Nick Holland, CEO, Gold Fields
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» Vast gulf emerges in Anglo Platinum wage talks
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» New wage talks will be tough - Ralph Havenstein, Anglo Pt CEO

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Wage talk cloud hangs over SA gold firms
David McKay and Allan Seccombe
Posted: Thu, 17 May 2007

[miningmx.com] -- SOUTH AFRICA’S GOLD PRODUCERS expect the next four weeks will see unions ask for higher wages, a development that effectively kicks off a traditionally fraught horse-trading period.

Last time gold mine employers spoke with unions – 2005 – there was a national strike, the first in 18 years. It ended in two-year fixed wage increases of between 6% and 7%. Predictably, gold producers are expecting the new round of wage talks to be taxing.

“It’s going to be long and difficult,” says Nick Holland, chief financial officer at Gold Fields. “I don’t think we’ll be paying more than the civil service,” he says.
long and difficult
Earlier this month, Cosatu asked for a 12% wage increase for government officials. Gold Fields is likely to start from some trailing CPIX figure – 5,5% in March’s year-on-year figures.

“They’ll be the usual mismatch between expectations,” says Harmony Gold CEO Bernard Swanepoel. “I doubt it could be hardly worse than two years ago because there was a strike then.”

However, it could be a torrid affair. Perhaps in a pre-emptive strike, Gold Fields CEO Ian Cockerill has spoken of enormous cost increases gold producers have had to absorb.

Fifteen months ago, Gold Fields was paying US$4 000 for a truck tyre that costs three times as much today. Steel and cyanide costs are also increasing exponentially. A heavy labour charge – which accounts for around 50% of on-mine costs – is the last thing gold producers would want.

Cockerill says gold mines are currently the hardest hit by on-mine inflation, because mining companies in the base metal industries have seen prices quadruple whereas the gold price, though it has appreciated significantly, is up by a far smaller multiple. “Their revenue line has advanced a lot more than ours, so they can absorb those costs,” Cockerill said on the Moneyweb Power Hour.

AngloGold Ashanti is hopeful its employee share ownership plan, agreed with unions last year, will give employees a new perspective.

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Srinivasan Venkatakhrisnan, AngloGold Ashanti’s chief financial officer, says of wage negotiations: “There’s a commonality of interests with them [unions] now holding shares. It’s going to be cost pressures. It’s going to be managing expectations."

"I believe a sensible deal can be done, but I can’t predict a percentage. Whatever percentage we agree on, we’re confident with union and employee support clawing it back through productivity improvements.”

Much will depend on Frans Baleni, the National Union of Mineworkers’ (NUM) newly appointed general-secretary. Swanepoel reckons Baleni is still settling down in the role, but neither he nor Holland has a sense of Baleni’s negotiating style. “He looks like a very competent union guy. I guess NUM still has to flex its muscles this year.”

However, that may be happening. Revenue losses at Northam Platinum were close to R60m following a week-long strike at its mine following a dispute with the NUM. If the gold miners are in for a sticky time, it might be worse for the platinum producers, which are positively rolling in cash flow.

Unions representing workers Anglo Platinum have demanded wage increases of between 15% and 18%. The world's largest platinum producer offered five percent plus a once-off bonus as talks opened this week. Unions called the offer "disappointing".