by Piet Coetzer

Tough times ahead for mining sector

Mining sector between a rock and a hard place

Mine shaft, wheels are slowing down in South Africa
Mine shaft.jpg


With its biannual, sector-wide wage negotiations due to start next month, South Africa’s mining sector shows indications of heading for an even tougher year than it experienced last year. In the process the country runs an increasing risk of losing out to other African countries as a resource investment destination with a number of adverse factors converging. 

Most expert observers are expecting this year's wage negotiation likely to be the most troublesome in history. It is expected to be complicated by the following factors:

·       Some of the wage deals, made in the wake of the illegal strikes and violent clashes on platinum mines are like chickens coming home to roost as labour militancy spreads to other areas of the mining sector;

·       A deal with the militant Association of Mineworkers and Construction Union (Amcu), which was at the centre of last year's labour unrest, to become part of a sector-wide collective bargaining process, remains elusive;

·       The rivalry and acrimonious relationship between Amcu and the affiliated National Union of Mineworkers (NUM) is not nearly something of the past;

·       Squeezed by global economic condition and the drop-off in demand from traditional markets Amplats, the world’s top platinum producer, is in talks with the government and unions over its plans to mothball two Rustenburg mines and cut up to 14 000 jobs in a bid to restore profits, a situation that could inflame and contaminate the negotiation process;

·       As illustrated by the reaction of global commodity markets to data from China and what happened to the gold price, South African mining houses are increasingly operating in an environment of diminishing room to manoeuvre; and

·       The continuance of an uncertain regulatory environment is weakening South Africa’s competitiveness among global resource investors.

Above-the-norm settlements achieved last year by labour, outside the formal negotiating structures in the platinum sector have seen militancy spread to the gold and coal mines, and even beyond. This trend has not abated as illustrated by an illegal strike in March at five of diversified miner Exxaro’s coal operations.

This development has largely benefited Amcu in its battle for dominance against NUM, and has already replaced NUM as the recognised majority union at some mines. It is against this background that, despite talks facilitated by the Chamber of mines between Amcu and platinum mining companies, Amcu’s president Joseph Mathunjwa indicated that his union would not implement centralised negotiations and that “The status quo remains.”

Under prevailing domestic and global economic conditions it is unlikely that mining houses will be able to repeat this year the well-above-inflation-rate wage hikes of between 11% and 22% agreed to at some platinum mines.

There seems to be a general consensus among mining industry analysts that it is unlikely, especially gold mines, will be able to afford increases of above the inflation rate.

While the price of gold during the past 10 days edged towards the $1300/oz mark, the lowest in over than two years, the production cost of an once of gold is in the order of $1150 and rising. This does not leave much room to manoeuvre to absorb additional wage costs and stay profitable.

In addition, the fact that 50% of South Africa’s platinum shafts are already running at a loss with some presently involved in talks aimed at temporarily shutting down operations in the face of depressed global markets.

On the other side of the coin, Exxaro chief executive officer, Sipho Nkosi recently told the Reuters Africa Investment Summit that the strikers at their coal operations had demanded a bonus even though they had not met their agreed targets.

"They said you made enough money, you declared a profit in your results. You made over R2 billion so you can afford it. So every employee must get R15 000."

And with food inflation at 6.1%, there is ample fertile ground for militancy. An AMCU activist in the platinum belt recently told Reuters, "Many of our workers are getting R5000 a month and on this amount you must pay for food, accommodation, transport and your family."

It is against this background that the mining sector will enter the wage negotiation process next month at a time when the International Monetary Fund (IMF) in its latest World Economic Outlook forecasts a growth rate of 2.8% for South Africa during 2013.

According to IMF, the growth rate will only slightly rise to 3.3% in 2014, “owing to sluggish mining production and weakened demand from the eurozone, which remains a key export market for the country”.



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