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Underperformance by ANC in upcoming election may spell trouble for mines, BMI cautions

Underperformance by ANC in upcoming election may spell trouble for mines, BMI cautions

Photo by Duane Daws

5th July 2016

By: Ilan Solomons

Creamer Media Staff Writer

  

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JOHANNESBURG (miningweekly.com) – The South African government's vocal support for labour unions, particularly in wage negotiations, will increase owing to a rising challenge from the country’s political left, research firm BMI said on Tuesday.

In an analysis piece entitled ‘Global Mining: Political Flashpoints 2016 Revisited’ the Fitch Group company stated that, with President Jacob Zuma’s support within the African National Congress (ANC) weakening, a poor result for the party in municipal elections, which are scheduled for August 3, could act as a “watershed moment”.

BMI commented that if the party underperformed at the polls, the ANC was likely to adopt a more populist policy to retain its core support base by vocalising support for mining unions and backing further wage hikes. 

“This policy shift would have significant negative implications for the country's mining sector, as this would result in miners halting operations, leading to major retrenchments,” the firm warned.

BMI recounted that labour unrest had been an ongoing theme in South Africa’s mining industry since 2012, when mining companies were compelled to offer large pay increments to employees.

This precedent was set following platinum producer Lonmin’s offer to raise worker salaries by 22% in the wake of the Marikana tragedy in 2012, in which 44 people lost their lives during labour unrest at Lonmin mine. BMI holds that this incident has provided a benchmark for future pay negotiations.

However, the firm noted that the combination of lower mineral prices and higher operational costs has resulted in frequent and drawn-out strikes, as miners were less willing to consent to strikers' demands.

“This was particularly problematic, given that mining sector margins in South Africa are already among the lowest in the world and wages account for between 50% to 60% of mining companies’ costs, therefore reducing the country’s mining investment attractiveness,” stated BMI.

Moreover, the firm highlighted that labour unrest in the country’s mining sector continued to be a political hot topic.

BMI pointed out that Mineral Resources Minister Mosebenzi Zwane was last month forced to de-escalate tensions following a violent altercation between members of the National Union of Mineworkers (NUM) and the Association of Mineworkers and Construction Union (AMCU) at platinum miner Northam Platinum’s Zondereinde mine, in Limpopo, which resulted in members of both unions losing their lives.

Hence, BMI has predicted that South Africa's mining sector would remain prone to strikes as wage negotiations between the country’s main mining unions and miners continue to pose a key risk to production volumes.

Additionally, the company pointed out that the existing two-year wage deal between the unions and platinum producers Lonmin, Anglo American Platinum and Impala Platinum expired last month, setting the stage for tense negotiations over the coming quarters.

The first round of negotiations took place on May 30, when AMCU ended a strike at diversified miner Sibanye Gold’s Kroondal platinum mine, in the North West, which had been ongoing since May 27.

“The strike was called to demand better benefits for workers. Although the strike was deemed illegal by the South African High Court, and AMCU halted the strike thereafter, the action taken by the union shows that labour unrest will continue to pose a key challenge to miners operating in the country,” BMI concluded.

Edited by Chanel de Bruyn
Creamer Media Senior Deputy Editor Online

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