Johannesburg - Wage talks across South
Africa's mining sector starting in May will be among the
toughest ever with strikes a certainty given inflation, worker
militancy and shrinking company margins.
There is also real risk of a repeat of the labour violence
and wildcat action that led to over 50 deaths last year, costing
companies and the state billions in lost revenue.
Emboldened by the high settlements some received after the
illegal 2012 strikes, labour militancy has spread from platinum
to gold and coal. Some miners have downed tools even before
Their income is being devoured by rising prices but wages
account for over 50% of company costs and they have paid
above-inflation wage rises in recent years.
"The gold companies cannot afford anything above inflation,"
said David Davis, mining investment analyst at SBG Securities.
"Just escalate $1 150 by 12% per year and by 2015
the gold price will have to be around $2 000 an ounce for the
producers to make a 20% margin," he said. Spot gold
is currently at 2-year lows around $1 425 an ounce.
He said broadly, the all-in cash costs in South Africa for AngloGold Ashanti [JSE:ANG], Africa's top bullion producer, and
smaller rivals Gold Fields [JSE:GFI] and Harmony Gold Mining Company [JSE:HAR]
were about $1 150 an ounce in 2012 and have been rising by 12 to
14% per annum over the last three years.
In the platinum sector, the situation is more dire, with
about half of the shafts unprofitable at current prices.
There is limited upside for the price of metal used to make
catalytic converters that cap emissions from automobiles. Supply
concerns from South Africa, home to 80% of platinum
reserves, could provide a boost but producers can hardly cash in
on that if their mines are shut.
Last year's unrest was rooted in a turf war between the
radical Association of Mineworkers (AMCU) and Construction Union
and the National Union of Mineworkers (Num).
AMCU won in platinum and now claims 105 000 members or a
fifth of South Africa's mineworkers. Wage talks in South
Africa's gold, coal and platinum sectors take place every two
years, but this will be the first with AMCU in such a strong
Wage talks are always tough and the last official round two
years ago triggered limited strikes including a shut down of
most of the country's gold mines for four days.
But last year's wave of illegal strikes, that closed mines
for weeks at a time, have been a game changer.
Workers are relying on the unions to deliver deals such as
the 11-22% pay hike Platinum producer Lonmin [JSE:LON]
gave to illegal strikers after 34 of them were shot dead by
police at its Marikana mine.
"We are extremely concerned about the abnormal environment
where people can raise unrealistic expectations," said Num general secretary Frans Baleni.
Militancy is spreading. Diversified miner Exxaro Resources [JSE:EXX] had
an illegal strike in March at five of its coal operations.
Exxaro chief executive Sipho Nkosi told the Reuters Africa
Investment Summit last week the strikers 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 R2bn so you can afford it.
So every employee must get R15 000," he said.
But talk of shrinking profit margins can seem irrelevant if
you work in dangerous conditions of 2kms or more
underground for R4 000 rand a month with a family to feed.
The low wages and inequality that the mining sector was
built on, and the demographic profile of your typical mineworker
- rural background, male, with an average of eight dependents -
mean that even above inflation wage increases have not gone far.
Inflation reached almost 6% in February with food prices
This helps explain why the more radical AMCU has poached
tens of thousands of former Num members.
"Many of our workers are getting R5 000 a month and on
this amount you must pay for food, accommodation, transport and
your family," said Siphamandla Malchanya, an AMCU activist at
Amplats' operations in the platinum-belt city of Rustenburg.
"But petrol prices and everything is going up each month so
we won't even accept 10% this year."
Adding fuel to the fire, the world's top platinum producer Anglo Platinum [JSE:AMS] (Amplats) 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.
Much of South Africa's mining labour force is semi-literate
and from rural areas, and so laid-off workers would have few
other options and their plight will stoke already volatile
social tensions at a time when wage talks need to take place.
Just getting them off the ground may not be easy. Impala Platinum Holdings [JSE:IMP] (Implats) says AMCU is now the majority union at its
operations, representing over 50% of its workers, while
Amplats says it claims 40% of its employees.
But neither company has been able to sign a "recognition
agreement" with AMCU yet, needed to get talks rolling.
Another problem is structural. In platinum, negotiations are
done company by company, while in gold and coal they take place
collectively under the chamber of mines.
This is a key reason for AMCU's penetration into platinum,
as it is easier to convince workers you can hammer out a new
deal for them if they are not part of an industry-wide process.
The chamber on Monday is meeting with AMCU to see if it is
willing to embrace industry-wide wage agreements in the platinum
sector but the union has signaled it is not interested.
"Our members are not in favour," said AMCU national
treasurer Jimmy Gama on Friday.