[miningmx.com] – INVESTORS were no longer prepared to support gold companies that agreed to above-inflation wage increases, and would replace management that sanctioned such increases, said Neal Froneman, CEO of Sibanye Gold.
In an interview with Miningmx, Froneman also said his shareholders were willing to finance gold production losses in the event of strike action if it meant resisting union demands.
“Shareholders have told us that if we continue down the path of awarding above inflation wage increases, then the capital markets will close and they will look to change management,’ he said.
Gold sector investors had invested through the gold market bull run but they had seen governments and unions derive better returns. Now the gold sector is heading into a kind of nuclear winter following an average $220/oz decline in the gold price which has led to cost cutting.
The Chamber of Mines said on July 15 in its response to union pay increase demands that above CPI wage increases had been granted in July 2012, and unscheduled above-inflation increases were granted again in October 2012.
“Wages received by employees in the gold sector compare favourably with wages and benefits in similar occupations in other labour-intensive industries,’ said Elize Strydom, chief negotiator for the chamber.
Froneman also thought that contrary to expectations, gold sector wage negotiations may be concluded relatively quickly.
“There’s such a wide difference between union demands and employer offers that it’s quite possible the sides will deadlock quickly and go to arbitration,” he said.
The Chamber of Mines offered a 4% wage increase for all levels on July 15 in response to some union demands for between 60% and 100% increases for entry level workers.
The National Union of Mineworkers’ spokesman, Lesiba Seshoka, told BDLive he thought the offer would lead to confrontation and styled it as “an insult”. The chamber is representing Sibanye Gold as well as AngloGold Ashanti and Gold Fields.
Sibanye Gold needs to settle wage increases before it can pay an interim dividend. This is in terms of changes to its debt structure, in which it is allowed to pay an interim dividend of 25% of normalised earnings provided net debt is below R4bn, and a larger 35% final dividend.
Previously, no interim dividend was allowed and the final dividend could not exceed 25% of normalised earnings. Sibanye’s debt situation started at R4.2bn in January, rose slightly and was reduced again to R4bn by April following a R570m payment. Cash on hand is about R1.2bn.
Froneman said establishing a track record in providing yield to shareholders was crucial in order to inject some zest into the company’s share price.
“We need to establish a dividend history in order to establish a track-record,” said Froneman who added he had been disappointed by the performance of the share price. Sibanye Gold is trading about 28% above its post-IPO low of R6.59/share.
Sibanye Gold is due to report its interim operating and financial results in which it would adopt the World Gold Council’s new metric for reporting cash costs known as All In Sustaining Costs which include items such as exploration and capital development as well as share awards and other non-operational costs not normally reflected by gold mining companies.
