Under mining SA

Jan 23 2013 07:45
Jarred Myers
AngloGold Ashanti

Amplats miners. (Sapa)

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THERE seems to be a change of beat on the South African geopolitical street: last year, mine unions were - quite literally - all the rage; this year, they are munching on market forces humble pie.

They have been replaced by fact-spurning government leaders, who are setting new benchmarks in hubris while demonstrating their ignorance of economics, market forces, industry and - with morbid humour - the legal system.

It is worth pondering the dynamics influencing this step change, and how it will influence the future landscape.

Much ink has been spilt on demonstrating the veracity of government leaders' factual errors, ranging from lack of understanding of mineral rights to the absence of comprehension on how public companies work.

This article does not seek to remedy this educational deficit; suffice it to say that public companies spend a few bucks on legal input before making public statements, something which government officials would do well to replicate, albeit at no cost to themselves.

A simple analysis framework demonstrates the historic and current situations in the mining industry.

Historically the interests of government, mine unions and miners were aligned: government needed to reduce unemployment, miners needed jobs and mine unions were the mechanism which facilitated this by aggressively negotiating layoff prevention and wage escalations.

To the surprise of all three stakeholders above, this mechanism was not sustainable and was only endured until such point that the fundamentals of market forces dictated to mines that inflated wages to an inflated labour force behoves structural change.

While mine unions last year appeared immune to logic and the fundamentals of profit and loss - insisting that mines absorb colossal wage increases with little care for viability - the reality of cause and effect seems to have penetrated their obtuse skulls.

The result is that unions now understand that strikes decrease productivity, which in turn decreases profitability, which through some mysterious mechanism leads to job losses.

It would be presumptuous to assume that unions care for their members, but there is no doubt that they care deeply about their membership. And through a mechanism which apparently is far less enigmatic, they comprehend that if jobs are lost, their unions are weakened.

Much like the way the body responds to inadequate caloric intake by entering a starvation mode and feeding off muscle, thereby lowering the metabolic rate, mine unions motivated with self-preservation are doing whatever it takes to thwart economic starvation.

This is the decoupling point.

Mine unions and government no longer share parity of interests. Government still needs to reduce unemployment, but mine unions care more about their existence than their reason for existence.

The new paradigm is such that government now realises that the unions will no longer do its bidding in badgering mining companies to stave off layoffs.

Tens of thousands of freshly unemployed, low skilled workers will emerge - who for the most part are not only unemployable elsewhere but are heavily indebted, have multiple dependents and are by no means averse to public displays of melancholy. All this, in the lead-up to an election year.

As Nomura economist Peter Attard Montalto highlighted in his First Insights article, the strategy for Anglo Platinum [JSE:AMS] (Amplats) to retrench workers and redeploy them in new construction jobs “was likely a 'pay-off' to the government in order not to incur its ire.

"However, little appears to have been done to satisfy the unions in the mining sector.”

It is perhaps a bitter irony that Amplats correctly predicted the union response of apathy with a brief, limp, and localised downing of tools while at the same time it was stymied by the government's response.

Perhaps this sheds some light on the political astuteness of our beleaguered political leaders, and perhaps we are too summary in our dismissal of their abilities - for the fact that Amplats intends to redeploy retrenched workers at a cost to itself has not ameliorated government ire.

This could only be for two reasons: either government doubts Amplats' ability to execute on this strategy (a not so likely scenario) or, more fundamentally, government realises that while Amplats may have the wherewithal to execute this redeployment strategy, other mines will in no way be able to match it.

And that will result in a flood of net job losses industry-wide - in effect, a joblessness pandemic at the core of its loyalist supporters.

The latter reason is certainly cause for concern - unsurprisingly, union and government leadership are cut from the same cloth, caring little or nothing for their electorate but deeply for their election.


*Jarred Myers is a resources strategist and can be followed on Twitter on @JarredMyers. Opinions expressed are his own.

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