The Covid-19 pandemic and the ensuing economic uncertainty has re-emphasised the safe-haven characteristic of gold.In 2020, the price of gold increased 26.6% in US dollar. Assisted by the weakening of the exchange rate, the price of the metal increased 45.3% in rand terms. Despite gold being one of the world’s most coveted metals, investment prospects for the sector are expected to remain bleak. According to Henk Langenhoven, chief economist of the Minerals Council, in South Africa the absence of a structural solution to the electricity crisis continues to impact negatively on gold mining. “Electricity accounts for a significant portion of intermediate input costs, given the deep-level operations that characterise the country’s gold mines. The intermittent nature of the electricity supply has health and safety concerns, while the steep price trajectory of electricity tariffs is also a major concern from an input cost perspective.”While record-high gold prices came to the rescue of domestic gold producers, production in 2020 still decreased by 13.7% to 90.6 tonnes.Turning potential into investment reality in the gold sector is, however, not only a South African challenge. The north-east corner of the Democratic Republic of Congo (DRC) is home to one of Africa’s richest goldfields, including Barrick Corporation’s Kibali gold mine – the largest gold mine in Africa. However, in recent years, gold mining activities have contributed little to the overall prosperity of the nation due to the ongoing conflict and violence in the area, the scale of the mining activities – mainly artisanal – and the smuggling of gold to neighbouring countries. According to François Adao, a lawyer at Herbert Smith Freehills, this is the African conundrum. “On the one hand there are the vast resources of gold available in these countries, but on the other hand they are unable to reap the benefit of the surging prices of gold.”Adao said countries like the DRC could see huge benefit by growing gold exports, but to attract investors there needed to be political security as well as regulatory and legislative certainty. “It is not just about the demand for a specific mineral and the price of it that plays a role, but also the political context and the legal certainty in the jurisdiction where the commodity is being mined. ”He said governments needed to create environments where investors felt safe. “In the DRC, for example, there have been a number of incidents where the national mining company has imposed re-negotiations of mining contracts, leaving mining operators vulnerable and uncertain. ”He said gold remained a safe haven for investors - and surging gold prices in 2020 had emphasised this. It was also a commodity that required far less infrastructure than the likes of copper or cobalt, making it a relatively easier commodity.He said the DRC in particular would attract more investment into its gold sector if it relaxed the mining codes it had introduced in 2019. Not only did this legislation reduce the duration for which an exploration permit and mining permit are granted, but it also substantially increased taxes. “Furthermore, the code imposes or obliges operators to subcontract all services, mostly to Congolese-owned businesses, which can be difficult to do. ”The absence of a structural solution to the electricity crisis continues to impact gold mining negatively.– Henk Langenhoven “Barrick Corporation’s Kibali gold mine in the DRC is the largest gold mine in Africa.
