Minerals Council: 75% of SA’s gold mines unprofitable

Pic Credit: African Mining Brief 

12 July 2018|28 Shawaal 1439|Business day

Three-quarters of SA’s gold mines are unprofitable or barely making money, says the Minerals Council SA as the sector enters wage talks that some participants hope will reflect the realities bedevilling the sector.

SA’s 140-year-old gold industry, for decades the world’s leading source of the precious metal, is a shadow of itself barely clinging onto eighth place ahead of Mexico. Its mines are old, deep, with falling grades and productivity, and rising costs.

From more than 392,000 people employed in 1994, the sector now has 111,800 and that decline is showing no signs of slowing, with the weak rand price of gold forcing the closure of Pan African Resources’s Evander gold mine and the shutdown of the Cooke mines owned by Sibanye-Stillwater.

Against this backdrop, the gold sector including Sibanye, AngloGold Ashanti, Harmony and Village Main Reef, starts wage talks on Wednesday to set a fresh two-year wage deal.

The opening demands from the two biggest unions, the National Union of Mineworkers (NUM), with 51% representation of the 79,517 employees at the four companies, and the Association of Mineworkers and Construction Union (Amcu) with 34%, did not reflect an awareness of the difficulties.

Among a long list of demands, the NUM is demanding that basic entry-level wages be increased by 33% to R10,500/month from R7,785. Amcu, with its usual demand of R12,500/month, put its demand at 58% above prevailing wages.

With labour costs making up 53% of gold mining costs, an increase of those proportions, combined with the costs of the other demands, would force marginal mines out of business and lead to large job losses.

“Increases without a commensurate improvement in the gold price, exchange rate, cost profile or outputs will mean that the cost of labour as a portion of overall costs will rise, and the number of marginal and unprofitable operations will increase,” the council said on Tuesday.

The council is expected to table a counteroffer aligned to the consumer price index, which increased by 4.4% year-on-year for May, with some at the talks expecting a settlement to be two or three percentage points above that level.

“When we had our mandate meetings ahead of these talks the biggest concern from our members was job security and their message was ‘don’t negotiate us out of a job’,” said Solidarity general secretary Gideon du Plessis said. “It shows the reality of our situation is sinking in.”

The problem with the positional negotiating model was that unions came in with unrealistically high demands and these were countered by the council’s unrealistically low offer, he said.

Sibanye was likely to be the company most under pressure during the wage talks, with its terrible safety record so far in 2018, accounting for 21 of the whole mining industry’s 46 fatalities, and its board’s voracious appetite for deal-making, snapping up three large platinum assets and vying for a takeover of Lonmin, the world’s third-biggest platinum miner.

AngloGold has reduced its footprint in SA to a single underground mine, which is struggling. Harmony has bought the Moab Khotsong mining complex from AngloGold for $300m to lower group costs in SA and raise average grades.

A number of its mines are nearing the end of their lives in SA.

The JSE gold index has fallen by 18% so far in 2018, with Sibanye and Pan African dropping 50% and 43%, respectively.