With wage talks looming over the gold industry, analysts say that the South African government is steeling itself for a battle with local unions that are demanding wage increases of up to 100%, even after mines have stated that they cannot afford to pay these wage increases.

Analysts say that if mine unions continue to push for such high wage increases, the mining companies will be forced to lay off many of its workers.

The South African Chamber of Mines (CoM) received the 2013 demands from the unions mid-July, with the National Union of Mineworkers (NUM), in addition to several other high-cost items, proposing a surface entry-level salary of R7 000 a month and underground and opencast entry- level salaries of R8 000 a month.

Meanwhile, with high salary demands by unions foremost in the minds of the industry at the moment, mining companies, to a large degree, blame South Africa’s excessive regulatory framework for the decrease in the country’s gross domestic product (GDP). The South African gold and precious metals market contributed 21% to the country’s GDP in the 1980s, while it currently contributes only 17%.

South African Gold

The South African gold industry is mainly characterised by deep-level hard-rock mining, which works away at the declining ore grades; it is also labour intensive. Deep-level gold mining requires specialised equipment and is associated with long lead times.

By 1975, South Africa had produced 40% of all gold ever mined, but in 2009 the US Geological Survey ranked the country as the world’s third-largest gold pro- ducer, accounting for 170 t, having produced 219.8 t in 2009. China is the world’s largest producer followed, at some distance, by Australia and the US.

Consequently, there are fears that gold might have lost much of its lustre for the South African economy, comprising only about 1.5% of GDP, reaching R72-billion in 2012, or about 10% of all export earnings, according to a Reuters report published in April.

The report states that, on April 15, the gold price had its biggest single-day drop in thirty years, falling 9%, and then dropping a further 15% on April 16. The gold price dropped from about $1 550/oz to about $1 355/oz and was fuelled by China’s economic slowdown and the expectations of lower inflation growth in the US.

South Africa’s gold production significantly decreased by 6.1% in 2012 – from
181 t in 2011 to 170 t. Despite it still producing substantial gold, even during the bull years, the industry has shed more than two-thirds, or 340 000 jobs since 1990.

It is within this context, that fears of further layoffs – as militancy among workers increases ahead of tough wage talks – are best understood, the Reuters report notes.

“Further job losses are inevitable and these are linked to falling commodity prices, but long-term labour instability could act as additional downward pressure on the sector,” political analyst Nic Borain says in the report.

The number of miners employed in the gold shafts fell to 142 000 last year.

Further, South Africa’s beneficiation of gold remaining a low percentage of mine production does not support the creation of local job opportunities, as most of the country’s minerals are shipped off in a raw or semi-raw form to production giants such as China and India.

“We believe the minerals of this country must now benefit the people,” Reuters reported the Association of Mineworkers and Construction Union (AMCU), as saying in June.

Gold in Africa

Government intervention, which AMCU is demanding, as well as the nature of tax policy in the mining sector, impact on the competitiveness of the gold mining sector.

In addition to the widespread demand for beneficiation of mined minerals, South Africa also has plans to implement carbon emissions tax.

Countries, such as Sierra Leone and Guinea, have been proposing an increase in taxes, while Guinea has suggested an increase in government ownership of mines from 15% to 33%.

Zimbabwe, meanwhile, has plans for an indigenisation policy, which obliges all mining operations in the country to be 51% owned by Zimbabwean citizens.

Zambia and Mozambique, meanwhile, have ruled out tax increases, giving these two countries a competitive advantage over other countries in Africa where mining takes place.

Battle Royale

Other factors that might influence the growth of the gold mining industry include rising electricity costs and strikes that are likely to continue.

These factors, along with the recent volatility of the gold price, do not bode well for the long-term viability of gold mining in South Africa.

However, several large projects are set to start operations in the next few years, which could potentially increase output and strengthen growth; that is, should the worst fears of analysts and industry role- players not come to pass.

Further, with the recent signing of a crucial framework agreement on sustainable mining in South Africa, between government, industry and trade unions – barring AMCU, which has taken the agreement back to its members for review – the derailing of the troubled mining sector can be curbed.

The agreement aims to provide a roadmap on how the different unions and government should go about in negotiating labour-related matters.

Technology as a Threat to Labour

Some mining companies have been exploring the use of machinery that can perform the jobs of mineworkers. Should this be implemented, more layoffs are likely to follow.

From 1990 to 2012, using machinery instead of labour in the mining sector accounted for substantial retrenchment within the labour force.

Industrial material haulage solutions manufacturer Rail-Veyor Technologies has created the Rail-Veyor system, which is built on tracks that zigzag down to the deposit, eliminating the sinking of expensive shafts.

The manufacturer eventually plans to move people and equipment, along with ore.

The electricity powered Rail-Veyor technology is one example of how mining is moving towards automation, which will require fewer or no mineworkers underground.

Although this is a step in the right direction in terms of preventative measures for the health and safety of underground mineworkers, it also means that these comparatively higher paid workers will either lose their jobs to a machine or receive a pay cut, should they choose to become a surface mineworker.

Mining deep underground is done in higher temperatures, forcing mines to pump cool air into tunnels for the workers and machinery, resulting in higher costs.

Such technology promises to result in cost savings, promises to be cheaper than hiring hundreds of mineworkers and could prove invaluable for South African gold mines, which are constantly mining deeper underground in search of the precious ore.

Some analysts believe that the future of mines will be placed in the hands of robots, as is the case in the automobile industry, eliminating the problem of unskilled labour and ensuring a faster turnaround time and, consequently, eliminating human jobs.

With the current unemployment rate in South Africa increasing to 25.20% in the first quarter of 2013, from 24.90% in the fourth quarter of 2012, according to Statistics South Africa, that prospect is worrying.

The World Gold Council represents 22 of the world’s gold mining companies, which, combined, directly employ about 250 000 people. In South Africa, about 150 000 people are directly employed in the gold mining industry, with a similar number being employed indirectly.

These employees, on average, support eight dependants, making the mining sector an important source of employment.

The Difficulties of Gold Mining in South Africa

Most of the gold that is easy to access has already been mined, forcing South African mining companies – which have proved that it is eminently possible – to dig deeper into the earth; but the price is not cheap and it is more dangerous for mine- workers.

Mine dumps around the City of Johannesburg are a testament to the millions of tons of earth that have already been moved over the past 130 years in search of gold.

“The future of the mining industry is in our collective hands and by working together we can ensure its sustainability and return to profitability for the benefit of all South Africans,” Anglo American CE and CoM president Mark Cutifani said in May at a briefing about the economy and the developments in the mining sector.