Sibanye Gold won’t pay above-inflation wage increase

Strikes across South Africa’s mining industry last year led to above-inflation pay increases. The industrial unrest and wage changes were partly behind Gold Fields’ decision to spin off its local assets. (Delwyn Verasamy, M&G)

Strikes across South Africa’s mining industry last year led to above-inflation pay increases. The industrial unrest and wage changes were partly behind Gold Fields’ decision to spin off its local assets. (Delwyn Verasamy, M&G)

Sibanye Gold, the South African miner spun off from Gold Fields this year "will not be coerced into unsustainable outcomes," it said in a statement on Tuesday. Any increase above the consumer price index isn’t sustainable, chief executive  Neal Froneman said on a conference call.

The company and South African peers AngloGold Ashanti and Harmony Gold Mining are battling unions over demands for wage gains of more than 100%.
Profit margins have been squeezed by a 20% slump in gold prices this year, hurting efforts to boost output after strikes reduced volumes in 2012.

"We’ve given our negotiators a very tough mandate," Froneman said. "There’s a very strong compact between the gold chief executives."

Unions including the National Union of Mineworkers (NUM)have rejected an offer by the Chamber of Mines, which represents gold companies, to raise wages by 5%. Entry-level underground miners earn R5 000 a month before bonuses and benefits. The NUM, which represents 64% of gold miners, has called for a 61% increase in entry-level salaries while the Association of Mineworkers and Construction Union (Amcu), which represents 17% of miners, is seeking R12 500 a month.

2012 unrest
Strikes across South Africa’s mining industry last year led to above-inflation pay increases. The industrial unrest and wage changes were partly behind Gold Fields’ decision to spin off its local assets. Inflation in the country was 5.5%

in June. "We need to end this vicious cycle of continuous increases of above inflation," Froneman said. "That’s what the industry needs to do. We’re quite happy to share the profits but then the unions have to go on risk just like our shareholders." Sibanye’s KDC and Beatrix mines lost 110 000 ounces of output following the strikes last year. The company has a cash pile of R2-billion that will allow it to withstand any renewed stoppage, it said. Employees "don’t have the appetite for strikes," according to Froneman.

Sibanye, formed as a collection of South African gold-mining assets in February, has pledged to cut costs and improve productivity, paving the way for dividends. The Westonaria-based company renegotiated debt terms with lenders earlier this year, removing the constraint on a potential half-year payout.

Dividend plan
Sibanye plans to make that payout once the wage talks are complete, it said today. It would be able to pay a half-year dividend of about R1-billion based on its previous proposal to pay 25% of normalised earnings, Froneman said. That implies a dividend yield of 9% for the full year.

Operating profit climbed 63% to R3.3-billion  in the six months through June from the previous half year, Sibanye said in today’s statement. Gold production advanced 23% to 656 300 ounces and available cash rose sevenfold to R2.1-billion.

"The improving operational performance and the debt restructuring has ensured that the company is well placed to declare a maiden dividend, once there is sufficient financial and operational stability," the company said in the statement. Sibanye has reduced its workforce by about 2 700 people this year through employees leaving voluntarily, Froneman said. It will cut a further 1 500 to 2 000 roles, mainly in support services and including 500 contractors, he said.

All-in costs, which include outlays such as capital spending and administration, shrank to $1 322 an ounce in the first half from $1 623 in the six months to December. They were $1 275 an ounce in the first half of 2012, Sibanye said. – Bloomberg

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