Promising signs of normality

[] — THE theory in the mining industry is that its strikes
don’t persist for more than six weeks. Halfway through the second month of a no-
work, no-pay regime, the economic reality of illegal industrial action begins to bite.

At the time of writing, there are promising signs that a degree of normality is
returning to the country’s mines, blighted by strikes that at one point saw some
100,000 workers engaged in illegal strike activity, much of it violent.

Miners at Gold Fields’ Beatrix mine were returning to work after week three of
striking, while its KDC West mine strike is in its fifth week. AngloGold Ashanti’s mines
are in the third week of strike activity, while the action at Anglo American Platinum’s
(Amplats’) Rustenburg mines are in the fourth week. The illegal sit-in at Kumba Iron
Ore’s Sishen mine is a bit of a special case, as the 300 workers halting production
there are thought to have been the only obstacle to work resuming and police have
since had been forcibly removed them.

Unfortunately, it would appear permanent damage has been done to the sector. If
strike action has indelible consequences, the blow to South Africa’s economy is
potentially hard and broad – a possibility underscored by the slew of credit and state-
owned company ratings downgrades, partly based on the strike contagion.

“The on-going unlawful strike action in South Africa is of concern and will, even if
resolved in the near term, increase the likelihood of major restructuring in the South
African gold mining industry, including Gold Fields,’ said Nick Holland, CEO of Gold

Roger Baxter, head of economics and strategy at the Chamber of Mines of SA, agrees
the face of the mining sector is changed irrevocably. “I believe there will be some
restructuring and even retrenchments in the platinum sector,’ he says. As for the gold
industry, the strikes have merely accelerated the rate of shrinkage that was long
inevitable. “It’s a mature industry,’ he says.

But he doesn’t buy into analysts’ warnings that the strikes will be settled through
higher wage settlements.

Some estimates are that up to 40,000 jobs will be lost in the mining sector as
employers replicate settlements at Lonmin and Impala Platinum, leading to an
average 10% increase in the industry’s wage bill. Were this to happen, pretax margins
would shrink to between 2% to 2.5%, selected high-cost shafts in certain mines would
shut, and some capital projects – such as Lonmin’s Saffey and Hoissy projects – would
be closed.

Other shafts and whole mines considered vulnerable include AngloGold Ashanti’s
Savuka and Great Noligwa mines, Harmony Gold’s Steyn, Target 3 and Unisel
operations, while Amplats is expected to permanently close two of its Khuseleka,
Thembelani, Khomanani and Siphumelele shafts in Rustenburg, currently in mothballs
with the dismissal of some 12,000 workers.

Baxter is adamant the sector won’t increase wages and that it must stick to existing
agreements for fear a salary settlement outside of formal channels opens a Pandora’s
box for future wage discussions. An offer to review the grades of its entry-level
workers in the gold sector remains on the table, however.

To put this in perspective, about 75% of underground labour in South Africa’s gold
mines consist of entry-level, underground workers, with the balance comprising winch
operators, rock drill operators and a small minority of production team leaders.
Therefore, the Chamber’s offer to review the structure of the lowest grade of workers
is hardly fiddling around the edges.

Baxter thinks that the industry will prevail. “Salaries are not part of the discussion
except, perhaps, the difference between contractor versus full time worker salaries,’
he says.

But what of the broader economy? It’s difficult to understand Minister of Finance
Pravin Gordhan’s surprise regarding sovereign credit downgrades when the centrality
of the mining sector is truly understood. “It’s the flywheel of the economy,’ says

“The mining industry employs 500,000 people, but another 850,000 through industries
that service the sector,’ he says. About 17.2% of total corporate tax was paid by
miners (R25.8bn) last year, while a further R5.5bn was collected in royalty payments
and some R9bn in indirect tax, through employees.

And if some 15% of mining industry jobs – 40,000 – are at stake, the earnings of the
country’s banks will also be harmed, by up to 2% with the microlenders such as
Capitec and Abil most affected.

– The article was first published in Finweek