South Africa’s index of gold-mining stocks fell to the lowest since April 2001 as the precious metal slid to a five-year low and local producers battled rising costs.
The five-member FTSE/JSE Africa Gold Mining Index dropped as much as 5.5 percent. Harmony Gold Mining Co. led the decline, losing as much as 7.3 percent to the lowest since January 1998.
The metal sank as much as 4.2 percent as the Federal Reserve gets closer to raising U.S. rates for the first time since 2006, strengthening the dollar and reducing demand for haven assets such as gold. Mining companies in South Africa are struggling with lower output from aging ore bodies and labor costs that have more than doubled since 2001. The country is the world’s sixth-biggest producer, down from No. 1 in 2007.
“We will probably see interest-rate hikes in the States before year-end, and the U.S. economy is showing that it’s growing,” Sibonginkosi Nyanga, analyst at Imara S.P. Reid (Pty) Ltd., said by phone from Johannesburg. “With a stronger U.S. economy and a strong dollar, we expect the gold price not to strengthen.”
Sibanye Gold Ltd. dropped 6.1 percent to 18.38 rand by 10:21 a.m. in Johannesburg. Harmony retreated 6.9 percent to 12.81 rand. AngloGold Ashanti Ltd., the world’s third-largest producer, decreased five percent to 89.75 rand, heading for the weakest closing level since November 2000.
Unions representing workers from the three companies have rejected the producers’ offer to raise entry-level pay for underground workers by as much as 13 percent in wage negotiations that began last month. The organisations are demanding increases of at least 80 percent while the inflation rate was 4.6 percent in May. Talks are continuing.