Rick Rule continues:

“But it’s been in the news, the  actions by the workers, and in one case 44 workers killed.  What appears to be the problem is that some number of workers, particularly the migratory workers, are at odds with the National Mine Workers Union. 

There are also allegations that some of the black empowerment vehicles, which provide mining services to the large mining companies, are actually marking up the workers wages too much, and keeping large portions of the workers’ wages by way of management....

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“The truth is this, mining in South Africa is a labor intensive business, and it’s a business that is having a hard time earning its cost of capital.  The conundrum is this, it appears that workers’ wages must go up, but if you look at the income statements of the companies, it would appear that the workers’ wages can’t go up.

What is certain is this will be extremely challenging for the South African mining industry.  And South Africa, of course, is an important producer of precious metals, base metals, coal, and a number of commodities.  Watch this space because it’s another example of cost pressures going up on a global basis, and potentially leading to supply constraints in the future.”

Rule also added:  “I don’t see this have a near-term impact on the gold market, but I could see it having a long-term impact.  South Africa is an extremely important supplier.  But the South African mines are very long of tooth.  They are very old, and you are mining at great depth, sometimes as much as 3,000 meters down, on a horizon that is perhaps only one meter thick.

It’s important to remember that this one meter thick horizon is basically horizontal, which means that you have in excess of nine thousand feet of rock above you, which could cave in and crush you.  So the workers have to work in an extremely confined place, under 9,000 feet of rock, in temperatures that exceed 100 degrees fahrenheit, and they have to actively reinforce the workings to keep the rock from coming in and crushing them.

These are very, very labor intensive operations because they can’t be mechanized.  The workers, by historical standards, have been very underpaid, and I’m in sympathy with the workers wanting their wages to increase.  It would appear that the South African gold industry is, to coin a phrase, stuck between a rock and a hard place.”

Rule had this to say regarding increasing demand for gold:  “We are hearing about very strong retail demand for gold.  The retail supplies would appear to be tight, even though the larger, 400 ounce bars are still available.  And it looks as though retail demand is really strong on a global basis.

Indian demand has also picked up as a result of the Indian government easing their restrictions and taxes.  Retail demand in the Western world is also strong.  Most importantly, there appears to be continued interest from the Chinese government in expanding the retail gold market. 

The Chinese are interested in continuing to expand gold’s role as a savings mechanism for the Chinese citizenry.  This is after many, many years of having banned it.  I am also attracted to the gold market because it is the ultimate store of value, and also because the emerging and frontier market citizens have more disposable income.  These people tend to have their savings in gold, not in paper currencies, and this also bodes well for the gold market going forward.”

I would just add to this that I sent a video to Richard Russell about a decade ago which featured the world’s deepest gold mine.  The mine was in South Africa and it revealed the incredibly challenging conditions that workers face.  At the time, the mine being featured belonged to Durban Roodepoort. 

The mine was a staggering 3+ miles deep underground.  This mine was much deeper than what Rule was describing above.  In fact it was almost twice as deep!  There were a dozen injuries every day at the mine. 

This is why Richard Russell says that during this cycle you should own something that government can’t print.  Russell always recommends gold, and the reality is that workers in these types of conditions face injury or death each day pulling gold out of the ground.  Gold is precious indeed.

© 2012 by King World News®. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed.  However, linking directly to the blog page is permitted and encouraged.

The interviews with Stephen Leeb, John Embry, Gerald Celente, Rick Santelli, Michael Pento and Don Coxe are available now.  Also, be sure to listen to last week’s line-up of other KWN interviews which included, Pierre Lassonde, Rick Rule, Nigel Farage, Ben Davies, and Dr. Keith Barron by CLICKING HERE.

Eric King

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© 2012 by King World News®. All Rights Reserved. This material may not be published, broadcast,

rewritten, or redistributed.  However, linking directly to the blog page is permitted and encouraged.

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