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Rock Street, San Francisco

Geographical Location: World,

Chronicle of the event: While gold prices hit record highs during 2012,
the world unfortunately experienced a sharp decline in 2013. Despite the fact
that gold demand was relatively strong, supported
by increase in demand for jewelry, especially from India and China.

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Breakdown of the event: Drop in gold recycling and limited production growth were
the main contributors to the decrease in supply of the precious
metal during 2013.   Building a new mine requires significant capital
in startup stage and is a demanding, 5 to 10-year process. Reductions in explorations have resulted in fewer new discoveries, which impacts
on the replacement of gold reserves and resources by mining companies.

Consequence of the event: With gold reserves slowly depleting, the cost of
replacing gold mines is increasing and the effects of
ageing infrastructure are becoming noticeable. However, where
planned development has taken place, mining companies have been able to deal
with these issues. 

Policy remedy: The South
African gold sector offers a hedge
against gold price fluctuation. But mining companies need to be more
flexible and be able to adjust cost structures quickly in response to the
fluctuating gold price. By delivering
consistent returns and showing value generation, the gold sector will eventually restore investor
confidence. This has to be further supported by the sensible use of available
funds, conservative capital expenditure outlays and an increased focus on free
cash flow generation.
Governments also have a role to play in partnering with mining companies and providing a level of
certainty about regulatory compliance, tax regimes, the administration of mining licenses and social requirements.

Comment: Productivity levels affect the supply of commodities in the market. By understanding its role and engagement
with employers, productivity levels can improve and costs can be reduced. This
will attract producers for increasing the supply with an increase in demand

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