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Motlanthe Says S. Africa Miners Must Boost Productivity

Sept. 18 (Bloomberg) -- South African gold miners’ demands for pay increases at companies including AngloGold Ashanti Ltd. 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 industry even as wages rise faster than the 6.4 percent inflation rate, according to the Chamber of Mines. Motlanthe’s African National Congress, in power since apartheid ended in 1994, is in an alliance with the NUM, which this month won a wage increase of 8 percent for gold employees after bargaining on behalf of 107,000 of the 140,000 who work on the mines.

“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 local operations of AngloGold, the country’s biggest bullion producer, almost tripled to $1,166 an ounce.

Plunging Shares

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

“It’s not the government’s responsibility to measure production,” NUM spokesman Lesiba Seshoka said by phone today. “The people who are responsible for production are the mine bosses. They have got no basis whatsoever to tell us production is not good when they are milking the companies, taking millions of rand in bonuses.”

AngloGold Chief Executive Officer Srinivasan Venkatakrishnan’s pay almost doubled to $4.4 million in 2012, when he was finance director, according to the annual report, while the stock dropped 24 percent in Johannesburg.

Gold Fields Ltd. CEO Nick Holland got a total package of 45.3 million rand, 39 percent more than a year earlier. The shares fell 17 percent.

Skilled Workers

Solidarity, which represents 2 percent of gold-mining employees, including higher-skilled workers, agrees that productivity needs to be increased, according to general-secretary Gideon du Plessis. South African employees work between 240 and 270 days a year, which is less than in other countries, he said.

Gold-mining companies are yet to produce a credible pay plan linking compensation to productivity, Du Plessis said. “There are too many external factors involved that the workers have no control over, such as the exchange rate and the gold price,” he said.

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 0.9 percent to 1,182.66 by the close 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 chairwoman said in an interview in October.

Deepest Mines

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.

The country, which has the world’s largest gold reserves, is the sixth-biggest producer as climbing costs have made 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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