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Scramble to avoid jobs bloodbath

In the face of one of the worst commodity downturns in years, the Chamber of Mines, trade unions and the department of mineral resources have held emergency talks to staunch some of the blood-letting facing the sector.

It remains to be seen whether the proposals under discussion will come in time for an industry already in crisis. Besides low resource prices, which are unlikely to change soon, the local industry is being plagued by electricity shortages, fractious labour relations and legislative bottlenecks.

The special adviser to Mineral Resources Minister Ngoako Ramatlhodi, Mahlodi Muofhe, said the talks, held over the past two days, had yielded positive results.

A technical task team had been established to work on the issues identified, and a meeting of the principals would take place next week to pronounce on the way forward, he said.

He added that all stakeholders had to aggressively market and promote South Africa’s mineral resources ­sector globally.

Among the proposals was a plan to access environmental rehabilitation trust funds, to conduct rehabilitation during mining, to stimulate economic activity and to create jobs.

Re-skill workers
Mining companies would also work closely with department of mineral resources and the Mining Qualifications Authority to re-skill workers, he said, so that in the event of job losses they could use their skills to seek other job opportunities and could potentially become service providers to the mines they once worked for.

According to union representatives, the use of government’s training lay-off scheme, which has amassed more than R2-billion, was proposed as a way to promote the reskilling.

Other high-level issues facing the sector were identified in the talks, including electricity shortages and the use of section 54 notices to halt mining operations, according to Gideon du Plessis, the general secretary of trade union Solidarity.

A section 54 notice is issued under the Mine Health and Safety Act, allowing the department of mineral resources to shut down a mine.

He said the industry was urgently seeking a written guideline from the department that would provide clarity over the use of these stoppages.

Another issue that was debated was the criteria used for the disposal of mining assets when companies placed shafts under care and maintenance, which could otherwise be sold or put to productive use.

Lay-off scheme
Proposals to mitigate the impact on jobs included a greater use by the mining sector of the government’s training lay-off scheme, Du Plessis said.

The scheme was introduced in 2009 in the wake of the global financial crisis. It allows employers to temporarily suspend workers for training and it pays 75% of employees’ salaries with the employers paying the remaining 25%. Participation by employers requires a guarantee of re-employment after the training period is over.

But, Du Plessis said, the programme had been underutilised because employers felt the terms were too onerous. The terms could be changed to become less of a burden for employers, or companies should take advantage of the scheme proactively before finding themselves in crisis, he said.

The deputy president of the National Union of Mineworkers (NUM), Joseph Montisetsi, said the union remained opposed to retrenchments at all costs, but alternatives had to be provided. The use of the scheme should only come after all other avenues had been exhausted.

Although the international commodity market was a problem, it could recover six months from now and those workers placed into training could come back to work, he said.

As talks unfolded, the commodities rout continued this week, with Brent crude touching $49 a barrel.

Downward trend
In a note, Investec economist Annabel Bishop said the gold price had been on a downward trend since 2011, when it reached a peak of $1 921 an ounce. This week the price was hovering just a few dollars above $1 080 per ounce.

As a key gold and other commodities exporter, South Africa’s highest economic growth rate in the past five years was in 2011, but since then metal prices had fallen 44%, with the price of gold declining by a similar amount, Bishop said.

“The US dollar index strengthened over the period by 24%, accounting for some of the decline in the price of commodities on the inverse relationship, along with weak global demand.”

On top of this, key commodity currencies, and not just the rand, had seen marked weakness.

“The rand has depreciated from R6.52 to the dollar to R12.80 between 2011 and 2015, or 49%, while the Canadian dollar lost 29%, the Australia dollar 34% and the New Zealand dollar 27%. The rand has also been affected by the emerging market asset sell-off,” Bishop said.

“The US dollar could see further strength this year on the interest rate lift-off, negatively affecting gold, and other commodity prices, and hence placing South Africa’s GDP [gross domestic product] growth at risk.”

More weakening expected
The World Bank’s Commodity Markets Outlook, published in July, said that, although commodity prices had generally experienced decline, more weakening was expected.

“Most commodity prices declined in the second quarter of 2015 because of ample supplies and weak demand, especially in industrial commodities,” the report said, noting that this was expected to continue for the rest of the year because of abundant supplies and, in the case of industrial commodities, weak demand.

Energy prices are projected to average 39% below 2014 levels, largely because of the drop in oil prices. Natural gas prices are expected to decline in all three main markets – the US, Europe, and Asia – and coal prices are projected to fall 17% as a result of weak import demand and surplus supply.

With the expectation that the worst is yet to come, mines around the world have issued retrenchment notices in recent weeks.

South Africa is no different, and thousands of jobs are on the line following retrenchment notices issued by a number of companies.

The platinum belt has been in trouble for some time, with the metal price plummeting and an oversupply persisting. Six thousand jobs are on the line at Lonmin Platinum.

Withdrawn notice
The steel giant ArcelorMittal South Africa issued a notice that 600 employees could be affected by restructuring, but has since provisionally withdrawn this.

Last month Evraz Steel, which was placed under business rescue earlier this year, announced more than 1 089 jobs (almost half its workforce) are being targeted for retrenchment.

This week, SCAW Metals gave notice that as many as 1 000 employees could be retrenched.

Even Kumba Iron Ore, once Anglo American’s cash cow, is looking to cut 175 jobs at its Northern Cape operations.

The department of mineral resources’s decision to suspend the mining licence of Glencore’s Optimum Coal has not bolstered trust between the regulator and the sector.

The move has been seen as the minister punishing mines for retrenchments and as a warning to ensure that they had to comply with every aspect of the law when cutting jobs.

Suspending of licences
Muofhe said the suspending of licences was not a provision of the law that the minister invoked lightly.

“But if invoking it means protecting the rights of workers [in the] long term, he will do that,” he said.

The minister appreciated that the sector was volatile and that retrenchments became inevitable, he said, but there were laws governing that, and stakeholders had to be open with each other to ensure that there were no other solutions before taking that step.

Optimum Coal started restructuring at the beginning of the year, scaling down its production from about 10-million tonnes to 5.5-million, which were earmarked for Eskom’s Hendrina power station. Just under 360 jobs were cut in the process.

The mine was placed into business rescue on Tuesday, at almost the same time that its licence was suspended, after a failure to renegotiate a coal-supply agreement with Eskom.

The chief executive for Glencore Coal South Africa, Clinton Ephron, said the allegations that led to the suspension – namely that it had not complied with the law during its retrenchment processes – were “unfounded and unsubstantiated”.

The company was in discussion with the department and Ephron said he was confident the suspension would be lifted once decision-makers had all the facts before them.

But he believed that there was worse to come for the sector.

“This is not [only] about South Africa,” he said. “Mines will have to start rationalising all over the world. This is, in some ways, just the beginning.”

Ian Cruickshanks, the chief economist of the South African Institute of Race Relations, described the minister’s decision to withdraw Optimum Coal’s mining licence as “an extraordinary knee-jerk reaction”.

“Why is all this coming about? Because of the slump in commodity prices and slump in demand for the commodities we produce,” he said. “That does not emanate from here. What does emanate from here is the inability to think ahead.”

Cruickshanks said the way mines sought to cut costs was to have fewer, more efficient workers, and they had already invested a large amount of money in order to create a better-skilled workforce.

“As people get laid off because of this, it is inevitable that those at the bottom will find themselves on the line.”

Reflection of economic cycles
Although the downturn in the domestic mining industry is a mere reflection of the big economic cycles taking place, Cruickshanks said there were some tools at South Africa’s disposal to help rescue the situation.

“We have to spend less, we have got to be more efficient at what we do, and we need to seriously enter the business of beneficiation.

“Mining was 50% of the economy, it is now 7%. That is quite an eye-opener,” he said, noting that the capacity for alternative industries had not been developed sufficiently.

Adjusting interest rates to protect the balance of payments would be of little help, Cruickshanks said. All interest rate hikes would achieve would be to signal an upward trend in rates and make capital think twice about investment decisions in South Africa.

“Surely there would be better efficiencies if the government said: “How can we make the tax base more user-friendly’ ” he said.

Not beyond rescue
Cruickshanks said the situation was not beyond rescue, but “I don’t understand why it has taken so long to get here”.

Meanwhile, a deal has yet to be struck in the ailing gold industry, which started formal wage negotiation more than six weeks ago.

Employers were pushing for an agreement that would be sustainable for the industry and save jobs and, on July 30, the gold producers tabled their final wage offer.

Talks have continued between producers and unions since then, but the Chamber of Mines has been emphatic that, although the components of the deal may be restructured, the total cost to company cannot be adjusted upwards.

The final offer varied from company to company, but each one of them has ensured that the guaranteed entry level pay of employees will reach between R12 800 and R13 200 a month in the third year of the agreement. The guaranteed pay includes allowances, medical benefits and retirement contributions.

This week the Association of Mineworkers and Construction Union (Amcu) rejected the offer, as did the NUM. Skilled workers had been made an offer varying from 4.6% to 6%.

Different impact
The lead negotiator for the chamber, Elize Strydom, said the impact of Amcu’s final decision would differ from company to company.

For example, at Harmony Gold, the NUM had a comfortable majority, and so any agreement the union accepted could be extended to nonmembers there, she said.

At Anglo Gold Ashanti, the NUM alone did not have 50% plus one majority, but if it entered into an agreement with Solidarity and the United Association of South Africa (Uasa), the parties might be able to agree to an offer.

Strydom said the most difficult situation would be at Sibanye Gold, where the NUM had 44% representation and Amcu had about 43% and teaming up with Solidarity and Uasa would be unlikely to allow any one of the unions to have a 50% plus one majority.

For this reason, Strydom said, one agreement between the four parties would be preferable.

“Ideally, you wouldn’t want an agreement extended to a union that did not agree,” she said, noting that the membership of Amcu, although not the majority, had grown considerably in the gold sector, from 17% in 2013 to 30%, and even to 43% in some companies.

“Amcu has rejected our final offer, but has also asked for further engagement. We will probably meet next week to discuss further.”

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Lynley Donnelly
Lynley Donnelly
Lynley is a senior business reporter at the Mail & Guardian. But she has covered everything from social justice to general news to parliament - with the occasional segue into fashion and arts. She keeps coming to work because she loves stories, especially the kind that help people make sense of their world.

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