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Preparing for a winter's discontent on wages

David McKay | Wed, 15 Jun 2011 10:11

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[miningmx.com] -- SOUTH Africa’s mining sector is expected to seek wage settlements equal to cost to company increases of between 10% to 12%. While this is above inflation of 4% to 5%, employers hope it will include the cost of benefits – the living out allowances – for which unions will agitate strongly, again.

The National Union of Mineworkers (Num) has demanded a basic 14% wage increase for members and then a 45% increase in various ‘living out allowances’ or benefits, including travel and food subsidies, that takes the average increase to 29.5%.

Given the fact that South Africa’s platinum sector, for instance, settled last at 7% on wages, this is a significant increase and heightens the possibility of supply disruption, as noted by Barclays Capital. “Potential supply disruption risks continue to lurk in the background, given previous negotiations across the industry have rarely been free of industrial action,” it said recently.

There are other aspects to consider as well that make thinking about the potential impact of wage negotiations this year complex and multi-layered. It’s certainly not possible to think of a single, homogenous pact negotiated between an erstwhile Chamber of Mines (COM) and the Num, although, of course, collective bargaining will be the general means of negotiation.

For instance, the Num has long been pushing for a benchmark minimum wage across the industry of about R5,000/month. Few mining companies have been able to achieve this with De Beers, Anglo Platinum and Impala Platinum notable exceptions. Amid a consumer price index (CPI) of 4% to 5%, the benchmark could be upped to R1,000/month which could become a major bone of contention.

It’s also not possible to think only of biennial wage negotiations either. In fact, the Num has been pushing for annual increases, and may want a 14% basic wage increase to be up for negotiation in 2012. This year’s wage negotiations will be backdated to June in most cases. (Lonmin’s agreement doesn’t expire until September, so obviously there are exceptions.) Nonetheless, deciding whether wage increases stand for a year or two will be well contested.

And the course may get more difficult still for miners, especially in the coming years. For instance, the Num is talking about establishing a so-called strike fund that will compensate members while they embark on strike action. That shapes the prospect of a Num with yet stronger leverage, more staying power in the standoff that is industrial action.

Interestingly, there’s some sympathy among the mining bosses for the way in which travel and food inflation affects lower earning miners.

Exxaro Resources CEO Sipho Nkosi said it had become incumbent on the industry to respond in terms of what could be realistically be achieved. “It’s difficult to say if we are resigned to above-CPI inflation because we’re not just talking salaries,” said Nkosi who was speaking before his company slapped a temporary interdict on a 7,000-strong strike at Exxaro’s operations.

“There are also discrepancies. There’s an equalisation of salaries and housing. We must take cognisance of the mining charter and redressing the problems of the past. Can the wage increases be held down at 5%? I doubt it.”

Nick Holland, CEO of Gold Fields, said earlier this week there was a need to strike a balance in the wage discussions. “It will be a tough negotiation this year - we’re expecting that. We have to strike a balance between recognising the impact of inflation, and what is affordable for the industry.”

DRDGOLD is expected to settle with workers separately, especially as Blyvoor, its northwest Rand mine, can’t bear much increase in unit costs. The mine is a regular loss maker and attracts a discount; in other words, as DRDGOLD CEO Niel Pretorius has pointed out, it costs the company to keep a mine like Blyvoor open. “It’s like a social plan of ours,” he said recently.

Gold miners AngloGold Ashanti, Gold Fields and Harmony Gold will be represented by the COM and face a 14% basic wage increase demand, as well as housing and food benefits. Coal miners such as Anglo Thermal Coal, a division of Anglo American, Optimum Coal Holdings, Exxaro Resources and Xstrata Coal face similar demands. BHP Billiton negotiates separately.

GOLD COUNTERS

Salaries and wages on South African gold mines accounted for 45% of cash costs, excluding the cost of labour brokers, which is another 10%. It’s a massive slug of total costs and with rand strength likely to continue, and a dollar gold price not advancing quickly enough for South Africans, margin pressure is likely to be significant for gold miners.

Not all miners are affected the same, however, especially the gold miners where geographical diversification changes exposure. Harmony Gold, with about 80% of employees in South Africa, is most heavily affected of the gold companies outside DRDGOLD. Gold Fields has some 50% of production in South Africa, while AngloGold Ashanti (39%) is least exposed.

The COM has undertaken to return to unions by next Monday (June 20) in what could be, to hove in the old cliché again, a "winter of discontent" for gold miners. Given that wage negotiations in the past have taken 10 to 13 weeks to conclude, it won’t be until late August that the hit on unit costs, especially for South Africa’s gold miners and stoppage-hit platinum miners, will be known.




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