At first thought, starting a gold mining business can seem like a very daunting process especially if you have no experience whatever regarding the industry. Even if you do have an experience in the industry, the nature of the industry will require you to get some sort of guidance from those that have more experience than yourself and also to get acquainted with prospecting tools such as gold sluices and metal detectors.
One thing you should note is that there are various ways you can start making money in the gold mining industry without having to start digging for gold if you are not so inclined. Just like any business, if you intend to become successful, then you must be ready to engage in lots of research in addition to whatever mining industry knowledge you might have.
You might also need to establish local gold washing plants so that you can process soil, sand or any kind of material whether you have found gold at such locations or not. You will also need to review the periodic table of elements so that you can find out about the density of gold.
Your research will help you closely analyze the potential rewards following your decision of starting this business as you will have also studied the current price and trends of gold in order to have an idea of what you are going into. Know if there is an easy market for the gold you intend to produce and where you can easily sell it. Another important aspect that you cannot take for granted is the existence of laws or any rules either by the government or by the industry as regards the process of mining gold.
It is important that you have a target area in mind because even though the general proximity of concentrated gold is known, you should find the exact zones where the concentrates are so that you don’t end up running a bad project that will drain your money.
This is why you would need to work hand in hand with an experienced geologist who would offer the right advice regarding how you should go about prospecting. Once you have gotten your target area, find out if there are ongoing productions and how they are faring before securing a title.
Just like any other business, having a business plan is essential to your gold mining business. A business plan is a map that is intended to guide you during the course of starting and running your business especially as you are going to be facing a lot of challenges.
A business plan is also useful in the sense that should you be looking to source for start-up capital from a potential investor or financial institution, the business plan will show them how serious you are about the project and also convince them to invest with your company.
20 Steps on How to Start a Gold Mining Business in South Africa
Table of Content
- 1. Understand the Industry
- 2. Conduct Market Research and Feasibility Studies
- 3. Decide What Niche to Concentrate On
- 4. Know the Major Competitors in the Industry
- 5. Decide Whether to Buy a Franchise or Start from Scratch
- 6. Know the Possible Threats and Challenges You Will Face
- 8. Choose a Catchy Business Name from the ideas Below
- 9. Discuss With an Agent to Know the Best Insurance Policies for You
- 10. Protect your Intellectual Property With Trademark, Copyrights, Patents
- 11. Get the Necessary Professional Certification
- 12. Get the Necessary Legal Documents You Need to Operate
- 13. Raise the Needed Startup Capital
- 14. Choose a Suitable Location for your Business
- 15. Hire Employees for your Technical and Manpower Needs
- 16. Write a Marketing Plan Packed With ideas & Strategies
- 17. Develop Iron-clad Competitive Strategies to Help You Win
- 18. Brainstorm Possible Ways to Retain Clients & Customers
- 19. Develop Strategies to Boost Brand Awareness and Create a Corporate Identity
1. Understand the Industry
Gold was discovered in the late 19th century and the discovery led to the development of Johannesburg, Egoli (the city of gold) and numerous other towns such as Pilgrim’s Rest and Barberton. Large gold mines were established on the West Wits line in the 20th century thereby making towns such as Klerksdorp and Carletonville to become very important with busy centers around the gold mines of Driefontein, viz Kloof and Western Deep levels.
South Africa for many years was the primary producer of gold all around the world; this however started changing in the early 21st century as mines went deeper and gold prices crashed and culminating with the global economic depression in 2008 had a huge negative impact on the country’s mining industry.
The pressure on the mining industry has been prolonged due to 2013/2014 slowdown in the Chinese economy as well as the internal pressures (rising costs and labour demands) experienced by the industry. During this period, the country’s contribution to the global gold supply dropped to 5.3 percent and according to estimation, half of the industry is not regarded as profitable.
The past decade has seen a significant reduction in the gold mining contribution to the mining GDP of the country. Mineral sales have since 2012 fallen drastically by 40 percent. The employment in the gold sector has continued to decline since the 1980s as only about 120,000 workers are being employed currently. Productivity has experienced a decline even as wages have increased.
However, despite the travails of the industry, the activities in the gold mining industry has continued to be a source of employment for many communities all over the country; as every employee in the gold sector has between 5 and 10 indirect dependents. Also, every direct job in the mining sector indirectly brings about two indirect jobs being created in other industries.
The country’s total reserve is worth R2-.3 trillion and is seen as one of the most valuable in the world. The country is regarded as the fifth largest mining sector in terms of its value to the GDP. According to the US Geological Survey, South Africa has the world’s largest reserves of platinum group metals (PGMs) and manganese.
It also is among the countries that has the largest reserves of gold, diamonds, vanadium and chromite. The country’s economy is built on gold and diamond mining as gold accounts for more than one-third of the country’s exports, thereby making the sector an important foreign exchange earner.
The growth of the country’s secondary and tertiary industries has seen the contribution of the mining sector to the economy decline over the last two decades. However, the country is adapting seriously to the conditions on the local and international scale and therefore still remains significant to the economy as it accounts for approximately one-third of the country’s market capitalization.
It also has a huge significance on other aspects of the country through its contribution via job creation and foreign exchange earnings. Mining therefore remains critical to the socio-economic development of the country. South Africa’s mining industry was the largest contributor of the broad-based black economic empowerment (BBBEE) in 2011.
The black economic empowerment states that a certain percentage of local assets in all the companies in the country must be sold to black South Africans. Regardless of this decree, the BBBEE in the mining sector was at 8.9 percent and below the target of the 15 percent that was had in 2007, thereby putting much pressure on the government to ensure that a 26 percent target was reached by 2014.
2. Conduct Market Research and Feasibility Studies
- Demographics and Psychographics
The demographic and psychographic compositions of those that make use of gold include individuals and corporate consumers, manufacturers of electronic products, electrical equipment, jewelers, investors and the medical sector.
Therefore, if you are looking to define the demography for your gold mining business, you should strive to make it as all-encompassing as possible as gold is used in everyday life activity.
3. Decide What Niche to Concentrate On
Every entrepreneur understands the importance of having niche ideas as this allows for leverage over other competitors. While there might not be so many niches in this industry, an innovative entrepreneur will always find out ideas that will make him stand apart.
It is however important to note that large scale companies usually have an advantage over small scale companies especially due to economies of scale and the number of equipment available at their disposal; small scale companies on the other hand often focus on one or two niches in order to be able to offer specialized services to their customers.
Below are some of the niche ideas within this particular business that you can specialize in;
- Gold Ore Mining
- Gold Ore Beneficiation
- Gold bullion, ore and concentrates
- Mining of other precious metals
- Gold mining support and training services
- Consultancy services
The Level of Competition in the Industry
The level of competition that exists in the gold mining business is often between small and large scale gold mining companies as the former have to find a way to stand out from the latter, who usually have the finances, equipment and human resources better than the former.
All customers are on the lookout for when dealing with gold mining companies, is that they deliver exactly what is intended. As long as customers can trust your word, then it allows you to be able to compete fairly especially against those that are already established in the industry.
Therefore, if you are looking to start a gold mining business in the South Africa, then you should be aware that you will be faced with a lot of competition on a national and global level and therefore should be adequately prepared for it.
4. Know the Major Competitors in the Industry
In every industry, there are companies that stand out and the gold mining industry which is a vital industry has several companies that are well known on a global level. Some of these companies are in other countries but are quite popular and well known by all the stakeholders in the industry.
As an entrepreneur intending to start a gold mining business, it is vital that you have a thorough knowledge of the industry giants. Below are some of the well-known gold mining companies not only in the South Africa but all over the world as well;
- Harmony Gold
- AngloGold Ashanti
- Gold Fields
- Pan African Resources
- Randgold Resources
South Africa is one of the leading producers of gold and due to its diverse mineral wealth that is widespread; many important mining companies from all over the world have operations within the country. The country’s total mineral reserves are estimated to be R20.3 trillion ($2.5 trillion).
The economic activity of South Africa today has been centered on mining activities plus their ancillary supplies and services. The country has since become famous since gold was discovered on the world’s famous Witwatersrand.
South Africa’s economic, social and political landscape has been intertwined with mining as the industry has been the mainstay of the country’s economy. The mining sector in 2014 contributed an estimated amount of R18 billion to the economy.
More than 495,000 people in 2014 were employed by the mining sector in 2014 with each of the persons employed having more or less nine indirect dependents. The South African mining sector has over the years attracted a lot of valuable foreign direct investments (FDIs) as companies from different countries come to South Africa in order to get a stake of the sector, thereby boosting the economy.
5. Decide Whether to Buy a Franchise or Start from Scratch
In the business world, the decision of whether to buy a franchise or to start the business from scratch is a very important one because each option can better help the entrepreneur achieve his goals and objectives faster if wisely chosen.
When looking to buy a franchise, it is best that you conduct a thorough research of all the franchise opportunities available and how much they cost. The gold mining business due to its nature and the nature of franchises does not however deal in franchise opportunities as there are mostly mergers and acquisitions in this kind of industry.
Starting this business from scratch, merging with another gold mining company or acquiring an already existing gold mining business especially if you have the funds are the options available to any entrepreneur looking to start a business in this industry. This is why it is important that you have an in-depth knowledge of the business as well as the industry so that you can make the right decisions regarding your business.
6. Know the Possible Threats and Challenges You Will Face
Every entrepreneur looking to start a gold mining business knows that while the venture is a lucrative one, it is also a not so easy venture and that there are bound to be several threats and challenges that will crop up threatening the business. However, while knowing that you should expect challenges, preparing for them shows how serious you are about the business.
Some of the threats and challenges that you are therefore likely to face when starting your gold mining business in the South Africa include; strict and stiffening regulations from the government, changing trends in the other industries that are dependent on gold, slump in gold prices and competition from other existing and successful gold mining companies.
7. Choose the Most Suitable Legal Entity
One of the most important decisions you will be making when looking to start any business in South Africa is the appropriate legal entity for your business because the legal entity you choose for your business will have a lot of impact on how the business can achieve its goals and objectives. This is why a thorough research has to be conducted about your business so that you have an idea of the legal entity that will be appropriate for you.
Some of the legal entities that exist in the South Africa for entrepreneurs include; sole proprietorship, partnership (limited or unlimited), business trust and a company. Each of these legal entities has defining attributes that make them distinct from each another. Some of the attributes that can be used in determining the right legal entity are; ease of setup, ownership and control, flexibility of the legal entity, taxation issues, investors’ expectations and extent of liability.
Even though the sole proprietorship and partnership sort of legal entity are the easiest and popular legal entities first used by most entrepreneurs in South Africa, they are not the best for this kind of business even though the entrepreneur might be starting on a small scale.
These sort of legal entities though simple are sorely limiting for enterprises of this nature and so depending on the laws of the area where the entrepreneur intends to start his gold mining business in; the legal entity option available is the company.
Companies which can either be public companies or private companies are the most popular and recommended form of legal entities for entrepreneurs looking to run their mining business in South Africa. They can be registered or incorporated by filing a memorandum of incorporation (MOI) and a notice of incorporation with the Companies and Intellectual Property Commission (CIPC). Companies are separate legal entities, which mean that the business can sue and be sued without affecting the owners of the business.
A private company means that there is a restriction in the business’ memorandum of incorporation (MOI), as regards the transferability of its securities. A private company is also prohibited from offering its securities to the public. This sort of company is best for ventures that have a small number of shareholders.
Even though companies in South Africa and company laws are modeled in large part on the Commonwealth jurisdictions, there is still a degree of influence from the US corporate law in terms of shareholders and board of directors.
8. Choose a Catchy Business Name from the ideas Below
When starting any business, what you intend to call the business is very important because you will require a business name before you can begin to file for any business license. A business name enables you to stand apart from your competitors and allow your customers to easily identify you.
Whatever name you have decided to pick for your business, ensure that it is unique, catchy and easily memorable. Some of the catchy business name ideas suitable for your gold mining business include;
- Goldwyn Corp.
- Gold Rush Inc.
- Bavick Corp.
- Gold Crown Corp.
9. Discuss With an Agent to Know the Best Insurance Policies for You
Every mining venture no matter how easy it might look comes with a lot of risks and so as an entrepreneur you have to be ready for the risks that you will likely face by looking for a way to protect your business, yourself, your bottom line and your employees.
Purchasing the right insurance policies is therefore important to the realization of your goals and objectives. However, in order not to buy the wrong policies, it will be best to engage the services of an insurance agent or broker in order to be rightly advised as regards the bets policies. Some of the insurance policies that you should therefore consider purchasing include;
- Pollution and environmental liability coverage
- Commercial auto liability coverage
- Boiler and machinery coverage
- Cargo insurance coverage
- Workers compensation insurance
- Casualty insurance
- General liability insurance
10. Protect your Intellectual Property With Trademark, Copyrights, Patents
If you are looking to start your gold mining business, you should know that applying for an intellectual property protection will not be necessary due to the fact that what you will be mining isn’t unique as it is a resource that can be mined in other areas as well.
However, you can choose to protect the name of your company, your logo but not necessarily the material itself. Ensure that you seek the advice of an attorney as regards the right step to take when it comes to applying for an IPP.
11. Get the Necessary Professional Certification
As long as you have the capital, knowledge and experience to start a gold mining business, you do not need to acquire any sort of professional certification. You might however need to keep upgrading yourself by acquiring knowledge through various sources such as books and experiences of others but having a professional certification before you can start or run the business is not compulsory.
12. Get the Necessary Legal Documents You Need to Operate
When looking to start any business, it is important that you know exactly what documents you would need so as to be able to run the business without encountering hitches from authorities such as the Department of Mineral Resources (DMR). In the case of the gold mining business, it would be best to engage the services of an attorney to help with whatever documents you might need in order to run your gold mining business.
Some of the legal documents that you would therefore require include;
- Certificate of Incorporation
- Business Plan
- Insurance Policy
- Employment Agreement
- Contract Document
- Environmental Authorization
- Business License
- Mining License and Permits
13. Raise the Needed Startup Capital
When looking to start a business as challenging as the gold mining business, it is important that you understand that you will have to expend funds in purchasing land, carrying out assessment, buying equipment, recruiting labor and engaging in other activities, before you can begin to generate revenue.
If you do not have all the funds you seek, you might need to write out a comprehensive business plan that will be used to convince potential investors to invest in your business. Some of the financing options that you should explore are;
- Generate part of your startup capital from your personal savings and sale of valuable property or stock
- Source for loan from wealthy family members and friends
- Apply for loan from a commercial bank
- Approach an angel investor or venture capitalist to invest in your gold mining business
14. Choose a Suitable Location for your Business
As soon as you have decided to start your gold mining business, it is important that you begin to search for an appropriate mining land you will use to run your business. Once you have seen the right zone where gold is concentrated, you may decide to either purchase the land or acquire it as a mining claim.
Other options include entering into a joint venture with the owner of the mining land or license owner. Looking through the various opportunities, find out what’s best for you and your intending business and choose this. Once you have decided on the best spot where the gold is likely concentrated, you can begin the process of securing a title to the area which can range from registering claims to purchasing rights.
This might vary from state to state and so you should engage the services of an attorney knowledgeable in this kind of business to help you out. Your best bet however will be to have a long term strategy in place that will allow you expand on new mining lands in order that you may be able to acquire the mining license. Having a proper mining license means that you can begin your gold production without much hassles.
Once you have gotten the land to use for mining your gold, begin to prepare the land for work and for living as well. It is important that you create a space where you and your team will live for the duration of the exploration without having to travel to distant cities all the time.
The space for living might be a tent, cabin, living container or a brick house and should have a kitchen as well as a space where you can store your tools and equipment as well as process your materials and carry out admin work. It is important that you also take care of security so that you can feel safe while working and living on the mining land.
Ensure that you have set aside sufficient funds to purchase or acquire the land that you need and that you stick to your budget so that you don’t end up causing a strain over your overall budget.
15. Hire Employees for your Technical and Manpower Needs
The gold mining business offers the entrepreneur a chance to make huge profits in a fast way due to the fact that it might cost little to mine certain resources that might fetch a lot of money. There are also several opportunities available to entrepreneurs in this business as drilling for gold isn’t the only option or avenue you can make money for yourself.
The three most important factors in gold mining activities are Equipment, Quality and Volume. In order for equipment to reach its potential capacity, it has to be correctly evaluated even down to the number of people that will be required to handle the equipment. The quality factor is relative to the results which mean it relates to better concentrates and higher grade of ores. The volume factor has to do with the amount of ores that have been processed.
In running your gold mining company, you will require lots of equipment in order to be able to achieve your goals properly. These tools are important because you cannot mine for gold without them. Some of the equipment you will need include industrial pumps, sluice boxes, screening plants, bulldozers, excavators, rock trucks, wheel loaders, drills and construction vehicles.
Except your gold mining venture is the smallest, you will need to build a solid business structure that will allow you to hire competent, hardworking and reliable staff. In the mining business, stamina is often more important than qualifications because the job requires long and hard hours.
However, asides from those that you would need to help mine the materials, you will also require experienced employees as well as office staff that will handle all the administrative aspects of the job. To this extent you will require; admin staff, mining laborers and maintenance staff.
Ensure that your workers are not underpaid and that mining laborers are paid based on their performance. Therefore in order for you to be able to run your gold mining business successfully and achieve all your goals and objectives, you will require at least 13 people.
The Service Delivery Process of a Gold Mining Business
There are several processes involved in the mining of gold and they include; exploration, development, operation, decommissioning and post closure. Gold mining exploration often requires a significant period of time, expertise and financial resources and is often regarded as complex and challenging.
The development stage is usually the second stage and involves the planning and construction of the mine as well as associated infrastructure. The gold mining company must ensure that the appropriate licenses and permits have been obtained before they can even begin construction.
The operation stage has to do with the extraction and procession of ore into gold. Once the mine has become exhausted of the ore body, it ceases operation and the decommissioning, dismantling and then rehabilitation of the land that was used is done.
16. Write a Marketing Plan Packed With ideas & Strategies
Even though gold is easily marketable, you still have to make sure you understand the market well enough if you intend to get the best prices. Marketing one’s business is very vital if one intends to achieve the goals and objectives of the business. With marketing, you get to penetrate your intended target market after awareness has been created and then get a fair share of the market for yourself while also getting leverage against your competitors.
Location plays an important role when it comes to marketing your gold mining company because when it comes to selling the gold you have mined, those that are close to local dealers will get their gold sold fast and will make more profit than you coming from a farther place. Therefore, when you are looking to choose a location for your gold mining business, also have in mind the role it will play when it comes to marketing.
In order to be successful in marketing your gold, you will need to conduct a thorough research about the industry. You will have to understand who your target market is, what they expect from you and what you should expect from them as well. The research will also allow you gauge your competition in order to determine their tactics and how you can exploit their weaknesses to your advantage.
Once you have conducted a thorough research for your business, you will then have an idea of the marketing ideas and strategies that can be effectively used for your business so that you can achieve growth and sustainability. You might need to engage the services of an experienced marketing consultant to help package your gold mining business in a way as to get you noticed.
Some of the marketing ideas and strategies that you can use in promoting your gold mining business include;
- Install flexi banners and billboards in strategic locations so as to create awareness for your business
- Join local and national associations in order to network as well as create awareness for your business
- Place adverts about your gold mining business in newspapers and business magazines
- Create a website and use this to promote your gold mining business
17. Develop Iron-clad Competitive Strategies to Help You Win
In every business, there is bound to be competition and therefore it is important that an entrepreneur has laid down strategies in place that will allow them to win over their competitors and get a fair share of the market. If you have no competitive strategies in place, then it is safe to say that you aren’t taking the business seriously enough.
Some of the competitive strategies that you can use to win over your competitors in this particular industry include; ensuring that you do not compromise on quality, giving your customers incentives every now and then and then having valuable customer relationship with them.
18. Brainstorm Possible Ways to Retain Clients & Customers
Every entrepreneur knows how important customers are to a business and therefore strategies on how to attract customers to a business are often crafted in order that the business might have a steady influx of customers, which in essence means that the business is having a steady influx of revenue.
However, while having a steady stream of customers is important, ensuring that these customers keep coming back to the company is equally more important because high retention of customers allows a company spend less while generating revenue that will not only allow for its sustainability but also for the improvement of one’s bottom line.
It has been found that companies that had a high retention of customers usually spent less in attracting customers than those that had to keep attracting new customers all the time. This is due to the fact that those customers who stuck to a brand often felt loyal to the brand and in their own way often ended up promoting the brand to those around them.
19. Develop Strategies to Boost Brand Awareness and Create a Corporate Identity
No entrepreneur looking to start a profit-oriented business neglects creating awareness. Boosting awareness for one’s brand walks hand-in-hand with marketing which is why as soon as people become aware of the business, revenue starts to come in.
The benefit that comes with boosting awareness for one’s brand is why already established and successful companies do not mind setting aside a certain amount of money every month or year to boost the image of their brands.
Due to the fact that strategies are often the means to achieve the end result; an outline of what is intended to achieve has to be created. This means that you must first have an outline of what you intend to achieve in boosting your image as this will then guide you on what best strategies to create in order that it may align with your outline.
The internet has made it very easy for companies to achieve more visibility than it was possible before and so many gold mining companies have started tapping into the various opportunities brought by the internet in order to have the leverage they would need over their competitors in the industry.
Some of the strategies that you would therefore need to boost awareness for your brand and create a corporate identity for your company include;
- Engaging the services of a professional developer to create a website that can be used to boost your image
- Ensure that you are listed in a professional directory and in a creditable online directory
- Make use of social media platforms such as an official Facebook page, Twitter account and Linkedin page in order to boost awareness for your gold mining business
- Networking with other gold mining businesses in order to promote your own business