Investing in South Africa’s First Underground Gold Project Since 2009

Gold prices continue to set record highs, driven by strong central bank purchases and investment demand that has been building since the Russia-Ukraine war began in 2022. Central banks have added more than 1,000 metric tons of gold annually since then, with another 900 tons expected this year, double the 2016–2021 average.

“There’s a continued flow of safe-haven demand amid geopolitical matters that are still kind of wobbly, including the Russia-Ukraine war,” said Jim Wyckoff, senior analyst at Kitco Metals. He noted that last week’s Fed rate cut, along with expectations of further easing, is also supporting prices. Together, uncertainty, central bank buying, and investor appetite are fueling gold’s rally.

Amid these favourable conditions, West Wits Mining is preparing to restart South African gold production with its Qala Shallows mine, the country’s first new underground gold project since 2009. The Australian-listed company’s $90 million venture, located on Johannesburg’s western outskirts, is expected to produce about 70,000 ounces annually. CEO Rudi Deysel told Bloomberg that West Wits is “really the only formal company trying to start a new mine” in South Africa’s struggling gold sector.

The 17-year project will tap into a site closed in 2000, reaching a depth of 850 meters. With production costs below $1,300 per ounce and gold trading near $3,340, the mine stands to benefit from record prices.

South Africa’s gold industry has shrunk dramatically over the past two decades, with production down more than 70% and employment falling below 90,000 workers. Mining historian Duncan Money attributes the decline mainly to global expansion in other regions rather than domestic politics. Against this backdrop, the Qala Shallows project marks a rare new chapter for local gold mining. Backed by $50 million in financing from the Industrial Development Corporation and Absa Bank, it will process ore through Sibanye-Stillwater’s facilities, avoiding the cost of building a new plant, and is expected to generate $2.7 billion over its lifetime.

Gold outlook

The country may be looking to revive gold production through projects like Qala Shallows, but the broader market will still be shaped by global dynamics. Deutsche Bank has lifted its 2026 gold forecast to $4,000 an ounce, up from $3,700, citing expected Fed rate cuts and sustained buying by China’s central bank. Analyst Michael Hsueh said prices are likely to remain above fair value, with central bank demand projected at 900 tons in 2026. “We expect that gold’s premium to these models will persist,” he said, adding that “further upside is more likely than a correction down to financial fair value.”

Round-up

West Wits Mining is classified as a precious and base metals explorer. Unlike established producers, exploration companies are more volatile, with valuations driven by future discoveries and market sentiment rather than steady production. This often results in sharp share price swings, especially when gold prices shift. Volatility can also be amplified by company-specific announcements, such as new funding, expansion plans, or project updates.

For investors seeking alternatives, there are funds that provide direct exposure to the commodity itself, avoiding the added risks tied to mining companies.

While most explorers are concentrated in the Australian market, the Johannesburg Stock Exchange hosts several established gold producers, including Harmony Gold Mining, AngloGold Ashanti, Gold Fields, Pan African Resources, and DRDGold, which continue to benefit from elevated gold prices and have rewarded shareholders with increased dividends.

Sources – EasyResearch.

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