GOLD AND ITS COSTS

Evening Post, Volume CXV, Issue 39, 16 February 1933, Page 14

GOLD AND ITS COSTS

S.A. CURRENCY, POLICY

THE FARM. THE MINE, THE

POUND

"Evening Post," February 16. How far the gold boom is linked with ; currency factors that have altered, and .may alter again (favourably ,or unfavourably to "the price of gold"), and how far . the gold boom is - justified by technical • progress in the finding, mining, and ex- . traction of gold, is being discussed in many ,' quarters. While appreciating technical .progress (geophysical location, new ' methods, new processes, etc.), the, "Syd- .' ney" Morning Herald" declared the other day that "South Africa's rise in the esti--1 .nation of the speculative public was due in the main to, the abandonment of the .' gold; standard :by the , Union '.of- South i Africa." This .conclusion leads up to the ... further thought that "the future is wrap- . ped in some uncertainty," and that it is " "a. matter of complicated' and difficult ' "computation" to decide whether future currency developments will stimulate gold production in gold-producing countries like Africa, Australia, and New Zealand, •or whether "the tremendous issues in•■.volved in international affairs will make ian alteration to our disadvantage." That is, to the disadvantage of gold-producers.

TAXES AND WAGES NOT STATIC.

On January 7 "The Economist" pointed jbut (quoting.' Sir Robert Kotze, former Government Mining Engineer in South Africa) that a 30 per cent, depreciation i(in relation to gold) of the South African pound would add about 19 millions in ".value to the value (46 million's) of South {Africa's annual gold production, as measured in South African currency. Before finding out how much of _ this premium ••would go into- dividends, it is necessary •to consider what extra amount a Goviernment may take in taxation (as, for instance, the New Zealand Government's new 7.duty on exported gold), and what "extra amount labour may be able to take, as a set-off to the loss in purchasing power Jof wages caused by the rise in internal jirices due to depreciation of the pound. ."The Econdmist" remarks that the increased return to the South African mining .'company—arid the same remark applies jto the -South African; farmer—"could not jof course arise from any increase in the ..gold or sterling prices of South African .■(exports (including gold), but merely from a decrease in costs of production as measured in gold, and especially in fixed wages and interest costs." As to the "fixed jwages," it is reported that the Minejworkers' Union greeted the depreciation jof the pound with a demand for' a 35 per cent, increase of wages.

LOW-GRADE ORE FACTOR,

Then there is another factor peculiar to gold mining, and to reefs of differing grades of value. A lower cost of production due to depreciation (so long as the lower cost is not cancelled by the taxation, -wage-increase,; and other factors) will enable the mining companies to yt ork at a profit reefs and ore-bodies that could not be -worked at a profit before depreciation. But the working of lowergrade ore must apparently reduce the gold value per .ton'pf .all ore treated. Though Borne mining companies "would of course _ gain by the extension of the lives of their I mines, through their ability to work ore below the present limit of payability, the decrease in the value of the output, due Jo milling a lower average grade of ore," Us a factor to betaken into account. Quoting Sir Robert Kotze's hypothetical figures; "The Economist" is. of opinion that an additional six millions may be available annually for South African goldmining dividends, which now absorb 8.5 millions annually. But, against that, the J_ (British shareholder in South African goldmines loses the high exchange premium *Jie received until recently on dividends -'declared in South African currency. "The 'prospect of some gain still remains, but '"this is likely to accrue mainly, if' not to shareholders in low-grade mines. Indeed, any substantial increase in the rate of taxation paid by the mines "might conceivably result in reduced sterling dividends for British shareholders in , / 'high-grade mines." The Union Government itself, in deciding to depreciate the pound, was agrarian-minded rather than - gold, minded.

PREMIUM "ALL PROFIT."

Nearly a month after "The Economist's" Article appeared, a Cape Town cablegram .(February.2) stated that "computing gold at £6 an ounce, the January output of South Africa appreciated by £1,500,000 over December." Next day, February 3, "The Times", took the hopeful view that -i '"'the present boom in gold mining.should feooner or later exert a powerful remedial influence on world economy. It started in Australia, where the cause was that >hile the price of gold in Australian Currency rose exactly in the same proportion as currency depreciated, working costs Temained unchanged. Thus the whole of the currency premium on gold became extra profit." Recognising that this happy state of affairs can hardly endure either in Australia or South Africa, "The Times" adds that "no doubt portion of. the extra 7 profits will be taken by labour and the Government, but what matters is the currency policy of South Africa and gold, standard countries. So long as the latter remain effectively on the gold standard and buy gold in unlimited quantities at the mint price, and so long as the South African Government makes no attempt to raise the value of its currency, then so long should the expansion of the gold-mining industry continue to the general advantage." If there is a continuance of the depreciation of South African currency in terms of gold by about 30 per cent., "the stimulation of gold production will be great," leading to "far-reaching expansion" in gold mining and generally. ; The proclamation—in British and Dutch —by which the South African Union left the gold standard is terse, and almost free of legal jargon. In one sentence it is set- out that -.South African Reserve Bank notes shall not be redeemable on demand in gold specie, "and a tender iof such notes shall in every case1 and-for all purposes be a legal tender of payment to the amount expressed in such notes." Thus simply is gold-redemption suspended Jn the greatest gold-producing country in ithe world. Dated December 28 (28 December in the Dutch version) the proclamation is the old year's dying gift to the new. :