Analysis: South Africa mine wage talks may be toughest yet – by Ed Stoddard and Sherilee Lakmidas (Reuters India – April 15, 2013)

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JOHANNESBURG – (Reuters) – Wage talks across South Africa’s mining sector starting in May will be among the toughest ever with strikes a certainty given inflation, worker militancy and shrinking company margins.

There is also real risk of a repeat of the labor violence and wildcat action that led to over 50 deaths last year, costing companies and the state billions of dollars in lost revenue.

Emboldened by the high settlements some received after the illegal 2012 strikes, labor militancy has spread from platinum to gold and coal. Some miners have downed tools even before talks start.

Their income is being devoured by rising prices but wages account for over 50 percent of company costs and they have paid above-inflation wage rises in recent years.  “The gold companies cannot afford anything above inflation,” said David Davis, mining investment analyst at SBG Securities.

“Just escalate $1,150 by 12 percent per year and by 2015 the gold price will have to be around $2,000 an ounce for the producers to make a 20 percent margin,” he said. Spot gold is currently at 2-year lows around $1,425 an ounce.

He said broadly, the all-in cash costs in South Africa for AngloGold Ashanti (ANGJ.J), Africa’s top bullion producer, and smaller rivals Gold Fields (GFIJ.J) and Harmony Gold (HARJ.J) were about $1,150 an ounce in 2012 and have been rising by 12 to 14 percent per annum over the last three years.

In the platinum sector, the situation is more dire, with about half of the shafts unprofitable at current prices.

There is limited upside for the price of metal used to make catalytic converters that cap emissions from automobiles. Supply concerns from South Africa, home to 80 percent of platinum reserves, could provide a boost but producers can hardly cash in on that if their mines are shut.

Last year’s unrest was rooted in a turf war between the radical Association of Mineworkers (AMCU) and Construction Union and the National Union of Mineworkers (NUM).

AMCU won in platinum and now claims 105,000 members or a fifth of South Africa’s mineworkers. Wage talks in South Africa’s gold, coal and platinum sectors take place every two years, but this will be the first with AMCU in such a strong position.

UNREALISTIC

Wage talks are always tough and the last official round two years ago triggered limited strikes including a shut down of most of the country’s gold mines for four days.

But last year’s wave of illegal strikes, that closed mines for weeks at a time, have been a game changer.

Workers are relying on the unions to deliver deals such as the 11-to-22 percent pay hike platinum producer Lonmin’s (LMI.L) gave to illegal strikers after 34 of them were shot dead by police at its Marikana mine.

“We are extremely concerned about the abnormal environment where people can raise unrealistic expectations,” said NUM General Secretary Frans Baleni.

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