The imminent threat to the jobs of 5 000 Harmony Gold workers sharpened this week when the company reported a 50% drop in profits in the past three months.
South Africa’s third biggest gold producer announced at the beginning of this month that the strong rand may force it to close six marginal shafts. These shafts account for 6% of Harmony’s annual gold output of around four million ounces and almost 10% of its workforce.
Harmony employs 53 000 people.
The mining giant’s results, released on Wednesday, are bleak. In the quarter to March 31, profits have dropped from R271-million to R134,2-million.
However, the March quarter is also a poor production period because of the festive season. Also, apart from the strong rand, many input costs for mining companies, including power, transport and steel, have risen above the inflation rate over the past year and workers’ wages have increased by about 9% over the past two years.
A closer analysis of the breakdown of Harmony’s quarterly production shows that, at the current gold price of R88 278/kg, 66% or 16 359kg of gold was mined from profitable shafts.
This contributed R198,5-million profit to the company.
However, the remaining 34% or 8 376kg was mined from shafts making a loss of R64,3-million. These mainly include the six affected mines.
”The past quarter has been one of the most challenging that we have experienced over the past three years,” said Bernard Swanepoel, the CEO of Harmony. ”The company’s operating environment has been severely influenced by the current cycle of a low rand/kg gold price received, which has affected profitability.”
In an unprecedented move, Harmony and three major unions — the National Union of Mineworkers (Num), Solidarity and United Officials Association — set up a joint task team to examine the closure of the six shafts.
The team, which began its investigations last week, will report back on May 3 with proposals both for the future of the affected workers and for the long-term sustainability of the company.
This is only the second time that mine management and unions have united to resolve a dispute over job losses — the first was in 1999 when they teamed up in a campaign against gold sales by European central banks.
The task team is hoping that Harmony’s move towards continuous operations (known as conops) at its other mines will reduce the number of retrenchments at the six affected mines.
Under conops, mines operate seven days a week instead of an 11-day fortnight, which means that the company needs to employ more people to facilitate working the additional days. In this case, more profitable shafts could soak up some of the 5 000 workers who face the axe.
Gwede Mantashe, general secretary of Num, said that since 1988 about 250 000 miners have been retrenched.
However, he said that he was confident that the retrenchment of the Harmony workers would be stemmed because of the working relationship between the unions and the mining company.
”Working with other mining houses is sometimes like talking on a toy telephone,” he said.
The tough environment for mining was further highlighted by recent Chamber of Mines figures which showed that almost one-third of South Africa’s gold production was unprofitable at the current rand/kg gold price. Labour is usually the first casualty because it accounts for about half of the production costs in the mining industry.
The threat to Harmony’s 5 000 workers, and another 2 653 at a Goldfields marginal shaft (about which Num and Goldfields are negotiating), is further evidence of the difficulties in gold mining at South Africa’s older mines.
Four thousand workers were laid off at Durban Roodepoort Deep in September.
About 15% of the total workforce in the gold-mining industry is employed in these marginal gold mines, which are the first to be affected by an unstable market, and the worst-hit.
Marginal gold mines are those where the costs of efficiently producing a kilogram of gold marginally exceeds the profit per kilogram.
The primary reason has been the structural changes with which the industry has been confronted as operations become deeper and high-grade ore is depleted.