Gold miners say unions must study ‘job value’

[miningmx.com] – SOUTH Africa mines minister, Ngoako Ramatlhodi, warned mining companies in his budget vote address to the National Council of Provinces, the country’s upper house of parliament, last month not to play “the numbers game’ when it came to retrenchments.

His comments have particular relevance for the gold sector as this is exactly the argument the Chamber of Mines (CoM) is putting to unions in its efforts to arrive at a three-year wage settlement, negotiations towards which began on June 22 and are due to reconvene on July 6.

According to industry sources, the CoM representing the interests of some 95,000 workers at companies including AngloGold Ashanti, Harmony Gold and Sibanye Gold, is hoping the unions will absorb the fact that even the lowest paid gold miner receving R12,000/month including benefits, will earn R1.8m in salary over 10 years assuming the current rate of inflation (5% CPI). The value of his pension will double in years five to 10.

Unrealistic wage demands – the National Union of Mineworkers (NUM) and the Association of Mineworkers & Construction Union (AMCU) have tabled 80% to 100% wage increases for entry-level workers – will inevitably mean retrenchments, the CoM has argued in sessions.

“If you agree to a package like this you’re not signing a wage deal but a Section 189 notice,’ a gold industry source said referring to the notice required in terms of the Labour Relations Act ahead of restructuring and retrenchments.

Quite how the wage talks will develop is anyone’s guess. Already, AMCU president Joseph Mathunjwa, has rejected the idea of a social compact with employers of which the “value of a job’ is an underlying principle, asking instead to be “paid the money’.

A report by the World Gold Council, which was published last month, was equally at pains to emphasise the importance gold mining has to developing market economies, such as in South Africa.

It made the surprising observation that despite the prevailing view that South Africa’s gold mining sector is a “sunset industry’, it nonetheless remains an important part of the economy.

It found that even though the value from gold mining is relatively modest when compared to the wider economy, it is comparable to other sectors.

“For instance, South Africa’s gold industry contributed 1.5% of gross domestic product in 2012, but is around two-thirds the size of the nation’s agricultural sector,’ the council said in its report.

Interestingly, the report also has relevance for the National Treasury which plans to implement a carbon tax in South Africa’s 2016 fiscal year. Administered costs – those out of the control of SA gold mining companies such as Eskom tariffs – have already had a massive impact on operating margins.

According to industry estimates, the average operating margin for South Africa gold mining companies is as low as 3%, whilst the most profitable shafts or mines have seen operating margins shrink to 10% from 30% the last time wages were negotiated in 2013.

By way of context, Section 52 of the Minerals & Petroleum Resources Development Act requests mining firms to alert the South African government in the event margins fall to 6% for a 12 month period as that’s a level considered likely to lead to closure.

Commenting on the prevalence for governments to exact value from miners through royalty rates, for instance, the World Gold Council commented: “By far the most significant means by which value flows from gold mining companies to the economies of host countries is through payments to suppliers and contracts and wages for employees’.

Regardless of the economic arguments, the unions, especially the NUM and the AMCU, are locked in separate battle for market share.

The gold industry will hope to prove that some 7,000 job losses announced in the platinum sector since the beginning of the year will serve as start reminder of what happens when industry is forced to accept unsustainably high wage increases.