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South Africa’s mining sector at a crossroads, collaborative effort required

REMAINS RELEVANT Mining remains important to South Africa, as it directly contributes 9% to the country’s gross domestic product (GDP), doubling to 18% of GDP when mining inputs are taken into account

Photo by Duane Daws

MAMOKGETHI MOLOPYANE It is important that mining houses remain cognisant of what is happening with organised labour as whole in South Africa

URGING PRAGMATISM Organised labour needs to be ‘more strategic’ in future and must have intimate knowledge of the state of the mining sector to avoid making unreasonable demands

Photo by Duane Daws

20th January 2017

By: Ilan Solomons

Creamer Media Staff Writer

     

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The global mining industry has been struggling since the 2008 international financial crisis set off a chain of events resulting in contracted growth in important markets, such as China, and recession in others, such as Europe, leading to severe declines in commodity prices.

In South Africa, the decline was exacerbated by cost increases well above the inflation rate, including the cost of electricity, which has trebled over the past eight years. Wages and the cost of storage and materials have been rising by 10% a year over the past five years and steel costs have risen by 12% a year. All these factors have led to the significant loss of about 60 000 jobs in the South African mining sector from 2012 to 2015, according to the Chamber of Mines (CoM) of South Africa.

Nonetheless, CoM CEO Roger Baxter tells Mining Weekly that mining remains important to the country, noting that, despite its depressed state, it directly contributes 9% to the country’s gross domestic product (GDP) and this figure doubles to 18% of GDP when mining inputs are taken into account.

“Therefore, the industry continues to have great potential,” he asserts.

Baxter also points out that, despite South Africa’s long mining history, it still hosts a substantial proportion of the world’s commodity reserves and resources.

“Given the right conditions and with continued efforts to modernise production methods, the nongold mining sector could grow by between 3% and 5% a year, and the rate at which the gold sector is slowing down could be delayed significantly,” he states.

Professional services firm EY mining and metals sector leader for Africa Wickus Botha adds that 2016 was a year of cash preservation and operational optimisation for most mining companies. He remarks that the companies that performed well in 2016 generated and managed their cash optimally. This included the mothballing of several marginal projects and concentrating on strengthening cash-positive mines.

2017 Prognosis
Botha is optimistic about the global mining industry’s prospects in 2017, as the financial discipline shown by many miners in 2016 has enabled them to take advantage of any commodity price improvements that may occur in 2017. He also believes that this financial discipline has translated into investors regaining confidence in the sector.

“There certainly will not be a new commodities cycle boom in 2017, whereby prices will spike by 20% or more; however, it is likely there will be gradual improvements recorded across the board during the year.”

Botha highlights that the local mining sector’s biggest challenge is policy uncertainty. Baxter concurs, emphasising that the industry would like to see government finalise the Mineral and Petroleum Resources Development Act (MPRDA) amendments, “a mutually satisfactory conclusion” to the review of the Mining Charter and a fair and even-handed application of the law by regulators.

“Unfortunately, government’s intentions in respect of the Mining Charter do not appear to be compatible with a positive future for the industry. While the parties are in agreement on the importance of continuing commitments to transformation, certain features of government’s proposals threaten the viability of many mining operations,” Baxter laments.

He comments that, following the labour relations “traumas” in the mining sector that occurred from 2012 to 2014, the CoM is “pleased” to observe a renewed stability, as evidenced by the platinum wage settlements, in October. “We hope that continues,” Baxter adds.

He does note that, to an equal degree, the industry’s future depends on the recovery of commodity prices.

Nonetheless, until that occurs, mines can ensure that effective management systems are in place that can break new ground in modernising production methods, while doing what they can to preserve jobs and enhance other local economic activity.

Further, Botha adds that, when drafting legislation, the focus should be on “enabl[ing] the industry” and it should, therefore, aim to support the mining and metals sector in a “responsible and sustainable manner”. Further, he emphasises that more can be achieved when legislation is drafted in a consultative manner rather than in an instructive fashion.

“What is needed is for all parties – government, unions and mining houses – to work together towards a common goal. The fact that . . . a wage agreement [was] reached [in 2016] in the platinum sector without any major industrial action is a clear example of what can happen if everyone is willing to compromise,” Botha highlights.

Additionally, local mining and labour consultancy Creative Voodoo Consulting founder and MD Mamokgethi Molopyane points out that government has proposed several changes to the Labour Relations Act, particularly with regard to changing the provisions regulating strikes, reintroducing compulsory strike ballots and increasing the powers of the Labour Court to intervene in violent strikes. These amendments all form part of an ongoing engagement process at the National Economic Development and Labour Council (Nedlac).

“The outcomes of these discussions . . . will certainly impact on the approach taken by trade unions to mining companies in 2017,” she warns.

Labour Relations and Political Considerations
Molopyane says organised labour movements in the mining sector largely reflect trade union politics in South Africa. Therefore, it is important that mining houses remain cognisant of what is happening with organised labour as a whole in the country.

She notes that, over the past five years, sector-dominant trade unions and federations, such as the Congress of South African Trade Unions (Cosatu) and its affiliate, the National Union of Mineworkers (NUM), have been influenced by “entrenching” of the politics of South Africa’s governing party, the African National Congress (ANC), and its alliance partners in the wider labour relations environment.

“This has had a significant impact on how [unions] carry out their work as organised labour representatives . . . Political lobbying by the ANC . . . has resulted in . . . in-house rifts within the broader church of trade unions.”

For instance, the Association of Mineworkers and Construction Union (AMCU) came into existence as a result of these tensions between the governing party and the workers, and has subsequently become a significant player in the local mining industry workforce, particularly in the platinum sector, at the expense of the NUM, Molopyane elaborates.

She comments that, at federation level, the NUM is caught in a “political battle”, which has impacted on the way it renders services to members. ANC secretary-general Gwede Mantashe has said in the past that Cosatu-affiliated unions are unnecessarily preoccupied with leadership issues in the ANC at the expense of workers’ concerns, she adds.

“AMCU has avoided formally aligning itself with any one political party, which has enabled it to avoid dealing with party politics and . . . concentrate solely on mineworker matters. This has been one of the major factors that has helped the union gain so much traction among mineworkers in recent years, as [the union is] regarded by many in the industry as being truly in touch with workers’ issues.”

Molopyane cautions that, in 2017, mining companies might run the risk of missing an important opportunity to engage with workers – particularly the younger members who are rapidly replacing older leaders in unions – if they do not correctly gauge the mood of their workforces.

“The new generation of younger mineworkers is more vocal and militant – more informed than previous generations.”

Molopyane remarks that AMCU, a growing force in the South African mining sector, dominates the platinum sector and continues to make steady gains in the gold and coal sectors. This, she says, might add to the existing tensions between AMCU and the NUM.

Another union to watch is the National Union of Metalworkers of South Africa (Numsa), which was expelled from Cosatu in November 2015, Molopyane notes.

“There is a strong possibility that Numsa will organise itself in the mining sector or it could form a new workers federation with AMCU, which could be detrimental to the NUM’s membership numbers and result in new challenges between workers and companies, owing to the militant nature of Numsa and AMCU.”

Advice for Labour Unions
Molopyane believes that organised labour needs to be “more strategic” going forward, adding that the factions within the labour movement need to have intimate knowledge of the state of the mining sector to avoid making unreasonable demands on mining companies that will lead to operations becoming economically unsustainable.

Mining unions would do well to learn from their counterparts in the automotive industry, which also embark on strikes periodically, and which, like the mining sector, serve companies that stand to lose future production contracts with multinational end-clients, but have learned to generally try to ensure that lost production time is made up when they return to work, she adds.

“Automotive workers often receive productivity awards from their employers despite work stoppages (which are generally not as protracted as those in the mining sector), and there are usually good working relationships between . . . Numsa and the leadership of automotive manufacturers. These are traits that mining trade unions would do well to emulate,” Molopyane concludes.

Edited by Martin Zhuwakinyu
Creamer Media Senior Deputy Editor

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