HARMONY Gold’s three-year wage deal signed with unions on Thursday was absent any of the pyrotechnics of previous wage negotiations. There wasn’t a single threat of strike action while the Association of Mineworkers & Construction Union (AMCU) – normally a refractory presence – was low key throughout winter.
Another positive is that with the wage agreement behind it, Harmony can knuckle down to a 2022 financial of elevated capital expenditure. It said in August at its 2021 full year presentation it would spend R2.3bn this year as part of a R8bn+ programme maintaining production at 1.4 million ounces annually for the next seven years.
The negative of the wage deal is that it entrenches Harmony’s reputation as a high cost gold producer. At a total increase of between 7% and 7.8% over the three years, the agreement is more expensive than the 6.5% average increase negotiated by Gold Fields and Pan African Resources’ 5.4% three-year wage settlement concluded earlier.
“Although the agreement is in line with management expectations, above inflationary increases in 50% to 60% of the cash cost base contributes to its 99th percentile ranking on the global AISC (all-in sustaining cost) curve in FY22,” said RMB Morgan Stanley analysts Jared Hoover, Christopher Nicholson and Brian Morgan in a report.
Harmony spokesman Jared Coetzer said over a three year view the company is significantly improving its cost profile. The production replacement programme maintains production and codes in cheaper ounces as the group phases out the ageing mines. “Our guidance has gone up (in terms of AISC) but we are confident the catalysts will come through,” he said. “There will be a reversal in the cost trend.”
There is, of course, another factor at play in the wage debate.
Mining in South Africa comes with social responsibilities that preclude mine closure, especially if the motivation is short-term wish fulfilment of investment analytical society. Harmony mines in the Carletonville and Welkom areas where mining remains the largest single employer.