JOHANNESBURG (miningweekly.com) – If South African miners insist on having yearly wage negotiations, it will not bode well for the local mining industry.

Speaking at AngloGold Ashanti’s head offices, in Johannesburg, on Monday, CEO Srinivasan Venkatakrishnan (Venkat) warned that yearly discussions around wages would have dire economic consequences for the local gold sector.

“That effectively creates a sunset industry for gold mining in South Africa. The dialogue has to change,” he stated.

In the coming months, AngloGold Ashanti would join the largest employers and producers in South Africa's gold sector in negotiating a new wage agreement with labour unions representing most of the industry's collective workforce.

This year's negotiations coincided with a “delicate” time for South Africa's gold industry – gold prices remain almost 40% below their 2011 peak, while water and electricity tariffs have increased by multiples of the inflation rate and wage increases had also continued to outpace increases in inflation.

Venkat noted that AngloGold had already engaged with its workforce to explain the current tough conditions the company was facing.

The industry has looked for ways to absorb these cost increases amid declining grades and diminishing productivity levels, with lower overall employment levels an unfortunate but inevitable consequence.

At current gold prices, much of the sector is close to, or below break-even levels, placing more jobs at risk. Over the past decade, according to the Chamber of Mines, the average yearly wage for an employee in the sector had risen by 180% to around R196 298 a year, while the total number of employees in the sector fell by one-third to about 119 000 people.

Over that same period, South Africa's gold production fell by about 8.2% a year on average.

Gold companies’ management were now looking to reach a new accord with employees and their labour unions to arrest this downward spiral and restore the industry to a more sustainable long-term footing.

“It is crucial for the future of one of South Africa's key economic contributors, and indeed for individual mines and their employees, given that companies cannot be expected to persist with unprofitable operations,” AngloGold said in statement.

The companies would, this year, propose an 'Economic and Social Sustainability Compact', which would comprise a mutually agreed set of binding principles that would determine the rights and responsibilities of companies and organised labour in respect of workplace activities and consequences, including wages and conditions of service.

The fundamental principles of the proposed compact would be sustainability through a partnership approach by the companies, the unions and employees.

Proposed wage increases and other terms and conditions of employment would be considered with due regard to their impact on the sustainability of the industry and on employment security.

“When you look at the wage negotiations this year and you look at the backdrop of what has happened [in the] platinum [industry], for example, [we saw] really unsustainable wage increases that [were] followed by job losses.

“As a gold industry – excluding Gold Fields, as it has mechanised operations and is different to the other gold companies – our approach here is to say: Look at the totality taken into question here, and the compact, not just talks about the wage increase on one side, but ... all the variables that we need to discuss. . . in terms of wage increases, in terms of what we provide to employees, in terms of productivity [and], importantly, job security, and the impact it has on jobs,” Venkat said.

“I am quite optimistic that sanity will prevail. Is it going to be an easy process? I don’t think so, but certainly, the dialogue has to start changing,” he added.