Mining crisis deeper than Marikana
The wage agreement at Lonmin's Marikana mine was widely welcomed, but now appears to have triggered a deepening crisis in the mining industry.
At least four major mining companies had strikes this week – and the contagion is spreading.
Lonmin awarded increases of 22% to some grades of employees, sparking demands for similar or higher increases at Anglo Platinum mines in Rustenburg as well as in the gold sector, where production is down 40% because both Gold Fields and AngloGold Ashanti are experiencing illegal strike action.
Workers at Coal of Africa also downed tools, although it was a protected strike which did not seem linked to the wave of unrest.
Meanwhile, transport workers, who have been on a nationwide strike demanding a 12% increase, have cited the Marikana wage deals as an example of how such negotiations should be handled.
Protesters are working outside of lawful bargaining systems, posing a challenge to employers, which are showing signs of hardening their attitude. Anglo Platinum on Wednesday issued its third and final warning that workers must return to work or face disciplinary action that could lead to dismissals.
Anglo Platinum shut its Rustenburg operations for six days on September 12 and on Wednesday announced only 20% attendance across all shafts.
The strikes at Gold Fields and AngloGold Ashanti will see gold mining production drop by 40%, according to a report by miningmx.com on September 26.
David Davis, a research analyst for SBG Securities, said in a recent report that Gold Fields reported a daily loss of about 1 400 ounces at KDC West, Beatrix could lose around 880 ounces, and Anglo's West Wits and Vaal River operations around 4 800 ounces a day.
Many of the striking miners are demanding the same "R12 500" initially punted by workers at Lonmin.
In cases where agreements had been negotiated recently, there are demands from miners to negotitate new, better deals.
Even at Royal Bafokeng demands for R12500 were made, although staff received an increase in July and were locked into a three-year wage agreement, said spokesperson Kea Kalebe.
Impala Platinum, which granted a wage increase following a wildcat strike in February, is in talks with workers who have requested a "general wage increase" following the unrest at Lonmin.
"We have said we are prepared to do a wage review relative to the market," said Johan Theron, Impala's head of personnel, "[and] the Lonmin increase has put more pressure on our review."
Unions are concerned about contagion. The National Union of Mineworkers met with the Chamber of Mines last weekend with a view to moving next year's planned wage negotiations for three major gold and coal groups to an earlier date in a bid prevent a new wave of unprotected strikes.
But Davis warned that this action, should the proposal be accepted, "will likely be the catalyst for downsizing the mining industry, which in turn will likely lead to significant retrenchments."
The hike will add 14% to its wage bill, Lonmin has said. Taking the $796-million in employee costs detailed in its 2011 annual report, this means an additional $111-million in costs.
It's yet to be seen if Lonmin – never mind other companies – can afford to pay up without cutting staff. Increased productivity would be one way to counter the cost, but "the agreement was not linked to productivity targets", Lonmin said in response to the Mail & Guardian's questions.
Gideon du Plessis, secretary general of Solidarity, which took part in the wage negotiations and signing of the wage agreement, said there was no talk of cutting staff. "They [mine management] have, however, indicated that as soon as the mine is in full production they will need to assess the financial viability of shafts," he said. "I've no doubt they will have to go through a rightsizing or restructuring process or will be speaking to unions about reducing numbers."
Davis said the same would be true for the rest of the industry: "South African mining companies will likely react to preserve value by rightsizing their mature [mines] earlier than we originally forecast, which in turn … will likely lead to significant retrenchments."
Efficiency and productivity
The renewed focus on labour costs may also fuel the discussion around mine mechanisation.
One key benefit of mechanisation is intended to be increased efficiency and productivity, but in July Lonmin announced it would spend R1.2-billion reverting to conventional labour after mechanisation failed to yield the desired results.
Jim Porter, director at the Centre for Mechanised Mining Systems at Wits university, said the negotiated increases at Lonmin had put new, added pressure on operation costs at a time when, globally, "there is a more focused drive on mechanisation than ever in the past".
Increasing labour costs may push those mines not interested in mechanisation to look at it more closely, Porter said. "Mechanisation is not more expensive – it is money spent differently and jobs created differently," he said.
Safety concerns are also contributing to the shift towards mechanisation, said Porter.
Critics, however, say South Africa's ore bodies are narrow and deep and too difficult to mechanise.
Platinum reserves depleted
The persistent glut in the platinum market has disappeared thanks to continued strike action, first at Lonmin and now at the world's largest platinum producer, Anglo Platinum. This pushed the platinum price up to around $1640 this week.
Two analysts, who wished to remain anonymous, claimed the surplus (last at 430 000 ounces and equivalent to 8% of South Africa's annual production in 2011) is now gone.
Earlier this month, Bloomberg reported how Norilsk Nickel – Russia's nickel and platinum producer – estimated South Africa will lose up to 400 000 ounces of production this year and that "a surplus in the market would be immaterial, if any".
South Africa has consistently been blamed for oversupplying the market, subsequently putting downward pressure on the platinum price – much to the industry's detriment. Even before unrest at Lonmin's Marikana mine, other companies had closed down some operations to stem the flow.
Aquarius Platinum this year placed two mines on care and maintenance. Two weeks ago Lonmin announced its K4 shaft would be mothballed, while other companies have deferred project capital expenditure.
The depleted surplus and price increase is a godsend for Lonmin, which will have its ability to service its debt agreements tested this Sunday when the strength of its balance sheet, and ability to repay its debts is due to be assessed. – Lisa Steyn