Sibanye Gold Seeks Employees's Favor by Offering Bonus Plan

  • Improved labor relations weaken `union rhetoric,' CEO says
  • High gold, weak rand provide opportunity to reimburse workers

Sibanye Gold Ltd., which is benefiting from a plunge in the South African rand, plans to use its widening profit margins to offer employees a bonus plan in an effort to improve its labor relations.

Labor unions rejected the so-called "social and economic compact" when it was offered to workers during wage negotiations last year, favoring higher fixed salary increases.

With a weakened rand boosting profits, there’s an opportunity to revisit the proposal, bettering relations with workers and leaving less room for them to be influenced by union leaders, Sibanye Chief Executive Officer Neal Froneman said. The company is also working to offer employees affordable homes and to lower their personal debt by providing financial education.

“If we can get the support of the communities where those employees come from, quite honestly, union rhetoric doesn’t affect us because the employees can see what we’re doing,” Froneman said in an interview at Bloomberg’s offices in Johannesburg.

Sibanye rose as much as 0.6 percent to 56.50 rand, and was at 56.20 rand by 9:48 a.m. in Johannesburg. A close at this level would be the highest since the stock started trading in February 2013.

Meat Sandwich

Froneman listed fractious labor relations as one of two main factors deterring foreign investors from South Africa. In 2014, platinum-mine workers crippled the industry by staging a five-month strike, which, together with falling metal prices, prompted companies including Impala Platinum Holdings Ltd. and Lonmin Plc to raise capital from shareholders.

Producers say they have been hurt by competition between the National Union of Mineworkers and the Association of Mineworkers and Construction Union for members.

“It’s a turf war between two unions and employers have become the meat in the sandwich,” Froneman said.

Rallying Stock

At the current gold price and rand-dollar exchange rate, Sibanye could make 10 billion rand ($627 million) of free cash flow this year, significantly higher than the 4 billion rand it made in 2015. On Feb. 25, it announced a full-year dividend that beat analyst estimates, further boosting the stock’s 143 percent rally this year to a record 55 rand.

Sibanye’s profit margins have increased as a dollar-based gold price, in which the company’s product is priced, combined with a weak rand, in which it pays costs, to work in its favor. Gold has climbed 9.8 percent in the past six months while the rand has declined 18 percent against the dollar.

“It’s a one-off chance,” Froneman said. “We’re suddenly in a different environment, we’d be remiss as a company not to say ‘now, let’s have a proper discussion around a social and economic compact.’”

The rising gold price and weak rand proves the AMCU was correct to reject the bonus plan and pay offer last year, spokesman Manzini Zungu said. The union is “open to engaging in talks for a better living wage,” he said.

Sibanye won’t discuss wages after raising miners’ basic pay last year, Froneman said.

The NUM would “definitely welcome” any plan that would improve members’ pay, spokesman Livhuwani Mammburu said.

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