879Suite 2 Bryanston33 Peter Place 2120Lyme Park South AfricaJohannesburg


CCOOMMPPAANNYY BBAACCKKGGRROOUUNNDDNumber of staff 6Ownership Family

BBUUSSIINNEESSSS DDEESSCCRRIIPPTTIIOONNManufacturer and retailer as a ‘value for money’ middle income family jeweller. Verystrong in engagement and wedding ring market. Works 20% in platinum and therest in gold, of which 70% is white. Produces primarily gem-set rings, necklaces andbracelets. Most clients commission specific designs.

MMAANNAAGGEEMMEENNTTManagers A Miller

W Akum

CCOONNTTAACCTT DDEETTAAIILLSSAddressPhysical: Postal:3 Hope Road P.O Box 386Mountain View Gallo Manor Johannesburg 2192 South Africa


CCOOMMPPAANNYY BBAACCKKGGRROOUUNNDDNumber of staff 14 full timeOwnership Partnership

BBUUSSIINNEESSSS DDEESSCCRRIIPPTTIIOONNCreative Gold specialises in cast rings in 9 carat gold set with cubic zirconia orsemi-precious stones, termed dress rings. The company does some 18 caratjewellery but only on request. Creative Gold serves the local market with yellowgold, by far the preferred colour, although white and combination of yellow/whitemetals do feature. Customers will order three or four dress rings simultaneously.

CCRREEAATTIIVVEE GGOOLLDD

AANNDDRREEAASS SSAALLVVEERR



MMAANNAAGGEEMMEENNTTManaging Director D Ungar

CCOONNTTAACCTT DDEETTAAIILLSSAddressPhysical: Postal:Level 2 P.O Box 87671216 Fox Street HoughtonJohannesburg 2041


CCOOMMPPAANNYY BBAACCKKGGRROOUUNNDDNumber of staff 35Ownership Family

BBUUSSIINNEESSSS DDEESSCCRRIIPPTTIIOONNDaberon produces for the mass market locally but are also substantial exportersespecially to the USA, Australia and the United Kingdom. The company has thecapacity to manufacture 3,000 items per day. Daberon's product line is geared tothe mass market - 9 carat for the local wholesalers and the UK but also 14 carat forthe US market. Lightweight earrings, bangles, rings and pendants predominate,manufactured mainly using casting techniques.

The company also produces silver jewellery, having manufacturing capacity inZimbabwe.

GGAALLAAXXYY && CCOOMMAANNAAGGEEMMEENNTTManaging Director R Butterfield

CCOONNTTAACCTT DDEETTAAIILLSSAddressPhysical: Postal:Head Office PO Box 3282Galaxy House Cape Town55 Loop Street 8000Cape Town 8000

Phone +27 21 423 0760Facsimile +27 21 423 8404E-mail [email protected] www.galaxyandco.co.za

CCOOMMPPAANNYY BBAACCKKGGRROOUUNNDDDate established 1930Number of retail outlets 90Outlet locations NationalNumber of staff 74 (manufacturing), 700

(retailing)Ownership Management

(MBO from Mr Price Group)

BBUUSSIINNEESSSS DDEESSCCRRIIPPTTIIOONNGalaxy is the most vertically integrated jeweller in South Africa being a majormanufacturer and retailer. The company targets the middle mass market. Thecompany began as a retailer 20 years ago. Galaxy & Co is predominantly a diamondjewellery retailer, more than 95% of whose product is made in its ownmanufacturing division. The balance of the range is gold chain, gold earrings, silverjewellery and watches.

DDAABBEERROONN



MMAANNAAGGEEMMEENNTTManaging Director M Maack

CCOONNTTAACCTT DDEETTAAIILLSSAddress Postal:Physical: P.O Box 68568Shop G87 BryanstonFourways Mall 2021Fourways

Phone +27 11 465 6446Facsimile +27 11 465 6448E-mail [email protected] www.michaelsdesigns.co.za

CCOOMMPPAANNYY BBAACCKKGGRROOUUNNDDNumber of retail outlets 1Outlet locations Retail shop in shopping mallNumber of staff 12Ownership Family

BBUUSSIINNEESSSS DDEESSCCRRIIPPTTIIOONNCombination of manufacturing and retail in a middle to upper income shoppingmall and targeting the value for money client base. As a retailer/manufacturer, thecompany takes back a good proportion of customer-returned old gold scrap.

Michael's Designs demonstrate a full range of rings, pendants, earrings andbracelets. The company does not manufacture its own chain but tends to buy finalproduct from the major chain makers when required.

MMAANNAAGGEEMMEENNTTManaging Director H Rabinowitz

CCOONNTTAACCTT DDEETTAAIILLSSAddressPhysical: Postal:Head Office PO Box 20212 Tetford Circle Umhlanga RocksLa Lucia Business Park 4320La Lucia Ridge 4051Durban

Phone +27 31 570 5000Facsimile +27 31 570 5055E-mail [email protected] www.nwjcorp.com

CCOOMMPPAANNYY BBAACCKKGGRROOUUNNDDDate established 1980Number of retail outlets 49 Outlet locations NationalNumber of staff 66Ownership 80% owned by founder

BBUUSSIINNEESSSS DDEESSCCRRIIPPTTIIOONNNatal Wholesale Jewellers (known as NWJ) is a vertically integrated jewellerymanufacturer and retailer supplying final product to 49 franchised stores aroundSouth Africa. As NWJ manufactures its own jewellery, the company pass the savingsto their customers. In targeting the mass market, the company's policy is to makequality jewellery affordable to everyone. The company offers a full range of linkedchain rings, earrings and pendants.

NNAATTAALL WWHHOOLLEESSAALLEE JJEEWWEELLLLEERRSS ((NNWWJJ))

MMIICCHHAAEELL''SS DDEESSIIGGNNSS



MMAANNAAGGEEMMEENNTTChief Executive Officer/Managing Director P Gurato

CCOONNTTAACCTT DDEETTAAIILLSSAddressPhysical: Postal:5 Granistar Building PO Box 920705 Hope Rd NorwoodOrange Grove 2117Johannesburg Johannesburg


CCOOMMPPAANNYY BBAACCKKGGRROOUUNNDDDate established 1974Number of retail outlets NoneDistribution channels Word of mouth and long-standing

client baseNumber of staff 10Ownership Private

BBUUSSIINNEESSSS DDEESSCCRRIIPPTTIIOONNPico Jewellers have been manufacturing exclusive hand made jewellery to order fora long-standing client base for over 30 years. It was originally a partnershipbetween two goldsmiths until four years ago when the partner, Cosimo, passedaway. Expatriates visiting South Africa and tourists make up 10% of the company'sclient base.

The company works only in 18 carat and up and uses primarily diamonds althoughfancy stones such as tanzanite, sapphires, rubies and emeralds and semi-preciousstones also feature in their designs.

PPIICCOO JJEEWWEELLLLEERRSS



MMAANNAAGGEEMMEENNTTSole member P Scott

CCOONNTTAACCTT DDEETTAAIILLSSAddressPhysical: Postal:Room 200 PO Box 785North Park ParklandsC/R 3rd & 7th Ave 2121Parktown NorthJohannesburg

Phone +27 11 880 5740Facsimile +27 11 880 5651E-mail (General enquiries) [email protected]

CCOOMMPPAANNYY BBAACCKKGGRROOUUNNDDDate established 1980Distribution channels Word of mouth and long-

standing client baseNumber of staff 6Ownership Family - single owner

BBUUSSIINNEESSSS DDEESSCCRRIIPPTTIIOONNPeter Scott specialises in mainly hand-made jewellery for a long-standing clientbase. Design is driven almost exclusively by the customers who specify the type ofjewellery, the caratage and the stones. Peter Scott works with a full range ofcolourful semi-precious stones such as spessartite, garnets, tourmalines,aquamarines, tzavorite, etc.

MMAANNAAGGEEMMEENNTTMember (Owner) M Pneuma

COONNTTAACCTT DDEETTAAIILLSSAddressPhysical: Postal:A2 First Floor PO Box 31674Crowthorne Shopping Centre KyalamiArthur and Main Rd 1684KyalamiMidrand

Phone +27 11 702 1462Facsimile +27 11 702 1462E-mail (General enquiries) [email protected]

CCOOMMPPAANNYY BBAACCKKGGRROOUUNNDDDate established 1987Distribution channels Direct marketing and word

of mouthNumber of staff 6Ownership Private

BBUUSSIINNEESSSS DDEESSCCRRIIPPTTIIOONNPneuma Jewellers specialise in particularly detailed and unique pieces of jewellerywhich can take anything up to four months to fabricate. Minimum caratage is 18and all the jewellery is hand-made. The company also manufactures high quality,current trend jewellery with the clients’ needs in mind, as well as high quality hand-crafted African ethnic tourist jewellery for retail tourist outlets.

PPNNEEUUMMAA JJEEWWEELLLLEERRSS cccc

PPEETTEERR SSCCOOTTTT



MMAANNAAGGEEMMEENNTTMember of close corporation: R Garrun

CCOONNTTAACCTT DDEETTAAIILLSSAddressPhysical: Postal:Office 3 PO Box1395Cnr Carse O'Gowrie/ HoughtonBoundary Roads JohannesburgHoughton 2041Johannesburg2198


CCOOMMPPAANNYY BBAACCKKGGRROOUUNNDDDate established 1989Distribution channels One major retail client only with

12 retail storesNumber of staff 35Ownership Private

BBUUSSIINNEESSSS DDEESSCCRRIIPPTTIIOONNRob's Workshop is predominately a manufacturer and designer with a full productrange and service sold to Brown's, a major retailer. Sales are primarily to localconsumers but an estimated 20% goes to tourists, especially from stores inJohannesburg.

MMAANNAAGGEEMMEENNTTChief Executive Officer/Managing Director R Schwartz

CCOONNTTAACCTT DDEETTAAIILLSSAddressPhysical: Postal:Suite 198 Private Bag X9924Werksmans Attorneys Building Sandton24 A Fredman Drive 2146Sandton

Phone +27 11 783-1717Facsimile +27 11 783-7543E-mail [email protected] www.schwartzjewellers.com

CCOOMMPPAANNYY BBAACCKKGGRROOUUNNDDDate established 1924Number of retail outlets 4Outlet locations Sandton, Sun City, Cullinan

and Cape TownNumber of staff 51Ownership Private

BBUUSSIINNEESSSS DDEESSCCRRIIPPTTIIOONNManufactures and retails a full range of rings earrings, necklaces, pendants andbracelets.

SSCCHHWWAARRTTZZ JJEEWWEELLLLEERRSS

RROOBB’’SS JJEEWWEELLLLEERRYY WWOORRKKSSHHOOPP



MMAANNAAGGEEMMEENNTTChief Executive Officer S FormanManaging Director D Forman

CCOONNTTAACCTT DDEETTAAIILLSSAddressPhysical: Postal:Suite 530 P.O Box 90045th Floor JohannesburgSA Jewellery Centre 2000225 Main StreetJohannesburg2001


CCOOMMPPAANNYY BBAACCKKGGRROOUUNNDDDate established 1962Number of retail outlets 3 storesOutlet locations Shopping mallsNumber of staff 60 Ownership Family

BBUUSSIINNEESSSS DDEESSCCRRIIPPTTIIOONNSid Forman is a family business serving upmarket customers via three retail outlets.The company's product is largely gem-set (primarily diamonds), and reveals a highdegree of design content which is all done in-house. Of the client base a largeproportion is for indirect export, bought by tourists or South Africans by birth whohave emigrated and are return visitors. Increasingly, the company is offeringplatinum jewellery.

The product mix includes rings, pendants and earrings as well as bangles. Strong inthe engagement and wedding ring market.

SSIIDD FFOORRMMAANN MMAANNUUFFAACCTTUURRIINNGG JJEEWWEELLLLEERRSS



MMAANNAAGGEEMMEENNTTProprietor C van Rensburg

CCOONNTTAACCTT DDEETTAAIILLSSAddressPhysical: Postal:2nd Floor, West Wing 2nd Floor, West Wing27 Ridge Road 27 Ridge RoadParktown North Parktown NorthJohannesburg 2193South Africa


CCOOMMPPAANNYY BBAACCKKGGRROOUUNNDDDate established June 2000Distribution channels Factory to wholesalerNumber of staff 20Ownership Private

BBUUSSIINNEESSSS DDEESSCCRRIIPPTTIIOONNStudio C Manufacturing Jewellers produces quality platinum and gold jewellery, andis a mass producer for the local market. The company is involved in the design andproduction of one-off pieces, as well as a branded range, a wholesale range andmass manufacture.

SSTTUUDDIIOO CC


RESEARCH DIRECTORY

CCOONNTTAACCTT DDEETTAAIILLSSAddressPhysical: Postal:Old Johannesburg Road PO Box 8850Gateway CenturionCenturion 0046 0046

Phone +27 12 677 2777Facsimile +27 12 667 2828E-mail [email protected] www.samint.co.za/coinworld

CCOOMMPPAANNYY BBAACCKKGGRROOUUNNDDDate established 1996Number of outlets 1 Outlet locations GautengNumber of staff 7Ownership Wholly-owned by the SA Mint

BBUUSSIINNEESSSS DDEESSCCRRIIPPTTIIOONNCoin World is a retail outlet and museum on the premises of the South AfricanMint. With a complete display of South African coins, working machinery, works ofart, antique furniture and a trained guide, Coin World has become an active touristattraction. For sale are proof Krugerrands, jewellery, limited edition medallionwatches and other proof gold and silver coins.

Visitors can strike their own proof coin on one the world's oldest working mintpresses called ‘Oom Paul’ which began operating in 1891 when Paul Kruger, thethen President of the old Zuid-Afrikaansche Republiek, ordered two presses fromLudwig Loewe & Co, in Berlin. The press is the only remaining one of its kind in theworld.

PPRROODDUUCCTT RRAANNGGEEKKRRUUGGEERRRRAANNDDSSSSiizzee DDiiaammeetteerr mmmm MMaassss ((gg)) GGoolldd1oz 32.69 33.931 22 carat1/2oz 27.00 16.966 22 carat1/4oz 22,00 8.483 22 carat1/10thoz 16.50 3.393 22 carat

NNAATTUURRAA CCOOIINN SSEERRIIEESSSSiizzee DDiiaammeetteerr mmmm MMaassss ((gg)) GGoolldd1 oz 32.69 31.107 24 carat_ oz 27.00 15.553 24 carat_ oz 22,00 7.777 24 carat1/10th oz 16.50 3.110 24 carat

TTHHEE PPRROOTTEEAA CCOOIINN SSEERRIIEESSFFaaccee VVaalluuee DDiiaammeetteerr mmmm MMaassss ((gg)) GGoollddR25 32.69 31.107 24 caratR5 16.50 3.110 24 caratR1 32.70 15.00 Silver

TTHHEE 22000044 PPRROOTTEEAA SSEERRIIEESS CCEELLEEBBRRAATTIINNGG -- 1100 YYEEAARRSS OOFF DDEEMMOOCCRRAACCYY IINN SSOOUUTTHH AAFFRRIICCAAFFaaccee vvaalluuee NNuummbbeerr IIssssuueedd DDeessccrriippttiioonnAAnndd CCaarraattR25 24 ct 5,000 Nelson Mandela with

Union BuildingR5 24 ct 1,000 Constitution and FlagR1 silver 6,000 National symbolsProof Set 1,000 3 coin set

MMAANNAAGGEEMMEENNTTManaging Director AM Mvinjelwa

EEMMPPLLOOYYMMEENNTT DDEEMMOOGGRRAAPPHHIICC PPRROOFFIILLEEMale/female 28:72Permanent/temporary 72:28Managerial & sales/technical 14:86

CCOOIINN WWOORRLLDD AATT TTHHEE SSOOUUTTHH AAFFRRIICCAANNMMIINNTT CCOOMMPPAANNYY


RESEARCH DIRECTORY

MMAANNAAGGEEMMEENNTTMuseum Manager K Price

CCOONNTTAACCTT DDEETTAAIILLSSAddressPhysical:96 Strand StreetCape Town, 8001

Phone +27 21 405 1540Facsimile +27 21 405 1541E-mail [email protected] www.goldofafrica.com

BBAACCKKGGRROOUUNNDDDate established 2001Location Cape TownNumber of staff 7Ownership AngloGold Ashanti

DDEESSCCRRIIPPTTIIOONNThe Gold of Africa Museum was established by AngloGold Ashanti as part of itsprogramme to preserve the artistry of African goldsmithing and inspire modern goldjewellery 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 theancient gold civilisations of southern Africa.

The power and wealth of the gold-rich kingdoms of Africa is a little easier tocomprehend once the museum's artefacts have been viewed. But the collectiongoes a step beyond the aesthetic; the visitor takes away insights into the values ofthe people who created these objects through the symbolism surrounding eachpiece.

The setting for the collection is in itself noteworthy. Restored in 2000, Martin MelckHouse, built in 1783, is believed to be one of the finest remaining examples of oldCape Town domestic architecture.

Alongside its permanent collection, the museum showcases temporary exhibitionsfrom countries as diverse as India, Brazil, Mali and Egypt.

The museum complex has a two hundred-year-old garden courtyard and wine cellarthat offer quality wines and light meals. It houses an auditorium and is available asa venue for hire to both private and corporate clients.

A state-of-the-art gold jewellery workshop offers courses and demonstrations andhere visitors can see local goldsmiths using South African gold to design andmanufacture jewellery. Some of these pieces are sold in the museum shop, whichalso offers a variety of gifts crafted by local workers.

TTHHEE HHIISSTTOORRYY OOFF TTHHEE MMUUSSEEUUMM CCOOLLLLEECCTTIIOONNThe Gold of Africa Museum's collection was originally assembled by the Swiss artlover, Josef Mueller, who collected African artwork and jewellery over a fifty-yearperiod. Josef's daughter and son-in-law, Jean Paul Barbier, continued to build thecollection which was displayed in Switzerland's Barbier-Mueller Museum until 2001when it was returned to the African continent.

GGOOLLDD OOFF AAFFRRIICCAA MMUUSSEEUUMM


START GLOSSERY OF TERMS HERE



GGLLOO

SSSSAARRYY OO

FF TTEERRMMSS AA

NNDD

AACC

RROONN

YYMMSS

88




AA

AABBEETT Adult Basic Education & Training

AACCPPss African, Caribbean and Pacific countries (referred to in terms of the Lomé Convention)

AACCSSAA Airports Company of South Africa

AAGGOOAA African Growth and Opportunity Act of the USA

AAllllooyy GGrraaiinn Gold granules of varying caratage usually destined for thejewellery industry

AARRMM African Rainbow Minerals, a BEE mining company formed in1997 and recently involved in a merger with Harmony GoldMining

AAssssaayyiinngg In chemical analysis, the process of determining proportionsof metal, particularly precious metal, in ores and beneficiatedmetal. The method known as ‘Fire Assay’ is the oldest knownmethod of assaying gold and continues to be the mostaccurate and economical method of determining the purityof gold

AASSSSMMss Artisinal Small Scale Mining project initiated by Mintek

BB

BBBBCC Black Business Council

BBBBSSDDPP Black Business Supplier Development Programme

BBEEEE Black Economic Empowerment

BBEEEE CCooddeess Published by the Department of Trade and Industry to ooff GGoooodd PPrraaccttiiccee inform companies and organisations on how best to meet

BEE targets

BBEEEECCoomm Black Economic Empowerment Commission

BBeellaa--BBeellaa Formerly Warmbaths in Limpopo Province

BBiiooxxiiddaattiioonn A process developed in South Africa for the recovery of goldfrom certain ores. It employs the use of naturally occurringbio-organisms in a contained environment, with a specifictemperature, acidity and oxygen level, to recover gold fromsulphide rock

BBllaannkkss See Coin Blanks

BBTTRR Bilateral Trade Relations

BBUUSSAA Business Unity South Africa



CC

CCaasstt BBaarr A cast bar is made by the basic process of forming a bar ina mould (Contrast minted bar)

CCaassttiinngg Jewellery manufacturing process in which gold and alloysare extruded into moulds under vacuum

CCBBOO Community Based Organisation

CChhaammbbeerr ooff MMiinneess Employers’ organisation serving the interests of the ooff SSAA South African mining industry

CCIIBBJJOO International Confederation of Jewellery, Silverware,Diamonds, Pearls and Stones

CCJJMMAA Cape Jewellery Manufacturers Association

CClluusstteerr SSttuuddiieess Initiatives launched as a process of accelerating expansionof production capacities in certain sectors of industry (e.g. agriculture, tourism, jewellery manufacturing)

CCMMAA Common Monetary Area (an alliance between South Africa,Lesotho, Swaziland and Namibia) which replaced the RMA(Rand Monetary Area) in 1986

CCooiinn BBllaannkkss Semi-fabricated stamped gold discs used to manufacturenumismatic or legal tender coins

CCOOSSAATTUU Congress of South African Trade Unions

CCoosstt CCuurrvvee Graph of total cost of production as a function of the totalquantity produced

DD

DDDDGG Deputy Director General

DDEEAATT Department of Environmental Affairs and Tourism

DDeerriivvaattiivvee Highly leveraged financial instrument the value of which isbased on an underlying asset, for example gold exchangetraded futures or options

DDMMCCCC The Dubai Metals and Commodities centre is an industrialDevelopment Zone offering one-stop refining and tradingfacilities for the precious metals and diamond industries.

DDMMEE Department of Minerals and Energy

DDOOLL Department of Labour

DDoorréé Impure alloy of gold and silver produced at a mine to berefined to a higher purity, usually consists of 85% gold onaverage

DDRRDD Durban Roodepoort Deep (now known as DRDGOLD)

DDTTII Department of Trade & Industry



EE

EEEEAA Employment Equity Act (of 1998)

EETTFF Exchange Traded Fund. Gold ETFs are funds whose soleasset is physical gold and whose value is fully backed byphysical gold

EEFFTTAA European Free Trade Area

EELLIIDDZZ East London Industrial Development Zone

EETTQQAA Education and Training Quality Assayers

EEMMIIAA Export Marketing and Investment Assistance

FF

FFTTAA Free Trade Area

FFiinnddiinngg A value-added small component (a clasp, clip or hook) thatforms part of the overall jewellery piece assembly

FFiinnee GGoolldd Pure gold of at least 995 parts per 1,000 gold. Distinguishbetween fine gold and ‘fine gold jewellery’ which refers tocarat jewellery of a minimum of 9 carat to differentiate itfrom costume jewellery which does not contain carat gold

FFlleeuurr ddee CCooiinn An international term for a coin that is produced with noblemishes and of the highest quality – e.g. a proofKrugerrand

FFRRIIDDGGEE Fund for Research in Industrial Development Growth andEquity

GG

GGAATTTT General Agreement on Tariffs and Trade

GGEEAARR Growth, Employment and Redistribution

GGPPCC Gold Producers Committee of the Chamber of Mines

GGSSPP Generalised System of Preferences

HH

HHaallllmmaarrkk Marking finished product of jewellery with a caratage stampor manufacturers’ insignia

HHDDII Historically Disadvantaged Individual

HHEETTss Higher Education and Training Institutions

HHDDSSAA Historically Disadvantaged South African

HHiivveess Co-operative associations of manufacturers of similarproducts operating collectively and usually cost-effectivelyvia the sharing of overheads and other fixed costs

HHCCDDCCSS Harmonised Commodity Description and Coding System



II

IIDDCC Industrial Development Corporation of South Africa Limited

IIDDZZ Industrial Development Zone

IIMMFF International Monetary Fund

IISSOO International Standards Organisation

JJ

JJAASSAA Jewellery Association of South Africa

JJAAWWDDAA Jewellery and Watch Distributors Association

JJCCSSAA Jewellery Council of South Africa

JJIIAAIIDDZZ Johannesburg International Airport Industrial DevelopmentZone

JJMMAA Jewellery Manufacturers’ Association

JJSSEE Johannesburg Securities Exchange

LL

LLBBMMAA London Bullion Market Association

LLeeggaall TTeennddeerr (Coins) Bullion or other coins which are accepted for thepurchase of goods and services – e.g. Krugerrand

LLIIBBOORR London Inter Bank Offered Rate, based on rates thatcontributor banks in London offer each other for inter-bankdeposits

LLoonnddoonn GGoooodd Refinery appointed by the LBMA, to monitor quality and DDeelliivveerryy RReeffeerreeee purity of refinery output

LLoonnddoonn GGoooodd Awarded by the London Bullion Market Association toDDeelliivveerryy SSttaattuuss refiners that meet certain criteria with respect to their

refining standards. This status gives refiners internationalrecognition for the quality and purity of their products.(Termed London Good Delivery status accreditation).

MM

MMaakkhhooddaa Formerly Louis Trichardt in Limpopo Province

MMiinntteedd BBaarrss A bar punched out of a strip of gold which has beenproduced by continuous casting. The punched out bar isthen minted in a purpose-designed minting press, similar tothe process used to make coins. (Contrast cast bars)

MMiinntteekk Provider of minerals processing and metallurgicalengineering products and services to industry

MMookkooppaannee Formerly Potgietersrus in Limpopo Province

MMooookkggoopphhoonngg Formerly Naboomspruit in Limpopo Province



MMPPRRDDAA Minerals and Petroleum Resources Development Act 28 of2002

MMQQAA -- SSEETTAA Mining Qualification Authority – Sector Education TrainingAuthority

NN

NNAAFFTTAA North American Free Trade Agreement

NNEEDDLLAACC National Economic Development and Labour Council

NNEEPPAADD New Partnerships for Africa’s Development

NNSSFF National Skills Fund

NNEEWWGGOOLLDD Gold Exchange Traded Fund launched by Absa BankGGoolldd BBuulllliioonn

NNGGOOss Non-Governmental Organisations

NNQQFF National Qualifications Framework

NNSSBBss National Standards Bodies set standards in education inparticular sectors or fields

NNSSFF National Skills Fund

NNUUMM National Union of Mineworkers

NNYYMMEEXX New York Mercantile Exchange

PP

PPGGMMss Platinum Group Metals

PPllaattee Product created by the process of continuous casting whichallows a constant rectangular shape to be withdrawn fromthe bottom of a mould. Solidifies into a long strip of metalwhich can be rolled and reworked into different dimensions

PPoollookkwwaannee Formerly Pietersburg in Limpopo Province

RR

RRiibbbboonn Plate which has been rolled into a thin strip, usually with athickness of less than 0.5mm

RRMMAA Rand Monetary Area replaced by CMA (Common MonetaryArea) in 1986

SS

SSAACCOOBB South African Chamber of Business

SSAAMMDDAA South African Mining Development Association

SSAARRSS South African Revenue Services



SSAAQQAA South African Qualifications Authority

SSDDFF Skills Development FundSSDDFFss Skills Development Facilitators

SSDDLL Skills Development Levy

SSDDRRss Special Drawing Rights are a form of international reservewhose creation was authorised by amendment to theArticles of Agreement of the IMF

SSeeccttiioonn 2211 CCoommppaannyy A company registered in South Africa in terms of Section 21of the Companies Act. Such companies are registered toprovide a service and do not intend to make or to be judgedby the profits they make. As such, they are ‘Not for Gain’companies and are often funded by local and/orinternational donations

SSEETTAA Sector Education and Training Authority

SSmmaallll BBaarrss Bars with a weight of less than 1kg generally of the castvariety

SSMMEE Small and Medium Enterprises

SSMMEEDDPP Small and Medium Enterprise Development Programme

SSMMMMEE Small, Micro and Medium Enterprises

SSSSGG Support Services Group

SSSSPP Skills Support Programme

SSwweeeepp (Jewellers) – Floor sweepings sent to the recycler to recoververy low grade gold content

TT

TTEEBBAA The Employment Bureau of Africa

TTDDCCSS The South African/European Trade Development & Co-operation Fund

TTIISSAA Trade and Investment South Africa

TTOOCCOOMM Tokyo Commodities Exchange

TTsshhwwaannee Formerly Pretoria, the administrative capital of South Africa

UU

UUSSGGSS United States Geological Survey

VV

VVAATT Value Added Tax (14%)



WW

WWaasshhiinnggss The wash water from the jewellery manufacturing processwhich can contain anything from 4% - 5% gold (in weight)which is sent for recycling

WWGGCC World Gold Council

WWiirree Gold in wire form of varying diameter and alloy destined tobe manufactured into chain

Documents

Gold in South Africa