Mining News

South African Labour Unrest May Present Challenges

Posted by Cheryl Rutledge on 5/27/2015 4:32:18 PM

By Kristine Ramsbottom, Taylor Jackson and Kenneth P. Green

In the first week of May the South African National Union of Mineworkers (NUM) brought demands to the table with gold-mining companies in the region. Notably, they asked for a 75 percent increase in wages for entry level positions in the gold sector.

AngloGold Ashanti, Harmony Gold, and Sibanye Gold are some of the key players that will be impacted by the union negotiations, and it is unclear how gold companies will respond, operating with very tight profit margins in light of recent commodity price dips.

NUM’s union rival AMCU will also be bringing demands to the table.

The demands from NUM follow serious labour unrest in the South African mining industry over the past few years. Most notably the protest shooting where 34 mining protestors were killed at Lonmin Plc’s Marikana mine in August 2012.

With union demands potentially impacting the cost of future labour, the mining unions may be hindering the region’s appeal to foreign investors. According to the Fraser Institute’s 2014 Annual Survey of Mining Companies, South Africa ranked 64/122 surveyed jurisdictions with regards to investment attractiveness—a measure that combines both policy and mineral potential.

Despite being one of the world’s top mining regions due to their vast reserves (with an estimated reserve base of $2.5 trillion of extractable minerals), South Africa’s labour issues are among a few categories that are dragging their survey ranking down. Of South Africa’s mining survey respondents, 79 percent indicated that regulation and employment agreements were classified as either a mild or strong deterrent or that they would all together not invest in the region because of these issues.

Despite these issues, foreign companies are still entering the South African mining sector. Platinum Group Metals of British Columbia has recently expanded its Western Bushveld Joint Venture project with partner JOGMEC (Japanese firm state run partner) in South Africa’s Bushveld region. This underground platinum and palladium mine is expected to produce 275,000 ounces of platinum, palladium, rhodium and gold after only 2 years of production, evidence of South Africa’s bountiful resource base.

The shallow and high grade nature of these reserves is what makes them so attractive to foreign investors like Platinum Group. With commodity prices dropping it is one of the few reserve locations with economic accessibility.

Moving forward, mining companies may be facing higher labour costs depending on the outcome of the upcoming labour negotiations. It appears that in spite of the threat of cost increases, foreign direct investment is continuing to enter South Africa, at least in the foreseeable future.

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