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Sibanye Gold Won’t Pay Above-Inflation Wage Increase, CEO Says

Sibanye Gold Ltd., the South African miner spun off from Gold Fields Ltd. this year, said it will refuse to raise wages above the rate of inflation as gold producers and unions remained locked in talks over pay.

Sibanye “will not be coerced into unsustainable outcomes,” the company said today in a statement. Any increase above the consumer price index isn’t sustainable, Chief Executive Officer Neal Froneman said on a conference call.

The company and South African peers AngloGold Ashanti Ltd. and Harmony Gold Mining Co. are battling unions over demands for wage gains of more than 100 percent. Profit margins have been squeezed by a 20 percent slump in gold prices this year, hurting efforts to boost output after strikes reduced volumes in 2012.

“We’ve given our negotiators a very tough mandate,” Froneman said. “There’s a very strong compact between the gold CEOs.”

Unions including the National Union of Mineworkers have rejected an offer by the Chamber of Mines, which represents gold companies, to raise wages by 5 percent. Entry-level underground miners earn 5,000 rand ($504) a month before bonuses and benefits.

The NUM, which represents 64 percent of gold miners, has called for a 61 percent increase in entry-level salaries while the Association of Mineworkers and Construction Union, which represents 17 percent of miners, is seeking 12,500 rand a month.

2012 Unrest

Strikes across South Africa’s mining industry last year led to above-inflation pay increases. The industrial unrest and wage changes were partly behind Gold Fields’ decision to spin off its local assets. Inflation in the country was 5.5 percent in June.

“We need to end this vicious cycle of continuous increases of above inflation,” Froneman said. “That’s what the industry needs to do. We’re quite happy to share the profits but then the unions have to go on risk just like our shareholders.”

Sibanye’s KDC and Beatrix mines lost 110,000 ounces of output following the strikes last year. The company has a cash pile of 2 billion rand that will allow it to withstand any renewed stoppage, it said. Employees “don’t have the appetite for strikes,” according to Froneman.

Sibanye, formed as a collection of South African gold-mining assets in February, has pledged to cut costs and improve productivity, paving the way for dividends. The Westonaria-based company renegotiated debt terms with lenders earlier this year, removing the constraint on a potential half-year payout.

Dividend Plan

Sibanye plans to make that payout once the wage talks are complete, it said today. It would be able to pay a half-year dividend of about 1 billion rand based on its previous proposal to pay 25 percent of normalized earnings, Froneman said. That implies a dividend yield of 9 percent for the full year.

Operating profit climbed 63 percent to 3.3 billion rand in the six months through June from the previous half year, Sibanye said in today’s statement. Gold production advanced 23 percent to 656,300 ounces and available cash rose sevenfold to 2.1 billion rand.

“The improving operational performance and the debt restructuring has ensured that the company is well placed to declare a maiden dividend, once there is sufficient financial and operational stability,” the company said in the statement.

Sibanye has reduced its workforce by about 2,700 people this year through employees leaving voluntarily, Froneman said. It will cut a further 1,500 to 2,000 roles, mainly in support services and including 500 contractors, he said.

All-in costs, which include outlays such as capital spending and administration, shrank to $1,322 an ounce in the first half from $1,623 in the six months to December. They were $1,275 an ounce in the first half of 2012, Sibanye said.

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