Leon Esterhuizen, Arnold van Graan and Martin Creamer
Photo by: Duane Daws
JOHANNESBURG (miningweekly.com) - Structural change, with government and labour playing central roles, is needed to arrest the decline in South African mining, say Nedbank CIB mining analysts Leon Esterhuizen and Arnold van Graan.
In a comprehensive note, Esterhuizen and Van Graan describe South Africa's labour-intensive mining model as being in its final throes, unless there is structural change.
The analysts point to non-stop, above-inflation increases in labour costs being the prime cause of profit collapse.
"The problem is politics and costs," say Esterhuizen and Van Graan, who tell Mining Weekly Online that greater industry collaboration is needed.
"It's time to pursue development agreements and for all stakeholders to give-and-take," they state in their note entitled 'Labour - South African Mining's Swansong'.
Not only lower grade, but also fewer tonnes per employee milled and sharply lower output per employee are dragging overall numbers down, and the analysts discern that more setbacks could push underground gold mining to a tipping point. Small drops in the gold price or higher costs could see the house of cards tumble down, they forewarn.
South African wage levels, they calculate, are fast approaching parity with international peers, but with far lower efficiencies.
What the gold price gives, South African labour takes away, indicated by South African labour costs amounting to 55% to 60% of every ounce produced compared with labour costs amounting to about 30% internationally.
At the same time, the rand is no longer providing the relief that it did in the past; instead the stronger rand is rapidly eroding margins.
Interestingly, platinum mining efficiencies have been higher than those of their gold mining counterparts, largely due to platinum mines being shallower, newer and more mechanised, and employee numbers being reduced to a greater extent.
However, platinum companies have not ventured abroad to the extent that gold mining companies have, and in the absence of structural change, Esterhuizen and Van Graan believe that platinum mining companies will be duty bound to invest offshore, even if that means mining other commodities.