South African miners are facing redundancy

The South African currency has gone up in value by 26% since the beginning of the year, after years of struggling on the international currency market.

The development has been associated with growing confidence in the country's future.

But it has also had a dramatic effect on the price of key commodities, such as gold and coal, leading to a slump in exports.

Margin squeeze

Since the beginning of the year, the US dollar price of South African gold on the world market has gained 15%, platinum is up 24%, and coal has increased by 19%.

But their rand value has plummeted.

Commodity prices Gold - up 15% in $US/ down 15% in Rand Platinum - up 24% in $US/down 9% in Rand Coal - up 19% in $US/down 10.3% in Rand Source: Chamber of Mines

As a result, export revenues from these three commodities are expected to drop this year by 15%, from 91.2bn rand ($13.2bn; �7.9bn) to 77.1bn rand, according to the South African Chamber of Mines.

Mining as a whole is expected to be 20bn rand down, at 90bn.

At the same time, costs - such as railway tariffs which went up by 35% in April - have increased sharply.

All of this adds to up to a serious squeeze on mining profit margins.

Redundancy warning

DeBeers, the world's biggest diamond producer and two gold mining companies, Harmony and Durban Deep, have warned that they will be forced to start laying people off.

it is quite possible that the issue of the strengthening of the rand is being used to hide other problems that have arisen because of bad management Thabo Mbeki, South African President

The chamber of mines has warned 120,000 jobs out of a total of 400,000 in the mining industry could be at risk.

Gold mine are expected to bear the brunt of the cuts, with 70,000 out of 120,000 jobs at risk, it warns.

Roger Baxter, chief economist of the Chamber of Mines, told the BBC: "The financial situation of a number of mines is critically serious.

"There has been a massive squeeze on their margins."

'Bad management'

But South Africa's President Thabo Mbeki criticised the gold mining companies on Friday for threatening to cut jobs in response to the strong rand.

He said the companies were benefiting from higher dollar-based gold prices.

"With this gap between costs and gross revenues, in dollar terms, the gold mining companies will have to explain more clearly and convincingly why the stronger rand obliges them to retrench workers," he said.

"In this situation it is quite possible that the issue of the strengthening of the rand is being used to hide other problems that have arisen because of bad management."

Strong currency

For years South Africans have bemoaned the falling value of the rand on international currency markets, associating it with inflation and lack of confidence in the country's future.

But the rand stabilised in 2002 and its value has risen sharply in 2003.

Now South Africans are having to face up to the disadvantages of a strong currency.

The exporters who did so well when the rand was falling are now suffering and it is mining which has perhaps been hit the hardest.

Although it is no longer the dominant sector of South Africa's economy, massive job cuts would be a serious blow at a time when unemployment is already running at about 40% of the adult workforce.

And other South African exporters in textiles and car manufacturing are becoming increasingly worried.

They warn that the promising growth of recent years will come to an end if the rand does not fall.