Platinum industry strategy in the face of South African labor strikes

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The current strike within South Africa’s platinum mining sector moved beyond the bounds of the country’s usual labor dispute weeks ago. The strike is now reckoned to be the biggest in South Africa since 1987 in the gold industry, before the end of apartheid. The Association of Mineworkers and Construction Union’s (AMCU) demand for a doubling of wages has prevented the union and mining executives from coming to a negotiated agreement, leading to a prolonged and costly strike that threatens to cripple South Africa’s mining industry.The AMCU may be heading toward indirectly causing the marginalization of one of South Africa’s strongest labor pools, which at one time routinely leveraged their position for better pay.

The AMCU is the dominant labor union in South Africa’s platinum industry and provides miners to its three biggest companies: Anglo American Platinum (Amplats), Lonmin, and Impala Platinum. South Africa in turn produces 53% of the world’s platinum after recycling and substitution are factored in. Neighboring Zimbabwe is the only other significant global source of platinum[i].

While strikes over wage disputes are commonplace in South Africa, most industries have a well-established negotiation process that tends to mitigate the costly prospect of a prolonged labor stoppage. But the AMCU is a relatively new union which gained influence after the violent mining strikes in 2012 which killed dozens. Afterward, the AMCU was able to attract workers from the National Union of Mineworkers, which once dominated the industry[ii].

The cost to the platinum industry has already been substantial. According to Reuters, as of March 17, 2014 the three companies had already lost 440,000 ounces of platinum production, with daily losses around 10,000 ounces[iii]. It is also estimated that it will take months to return to normal production (roughly one day for each day of striking). The strike in 2012 cost 544,000 ounces for these companies in lost production, and with no real sign of negotiations resuming that number has in all likelihood already been surpassed. On March 25, 2014, lost revenue was estimated to be $920 million USD[iv].

The companies are losing revenue not just from lost production, but potentially also from a substantial rise in labor costs. The prospect of roughly doubling the cost of labor in three years (the latest offer by the AMCU) would prove untenable for an industry already operating on very thin profits. The mining companies have offered a 9% raise[v] for entry-level workers, and they claim that the AMCU demands will amount to a 29% annual raise[vi]. According to Noah Capital platinum analyst Michael Kavanagh, the threat of profit loss is further reinforced by the fact that the companies are not investing enough in mines to expand and thus maintain production at current levels[vii]. This makes the strikers demands appear all the more unreasonable since without necessary investment the mines’ profitability will decrease as its reserves become exhausted.

However, the situation for the striking miners is no less dire. As of March 25, 2014 the miners had lost 4.4 billion rand[viii] (roughly $406 million USD and only half the amount of profit lost by the companies) in missing their February and, likely, their March paychecks. This problem is further compounded as mineworkers tend to be the breadwinners in extended families, which means that a much larger swath of the population is affected. This puts the AMCU in a highly precarious position as other unions have recently reached agreements with mining companies over labor disputes. The National Union of Metalworkers of South Africa (NUMSA) on March 20, 2014 accepted an 8.5% wage increase from Amplats[ix], a percentage far lower than the AMCU’s demands.

The government’s inability to help resolve the issue is another cause of concern for both the workers and investors in South Africa’s mining industry. The government’s Commission for Conciliation, Mediation, and Arbitration had led negotiations broke that down in early March[x] and is currently waiting for both sides to resume talks. Both sides will meet when Deputy President Kgalema Motlanthe meets with them at a regularly scheduled mining sector forum on March 27, 2014, but Amplats has yet to even acknowledge the AMCU’s latest offer from March 18, 2014[xi].

The real problem is that the ruling African National Congress (ANC) party has steadily been losing its once strong alliances with South Africa’s powerful unions. Apart from the AMCU being unresponsive to government overtures, other unions—like the nation’s largest, NUMSA—have abandoned their support of the ANC[xii] and gone on strike. The once relatively unified (and pro-ANC) Congress of South African Trade Unions (COSATU) has become fractured. From its poor handling of the 2012 anti-union violence to the increased fracturing of labor unions, COSATU’s influence has diminished. This makes the government’s ability to negotiate with labor unwieldy and diminished the ANC’s standing.

The AMCU’s current strike, however, is representative of a trend in South African mining, particularly its platinum sector. Not only is it becoming increasingly difficult to keep mines profitable under normal circumstances, but also the prospect of exponentially-increasing wage demands and prolonged strikes may drive the industry to countries where the government is more able and willing to control the labor market. This in turn will have a tremendously negative effect on South Africa’s large mining labor pool.

Zimbabwe not only has significant platinum deposits, but its government is in desperate need of investment and tax revenue. Zimbabwe is also becoming less of an international pariah as all but the last few vestiges of European sanctions are being removed from its industries and government officials. Despite problems with corruption and the “indigenization” of foreign companies, mining companies will seek to hedge their bets in South Africa by increasing production in the world’s second-largest (and only other substantial) source of platinum. On March 20, 2014 Zimbabwe’s Mines Minister Walter Chidhakwa said the country was in discussions with Impala Platinum to build a base-metal refinery in the country[xiii]. Impala’s Zimplats unit is the largest platinum producer in the country.

Platinum companies are threatening to use less labor-intensive and more technology-driven mining techniques, while recycling and product substitution are further reducing South African labor unions’ ability to strike at will. The AMCU is demanding wage increases that could make the mines it provides labor to unprofitable for the foreseeable future. What was once a fairly well choreographed drama over labor costs, now threatens to spiral out of control and significantly disrupt an entire sector of the mining industry in South Africa.

The security implications of having such a large and politically active portion of the wage earning population out of work for over two months are growing. The ANC can ill afford for unrest and violence over a mining dispute on the scale of 2012 just a month before national elections on May 7, 2014. With little hope of the AMCU and mining companies reaching an agreement before elections happen, the ANC will need to prevent the strikers from causing unrest in their communities and drawing unwanted media attention. The poor handling of the 2012 strikes were politically disastrous for the ANC. While no other party in South Africa can hope to defeat the ANC so close to elections, President Jacob Zuma’s new government could be hobbled before it even retakes office.

Photo credit: Joseph Mathunjwa


[i]     Business Day Live: “Platinum strike is no run-of-the-mill wage dispute,” Mar 17, 2014. http://www.bdlive.co.za/national/labour/2014/03/17/platinum-strike-is-no-run-of-the-mill-wage-dispute

[ii]     Reuters: “Losses mount as South Africa faces biggest post-apartheid mine strike,” Mar 17, 2014. http://www.reuters.com/article/2014/03/17/us-safrica-strikes-idUSBREA2G1KS20140317

[iii]    Reuters: “Losses mount as South Africa faces biggest post-apartheid mine strike,” Mar 17, 2014. http://www.reuters.com/article/2014/03/17/us-safrica-strikes-idUSBREA2G1KS20140317

[iv]BBC News: “South Africa mining strike damage is ‘irreparable,’” Mar 25, 2014. http://www.bbc.com/news/business-26732248

[v]     Reuters: “Losses mount as South Africa faces biggest post-apartheid mine strike,” Mar 17, 2014. http://www.reuters.com/article/2014/03/17/us-safrica-strikes-idUSBREA2G1KS20140317

[vi]BBC News: “South Africa mining strike damage is ‘irreparable,’” Mar 25, 2014. http://www.bbc.com/news/business-26732248

[vii]Business Day Live: “Platinum strike is no run-of-the-mill wage dispute,” Mar 17, 2014. http://www.bdlive.co.za/national/labour/2014/03/17/platinum-strike-is-no-run-of-the-mill-wage-dispute

[viii]South Africa Broadcasting Corporation: “Business welcomes possibility of further labour law amendments,” Mar 24, 2014. http://www.sabc.co.za/news/a/b06072004362d621875a97856359f483/NFP-leaders-%27intimidated%27-ahead-of-KZN-by-elections-20142403

[ix]Mail and Guardian: “No end in sight for Amcu platinum strike,” Mar 24, 2014. http://mg.co.za/article/2014-03-24-no-end-in-sight-for-platinum-strike

[x]     Fin24: “Inside Labour: the art of conciliation,” Mar 21, 2014. http://www.fin24.com/Economy/Inside-Labour-The-art-of-conciliation-20140320

[xi]    South Africa Broadcasting Corporation: “Motlanthe to meet mining firms, unions,” Mar 24, 2014. http://www.sabc.co.za/news/a/39ef4c004362969281ba95856359f483/Motlanthe-to-meet-mining-firms,-unions-20142403

[xii]Reuters: “South Africa’s biggest union calls strike for March 19,” Mar 16, 2014. http://www.reuters.com/article/2014/03/16/us-safrica-strike-idUSBREA2F0IF20140316

[xiii]   Mail and Guardian: “Implats discusses building a base-metal refinery in Zimbabwe,” Mar 16, 2014. http://mg.co.za/article/2014-03-20-implats-discusses-building-a-base-metal-refinery-in-zimbabwe

 

About Author

Clint Richards

Clint Richards is contributor for the International Security Observer (ISO). Clint is a Risk Management and Geopolitical consultant based out of Tokyo. He analyzes the intersections of geography, politics, energy, security, and economics, and how they influence countries, companies, and markets. His regional areas of expertise are East Asia and Sub-Saharan Africa. He has worked and traveled throughout East Asia and has five years of experience as an intelligence professional analyzing risk at STRATFOR, Wikistrat, Enquirisk, and as a private consultant. He holds an M.A. in International Relations as well as two B.A.’s in Anthropology and International Studies from Texas State University. He is a native English speaker with a limited working proficiency of Japanese.

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