[miningmx.com] – THIS year’s wage negotiation season is critical for all gold, coal and platinum mining firms in South Africa, but if there’s a company that has particular interest in a strife-free environment, it would be Gold Fields.
So much rides on a sensible outcome of discussions at its South Deep mine which is just about to start ramping up to its scheduled 700,000 ounces a year, due by 2016*. If it achieves this, South Deep will comprise no less than 33% of total pretax profits by 2020, analysts say.
That makes it an enormous part of the firm’s offering and with analysts believing that at R60/share Gold Fields is trading at fair value – despite a one third decline this year – it can’t afford more slippages. South Deep simply has to deliver.
In its favour, South Deep’s management has recently agreed a new work shift which allows for round-the-clock operations that will prevent the kind of downtime to which it and other mines in the country were vulnerable over Christmas.
This recent agreement may mean Gold Fields is ‘negotiation-fit’, as it were; prepared for the wage negotiations due to kick off later this month.
But there are warnings. The competitive tension between the National Union of Mineworkers (NUM) and the Associated Mineworkers & Construction Union (Amcu) creates a climate that threatens to bar sense from wage talks.
There’s also the effect of the recent $200 per ounce decline in the gold price which, were Gold Fields to achieve guided production of 1.83 million ounces, means the group will book $3.6bn less revenue that it thought it might in before the March quarter closed out (although the group plans on less than market prices).
The consequence is that Gold Fields has less negotiating space, as Nick Holland, CEO of Gold Fields warned: “Wage negotiations are going to be challenging,” he said in response to questions while presenting the firm’s March quarter figures last week.
“I haven’t seen any wage demands but we can’t give double-digit increases, especially with declining productivity,” said Holland. He added the group would be communicating the need for “sharing the growing cake” in preference to “divvying up a smaller cake”. For its part, the NUM has already stated it will be expecting a double digit wage increase. It will be interesting.
At some 3,700 employees, labour at South Deep comprises about 40% of total costs. In terms of the ramp up of production – from 180,000 tonnes of ore per month to 330,000 tpm – more staff are required but it won’t have a proportional increase on costs; in fact, 80% of South Deep’s costs are already in the figures.
“We only need people in the trackless mining areas,” said Holland suggesting the bulk of the skills are already in the mine.
There’s every chance South Deep could thrive and validate the unbundling from the mature South African assets.
* The article previously stated 700,000 oz by 2015 and has been corrected to 2016.
