Looming strike to push gold higher

2011-07-14 08:10

Johannesburg - Strikes are looming in South Africa's gold and platinum sectors which could threaten global supplies at a time when commodity prices are red hot.

Africa's largest economy is also grappling with spreading strikes in its petroleum sector which could have an impact on refinery production and domestic fuel supplies.

South Africa's powerful National Union of Mineworkers (NUM) said on Wednesday wage talks with the country's main gold miners were deadlocked and it was preparing for a strike.

That did not stop South African gold mining shares from surging ahead as bullion scaled record peaks on Wednesday.

"We have deadlocked and will go to mediation but this is paving the way for industrial action in the gold sector," NUM spokesperson Lesiba Seshoka told Reuters.

Mediation is a legal step that needs to be taken in South Africa before unions strike but the two sides are far apart.

Wage settlements, which have averaged about double the inflation rate over the past several years, threaten the economy by driving up the cost of a labour force that is more expensive than in other emerging market rivals such as China and Vietnam, and far less efficient.

Labour is a governing partner with the ruling African National Congress, which typically sides with labour to avoid antagonising an ally that supplies it with large blocks of votes.

The country's chamber of mines, which is negotiating on behalf of the gold mines, said AngloGold Ashanti [JSE:ANG] and Gold Fields [JSE:GFI] were offering between 5% and 5.5% while Harmony Gold Mining Company [JSE:HAR] and junior minor Rand Uranium had put 4.8% to 5.3% on the table.

NUM has been seeking 14%, around triple the current inflation rate and in keeping with demands from other miners and in other sectors.

Miners say they can ill-afford such increases despite sky-high prices as they grapple with other cost pressures. But unions argue that headline inflation does not capture the full impact of rising food and fuel prices on the incomes of its rank-and-file.

Unions also scent fat profits as spot gold on Wednesday hit record highs above $1 580 an ounce and disruptions to production in South Africa could push prices higher.

South African gold mine share prices brushed aside the threat of strike action and soared on the bullion price, which was lifted as investors fled the euro crisis for safe havens, with Harmony leading the way as it added almost eight percent to 97.66 rand.

South African mining shares are seen as relatively cheap because of strained labour relations and talk of nationalisation by radical elements in the ruling African National Congress.

Strikes also threaten South Africa's platinum and coal sectors. In the case of platinum this could hit Anglo Platinum [JSE:AMS] and Impala Platinum Holdings [JSE:IMP] which between them are responsible for two-thirds of global production.

NUM and Amplats are meeting later this month but a resolution looks unlikely with the union looking for a 20% wage increase.

But NUM said on Wednesday it was heading for a strike with Impala.