Motlanthe Says S. Africa Miners Must Boost Productivity

South Africa’s gold-mining employees’ demands for higher wages at companies including AngloGold Ashanti Ltd. (ANG) should be linked to improved productivity to ensure the industry survives, Deputy President President Kgalema Motlanthe said.

“High wages ought to be a function of high productivity and profitability,” Motlanthe, a former National Union of Mineworkers leader, said in an interview in London yesterday. “It has to be a recognition of compensation for high productivity.”

Productivity is falling in South Africa’s gold-mining industry even as wages rise faster than the 6.4 percent inflation rate, according to the Chamber of Mines, which represents most mining companies in the country. Motlanthe’s African National Congress, in power since the end of apartheid in 1994, is in an alliance with the NUM, which this month won an above-inflation wage increase of 8 percent for gold employees, who number about 140,000.

“What’s the point of killing the goose that lays the golden egg?” Motlanthe said. “You wouldn’t want to smother these companies out of existence, it defeats the purpose.”

Average earnings per worker rose 78 percent to 155,037 rand ($16,000) a year in the five years to 2012, according to the chamber. At the same time production costs at the South African operations of AngloGold Ashanti, the biggest South African gold company, almost tripled to $1,166 an ounce.

Plunging Shares

The NUM settled for an 8 percent rise in monthly base pay for entry-level underground gold employees to 5,400 rand earlier this month after demanding an increase of 60 percent.

The six-member FTSE/JSE Africa Gold Mining Index has fallen 48 percent this year as the gold price dropped 22 percent and labor disruptions in South Africa crimped production. The gauge declined 0.8 percent to 1,184.64 points by 10:38 a.m. in Johannesburg.

Motlanthe’s comments echo those of Mamphela Ramphele, who in June started new political party Agang SA and is calling for restructuring of the country’s mines. The industry is unsustainable because it relies on “a 19th century business model which depends on cheap labor, low-skilled labor and therefore large numbers of workers,” the former Gold Fields Ltd. (GFI) chairwoman said in an interview in October.

South Africa established its mining industries using poorly paid, mainly black laborers during colonial and apartheid rule after the discovery of gold and diamond deposits.

Deepest Mines

The country, which has the world’s largest gold reserves, is the world’s sixth-biggest producer as rising costs have made deep ore bodies uneconomical to mine. In addition to labor, electricity costs have risen and the ore is getting progressively deeper, making it more expensive to access.

South African gold mines need to seek new technology because of the cost of extracting the ore from the world’s deepest shafts, Motlanthe said.

“Some of the deepest mines are 4 kilometers (2.5 miles) deep and you know traveling time from surface to rock face compresses time spent in production,” Motlanthe said. “It’s a feature we acknowledge, and agreed to try and do everything possible to keep that gold sector profitable because it’s a major earner of foreign currency for the economy of South Africa.”

Gold production fell 34 percent to 5.4 million ounces in the five years to 2012.

To contact the reporters on this story: Kevin Crowley in Johannesburg at kcrowley1@bloomberg.net; Chris Kay in London at ckay5@bloomberg.net

To contact the editor responsible for this story: John Viljoen at jviljoen@bloomberg.net

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