Rand tanks as labour tensions run high

Johannesburg - South Africa's rand hit new four-year lows on Monday after Mercedes Benz said workers staged an illegal strike and the NUM demanded big wage hikes for coal and gold miners.

The car maker said workers agreed to resume operations on Tuesday after wildcat protest action.

But news of the halt spurred a currency fall already underway after it emerged that wage hikes of up to 60% had been demanded by the National Union of Mineworkers (NUM).

The rand hit its lowest levels since 2009 in morning trade and then lost another 3 cents in the late afternoon session to a new four-year low of R9.4875/$.

The rand remained under pressure in late trade as labour tensions in the mining industry weighed on market sentiment.

At 18:15 the rand was bid at R9.4488% from R9.4002 at Friday’s close and R9.3102 at Thursday’s close.

The local currency was bid at R12.1526/€ from its previous close of R12.0619/€ and was at R14.3878 against sterling from R14.2230 at its previous close. The euro was bid at $1.2864 from $1.2828 at Friday’s close.

The NUM pay demands in a submission to the Chamber of Mines rattled mining investors. Wildcat strikes at platinum and gold mines killed 50 people and cost billions in lost output last year.

Employers and workers are squaring off for next month's salary bargaining period against a backdrop of high inflation and shrinking company margins due to soaring costs and sinking commodity prices.

This is making South Africa vulnerable, said George Glynos, managing director at financial consultancy ETM Analytics.

"Commodity prices are retreating, you have wage negotiations which look like they are turning pear-shaped even before they have begun, and all that on top of a fragile economy," he said.

Shares in Africa's top bullion producer AngloGold Ashanti [JSE:ANG] fell more than 4% and rival Gold Fields [JSE:GFI] shed 4% to 4-1/2 year lows after gold fell for an eight straight session on global markets.

Turf war

A fierce union turf war is damaging labour relations at South African mine shafts, with the NUM fighting an aggressive challenge to its once near monopoly of members from the growing Association of Mineworkers and Construction Union (Amcu).

Amcu has poached tens of thousands of platinum miners from NUM in an increasingly violent struggle at mine sites.

The union battle poses a headache for President Jacob Zuma's ANC, which faces criticism that it mishandled last year's mines violence.

Opponents say it and the mainstream NUM have neglected the rights of workers and sided with mine bosses, a charge they both deny.

The ANC's secretary general Gwede Mantashe, a former top NUM official, defended the union on Monday, saying that "recent attacks" on it were akin to an attack on the ruling party's alliance with its labour allies.

Last year's mine violence dented South Africa's image with investors and led to ratings downgrades for the economy.

NUM is seeking an entry-level minimum monthly wage of R7 000 for gold and coal surface workers and R8 000 for those underground. The latter would represent a 60% rise from the current minimum wage of R5 000 rand a month.

NUM also said it wanted 15% increases for "all other wage categories," meaning more experienced and skilled workers. Wage talks are due to begin next month.

Solidarity trade union, which represents mostly skilled workers, said on Monday it was seeking 10% pay increases for its members from the country's gold and coal producers in the upcoming negotiations.

With spot gold fetching around $1 350 an ounce, down close to 20% so far this year, South Africa's mines, the deepest in the world, are hard pressed to turn a profit.

"If you look at the all-in-costs for South African gold miners, including capex (capital expenditure), the break-even costs right now are anywhere between $1 100 and ounce and $1 400 an ounce," said David Davis, mining investment analyst with SBG Securities.

Struggle

NUM still represents the bulk of the rank and file in the gold and coal sectors and needs to be seen taking a tough line with management to head off the assault from Amcu, which now dominates the platinum sector specifically.

African Bank Investments [JSE:ABIL], a lender to lower-income South Africans such as miners, said on Monday many of its debt-laden customers were struggling to pay back their loans.

"The knock-on effect from the recent strike activity led to increased debt servicing burdens," the bank said in announcing its first-half earnings.

Amcu's rise has been built in part on perceptions that NUM's leaders have grown too close to management and the ANC.

The view from the boardroom is somewhat different as NUM has been wringing above inflation wage hikes for its members over the past decade, a huge squeeze on company margins.

But even increases above inflation do not go far for workers at the bottom end of the pay scale who on average have eight dependants and are mostly drawn from poor rural areas.

Inflation, which is currently running near 6%, looks set to accelerate further given the recent weakness in the rand.