Industrial action has become an annual event for a number of South African sectors, leading to what is referred to as “strike season” during the second and third quarters of the year. In the mining sector, particularly in the platinum industry, the last couple of years have seen an escalation in terms of the size and scope of labour unrest, which could have significant ramifications for future investment.
On January 23, 2014, 70,000 platinum workers at Lonmin, Anglo American Platinum (Amplats) and Impala Platinum (Implats) mines in the Rustenberg platinum belt downed their tools for the second year running. The strikes were sanctioned according to the Labour Relations Act, unlike the Marikana and wildcat strikes in 2013 that eventually resulted in violence.
The stoppage did however last an unprecedented five months, causing significant fallout in the process. According to Statistics South Africa, total mining output for the first five months of 2014 contracted 1.9% compared to the same period in 2013, mainly due to losses of $2.26bn in the platinum industry. The impact it had on GDP growth resulted in a knock-on effect on investor confidence in the general economy, with ratings agency Standard & Poor’s citing the strike as a deciding factor behind its downgrade of South Africa’s credit rating one notch to “BBB-” in June 2014.
Production losses were only felt a few months into the strike, as the world’s three largest platinum producers had strategically stockpiled reserves in anticipation. Up until April, fluctuation in the global platinum price was mostly muted, as global orders were met through the accumulated inventories. Implats, which has platinum operations in Zimbabwe, and Amplats, which has platinum assets in Limpopo under a separate bargaining agreement, were less exposed than Lonmin, which relies on Rustenberg for the entirety of its platinum production. However, while the operators still sit on top of major platinum group metals deposits with significant growth potential, all three companies saw considerable overhead increases and lost revenues.
The mineworkers did not necessarily fair much better in the short term, although they managed to eke out sizable wage reforms. The Association of Mineworkers and Construction Union, which took over union representation for the affected platinum mineworkers from the National Union of Mineworkers (NUM) in 2013, had been holding out for an entry-level minimum wage rise to R12,500 ($1183) per month, equating for some positions to a more than 100% salary increase. The companies responded that such an increase would push them into the red.
The brokered settlement eventually earned the three lowest paid worker categories an increase of around R3000 ($284) per month within three years, but by the time the strike ended many workers had been unpaid for five months, leaving a large portion of vulnerable households precariously placed. According to the cial Times, the 70,000 striking miners, many of whom live in dire poverty, lost a total of $1bn in wages. The workers lost 45% of their annual income, and it will take them roughly two and a half years to recoup their losses with the negotiated wage increase.
The mining sector is not the only one to suffer from regular industrial action in South Africa, which is home to a large and robust trade union movement. The right to strike is enshrined in the constitution, and collective bargaining reforms are complicated to institute. The ruling African National Congress party has always maintained a strong unionist backing, as its three-party governing alliance includes the national trade federation the Congress of South African Trade Unions, better known as COSATU.
Cyril Ramaphosa, the country’s deputy president and a former mine union head, recently called for changes to the existing framework, with the realisation that something in the process needs to change to avoid crippling strikes becoming a regular occurrence. Ramaphosa advocates that all workers should be given the right to vote before striking, and asserts that a clause that only permits unions with more than 50% representation to engage in negotiations be revised to allow for greater recognition of smaller unions.
“The root of the unrest is not about annual increases, but a view that the industry grew off the blood, sweat and tears of miners. There is an apartheid discount in the wage structure that has not yet been surmounted. Yet, market economics make it hard to remove that discount,” Kieran Daly, the head of mining research at Macquarie Group, told OBG.
Indeed, as with most labour negotiations there is a tricky balance to ensuring an industry’s profitability – allowing it to continue hiring employees and paying them – and ensuring sufficient living wages and benefits for employees. Hardly anyone is opposed to the notion that mineworkers’ take home pay is insufficient and their working and living conditions harsh. But mining companies can justifiably argue that if salary increases are not matched by a concurrent increase in productivity, they could no longer afford to employ workers in vast numbers, an outcome that is highly undesired in a South African context of high unemployment for unskilled job seekers. Between June 2012 and March 2014 an under duress mining sector shed 12% of its workforce, resulting in job losses for 48,000 workers.
In a press release in January 2014 Chris Griffith, the CEO of Anglo American Platinum, noted, “We appeal to the union and to our employees to understand that the company simply cannot afford the increases that the unions are currently demanding. A strike will impact negatively on employees, their families, communities, our company and the country as a whole.”
Amplats parent company Anglo American disclosed to the press that productivity levels at its Australian underground and open-pit mines is three and two times higher than their South African equivalents, respectively. CEO Mark Cutifani cautioned, "If we allow cost inflation to continue where it is going without improving productivity, we do not have a future as an industry. We must improve productivity – that reality is something we are confronting at all our assets in South Africa.”
Moving To Mechanise
For South Africa’s conventional, deep-level mines labour makes up approximately half of cost outlays. According to figures from EY, the average annual increase in labour costs for the mining sector between 2007 and 2012 was 12%. This figure is ahead of the rate of inflation, and is thus motivating mining companies to explore mechanisation and reduce headcounts where they can.
Open-pit mines are more amenable to mechanisation, and South Africa’s open-pit sites are considered world class when it comes to applying automation to maximise productivity. Many of the country’s deep-level mines, in contrast, retain a high level of labour dependence. “Mechanising deep-level mines has been lurking around the corner, but has been resisted until now. The recent strikes are the straw that broke the camel’s back and miners have begun to seriously test new technologies,” Dick Kruger, the deputy head of techno-economics at the Chamber of Mines, told OBG.
As part of a $1.8bn upgrade to its Venetia underground facility, diamond miner De Beers is progressing with plans to implement a driverless truck-haulage system. Analysts expect this to be just the first step in a drive towards widespread automation, with drills and haulage trains that are monitored remotely from central control stations also anticipated.
Not To Be Repeated
As platinum production in the latter half of 2014 rebounds to pre-strike levels, considering the length of the strike that began in January, analysts have cautioned against getting too comfortable for too long, as 2015’s expected “strike season” is now a mere few months away.
Despite a settlement, there are no assurances that the level of violence witnessed in 2012 or the extended duration of the strike in 2014 will not be repeated. And any unrest will, once again, be to the detriment of the industry, unions and the government.
Smooth labour negotiations rarely grab the media’s attention, and perhaps there are lessons to be applied from the example of Royal Bafokeng Platinum (RBP) and the NUM, which in July 2014 quietly reached a five-year agreement following talks that both sides described as “constructive, respectful and mature”.
In addition to offering wage increases for the lowest paid underground worker of R2000 ($189) for the first year, R2400 ($227) for the second year and R2806 ($265) for the third year, RBP agreed to cover 100% of medical insurance and increase housing subsidies across the board. In a move widely applauded as aligning interests and encouraging workers to have a vested stake in company performance, RBP will also be paying out a bonus scheme linked to production.
As disillusion and criticism over industrial relations in the country’s mining sector grow, the RBP-NUM settlement provides encouragement that the collective bargaining process need not be a disruptive affair. Mining is and will remain a sensitive and politicised sector. But for the sake of job creation and long-term sector sustenance, the government, labour and industry will need to put aside any differences to arrive at amicable solutions that keep output competitively chugging along.
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