[miningmx.com] – THE $100 per ounce decline in the gold price and multi-year lows for South African gold equities made it yet more urgent for the industry to agree new wage deals, said Chamber of Mines lead negotiator, Elize Strydom.
“Our industry’s resilience is being severely tested, and tens of thousands of jobs are potentially at risk,” said Strydom. “Now, more than ever, we need to create certainty in our industry and preserve jobs,” she said.
Strydom was commenting following another day of bilateral meetings which today were with UASA and Solidarity. The chamber is due to meet with the National Union of Mineworkers (NUM) on July 27 (Monday) and met with the Association of Mineworkers & Construction Union (AMCU) on July 19.
Strydom said the chamber’s offer was determined in line with an economic model that assumed a gold price of $1,200/oz.
However, the gold price plummeted in illiquid trade following data from China’s central bank which showed gold holdings at a lower percentage of overall foreign exchange reserves that hoped for.
The outcome was a precipitous decline in the gold price to just above $1,100/oz, equal to five year lows. Goldman Sachs believes bullion is heading for $1,010/oz in the next 12 months, especially as macroeconomic conditions improve.
“The gold companies’ share prices are at multi-year lows, reflecting investors’ bearish outlook on gold price and growing uncertainty around the viability of South African production given its spiralling cost base,” said Strydom.
“Eventually we will need to reach an agreement with all unions,” said Strydom. “Whether that agreement sustains this industry for another generation or more is up to us,’ she added.
The chamber is representing AngloGold Ashanti, Sibanye Gold, Harmony Gold, Evander Gold Mines and Village Main Reef.
Analysts, however, were sceptical. “With AMCU making its intentions clear, a sector-wide strike in gold seems unavoidable, albeit for only a portion of the workforce at each company,” said Macquarie Research analysts James Oberholzer and Kieran Daly after AMCU declared a dispute with the chamber.
“The question remains whether NUM will join AMCU in its pursuit of industrial action,” they said, adding that sealing an agreement was an opportunity for the NUM as it could isolate AMCU.
“As a reminder, while initially demanding the same R12,500/m (+75%) increase in the platinum sector last year, AMCU eventually (after a five-month long strike) settled at achieving that objective over a three-year period, which translated to a settlement involving annual increases of ~8%p.a,” they said.
AMCU has demanded R12,500 for its members while gold producers tabled offers of between 7.8% and 13%, with a guarantee that there would be no retrenchments at mines where operations fell below a 6% operating margin.
The chamber has also built in a gain-share element to its wage offer which Leon Esterhuizen, an analyst for CIBC Capital Markets said had a “productivity angle” to it that unions were generally averse to accepting.
He also doubted unions would swallow the social compact aspect of the chamber’s offering, preferring instead to secure a hefty percentage increase for entry-level workers rather than seeing in it the long-term protection of jobs.
“Although this is typical of the process, the walkout by AMCU is a clear indication that there’s probably not going to be a quick fix,” said Esterhuizen who added that he may have been “too optimistic” in first thinking a strike could be averted.
The risk for gold producers is that they have weaker balance sheets than their platinum counterparts, and less inventories from which to draw in the event of a protracted strike. However, this would also take the gold wage negotiations to a denouement quicker than in last year’s platinum strike.
