Economic performance

Since Ergo formally came into production on 25 February 1978, the operation had recorded a profit before tax of R2.4 billion ($374 million) and a company tax contribution of R353 million ($55 million) to the national fiscus - both in money-of-the-day terms. However, in the lead-up to closure the operation began moving into a loss-making status due to the declining gold production (arising from lower tonnage and reduced head grade), combined with increasing costs associated with the environmental rehabilitation process which is required in order to achieve final closure. For the two year period 2003/4 a total loss of R63 million ($9.8 million) has been recorded and an additional operating loss of R142 million ($22.2 million) is expected between 2005 and 2015. This number excludes additional expenditure from the closure rehabilitation trust fund of around R145 million ($22.6 million). Nonetheless, the company has made a significant contribution to shareholders, employees and the local and national government over its 25 year income-generating life. In addition, it has played a role in 'cleaning up' tailings dams of the Witwatersrand, whilst developing two new state-of-the-art tailings disposal facilities, thereby improving the environmental conditions and facilitating urban development in the Ekurhuleni Metropolitan area. As at December 2004, total slimes treated was 870 million tonnes, yielding 254,811 kilograms of gold.

Ergo contributed to sustaining a number of private and public companies, as well as local municipalities, through the purchase of commodities and utilities which were required during the re-treatment of material from more than 50 reclamation sites. Communication has been ongoing with these stakeholders, who have been aware of Ergo's anticipated life span since the plant was commissioned in 1977 and, indeed, who have benefited from a number of life extensions (see box below).

Suppliers preparing for closure

Sasol Polymers, a division of Sasol Limited, is one of four private companies that will be most affected by Ergo's closure. This company supplied approximately 1,000 tonnes of calcium cyanide per month to Ergo, which is the largest consumer of cyanide in the world. So high is the demand that Sasol Polymers has historically had a dedicated factory for the production of Ergo's calcium cyanide supplies which have a value of approximately R7.2 million ($1.12 million) per month. Over the last seven years, Ergo has held annual workshops with Sasol to discuss mutual cost-saving synergies. This forum also discussed Ergo's closure and the expected economic impact on Sasol Polymers, who are now switching production from calcium cyanide to sodium cyanide which is a more marketable product. Besides retaining existing jobs, this move is expected to offset the company's loss in income from Ergo.

Daily communication is held with suppliers Fraser Alexander and West Rand Plant Hire, whose services at the slimes dams in the 1,500 km² area around Ergo operations are tapering off, as the daily tonnages of tailings from these sites decrease. Fraser Alexander supplies reclamation equipment and labour - approximately 603 contractors. However, the company's services are also used at reclamation sites at a number of other operations, for example, in the Rustenburg and Klerksdorp areas, so the company is gradually redeploying its labour component during Ergo's winding-up phase.

West Rand Plant Hire, which provides earthmoving equipment and labour of around 247 contractors also has other interests on the West Rand and has opened up a branch in Klerksdorp specifically to offset the impact of Ergo's closure. Midway 2, which supplies approximately 197 contractors at Ergo has also been aware of the closure programme and is making alternative business plans.

Municipality and utilities to feel impact

Electricity and water consumption is reducing gradually, impacting on contributions by Ergo to its suppliers. The main Ergo operation sources its electricity and water supplies from Eskom and Rand Water respectively, while utilities at the surrounding reclamation sites of Germiston, Boksburg, Benoni, Springs and Brakpan, are supplied by their local municipalities. Total monthly electricity consumption currently averages 24.6Mwh at a cost of R3.7 million ($0.6 million). Total monthly water consumption averages 380,000 kilolitres at a cost of R1.5 million ($0.2 million). Brakpan municipality which supplies 63% of Ergo's electricity demand will feel a significant financial impact on Ergo's closure, not least by dint of the fact that Ergo is a reliable customer, a huge advantage considering the bad debt faced by many municipalities. Ergo has been in regular communication with both the utilities and the municipality and is, through its social investment initiatives, trying to offset some of the negative impact on the municipal area. (See case study in the community section: Ergo programme focuses on maths and science education.)

Communication with customers

Ergo's two main customers are Rand Refinery, to whom it sells approximately 500 kilograms of gold a month; and Chemical Initiatives, manufacturers and distributors of acid and oleum products, of which a combined total of 8,062,607 tonnes was supplied by Ergo from inception up to October 2004.

AngloGold Ashanti has been supportive of Rand Refinery's bid to increase its customer base, particularly in Africa, and Rand Refinery recently won a successful tender to conduct the refining of gold from AngloGold Ashanti's Malian and Ghanaian operations.

Production of sulphuric acid was stopped when the acid plant closed in October 2004, due to suitable pyrite dams being exhausted. Oleum production was also stopped in October 2004 when the acid plant closed but by that time Lever Brothers, Chemical Initiatives' main oleum customer had switched to an alternative sulphination source for its process.