Gold Mine CEOs Hoard Cash as Strikes Loom in South Africa
South Africa’s four biggest gold producers are hoarding cash and lining up access to more as they prepare for the first industrywide strike since 2011.
Sibanye Gold Ltd. (SGL) boosted its cash balance sevenfold and AngloGold Ashanti Ltd. (ANG) has arranged to borrow more from banks if needed, filings show. Like their peers, Gold Fields Ltd. (GFI) and Harmony Gold Mining Co. (HAR) have scrapped dividends this month. The National Union of Mineworkers today notified producers that its members will down tools on Sept. 3.
“If we are, let’s say, bullied into a situation that we don’t like, we can ride out the storm for a very long period of time,” Sibanye Chief Executive Officer Neal Froneman said. “That was the reason behind putting cash in the bank.”
The Chamber of Mines, which represents seven gold mining companies employing 142,000 people, today received a 48-hour notice of an intended strike from the NUM. The chamber has estimated that a stoppage will cost 349 million rand ($34 million) a day in lost revenue. The four biggest producers say bullion’s 16 percent slump this year means a decade of above-inflation pay raises must be halted as they seek to reverse losses and avert a repeat of violence that has marred operations since last year.
“This is a tipping point of the industry,” David Davis, a Johannesburg-based analyst at SBG Securities Ltd., said by phone on Aug. 23. “The gold mines are taking action to put their operations into positive cash flow at this gold price. Hunkering down on wages is part of that strategic plan. They can’t afford it.”
Entry-level underground workers earn 5,000 rand a month before housing allowances and bonuses, according to the Chamber of Mines. The NUM, which represents 64 percent of employees, or about 90,000 miners, wants this to rise to 8,000 rand. The Association of Mineworkers and Construction Union, the second-biggest gold-labor group, is demanding an increase to 12,500 rand a month.
CEOs have been less willing to negotiate this year, according to the NUM. Their companies, engaged in wage talks through the Chamber of Mines, are considering locking out workers should their final offer not be accepted, Chief Negotiator Elize Strydom said yesterday.
The chamber’s offer on Aug. 27 was for a 6.5 percent raise in each of the next two years for entry-level employees. Other bands would get 6 percent, with a profit-share payment for all.
Gold miners’ salaries put them in the top 15 percent of earners in South Africa and their pay can almost double if bonuses and allowances are in included, according to Harmony CEO Graham Briggs.
Inflation for mineworkers, who typically support as many as 10 other people, is 9 percent to 11 percent a year, higher than South Africa’s official rate of 6.3 percent for July, NUM General Secretary Frans Baleni said last month.
“There’s a very strong compact between the gold CEOs,” Sibanye’s Froneman said. “This is not about one year. We intend to be here a long time and we need to end this vicious cycle of continuous increases of above inflation.”
The lower bullion price caused AngloGold, Harmony and Gold Fields to post second-quarter losses and announce plans to cut costs. Sibanye, spun out of Gold Fields as a collection of South African mines in February, was the only one to make a profit, which was for the six months ended June. Sibanye increased its cash balance to 2.09 billion rand by June from December.
AngloGold agreed to a deal with its banks on Aug. 21 to ease the terms of its revolving credit facilities to give the company greater access to credit. “We’re not in a position where we have a balance sheet that’s shaky,” Mike O’Hare, AngloGold’s chief operating officer for South Africa, said in an interview yesterday.
In addition to scrapping its dividend, Gold Fields announced the purchase of three Barrick Gold Corp. (ABX) Australian mines on Aug. 22 for $300 million. CEO Nick Holland said the mines will increase cash flow in the first year and reduce the proportion of the company’s production from South Africa to 11 percent. “Our exposure to South Africa is much more reduced,” Sven Lunsche, a spokesman, said by phone yesterday.
Gold Fields is also cutting costs and spending at its South Deep mine in South Africa, which didn’t meet a target to break even by this year, the company said in an Aug. 22 presentation. The mine is implementing a 24-hour, seven-day-week operating model, and labor relations have been “challenging,” it said.
There have been no unauthorized work stoppages since wage talks began in July, almost a year after 34 people were killed in one day near Lonmin Plc’s (LMI) Marikana mine following strikes over pay in the platinum industry.
Deputy President Kgalema Motlanthe brokered a pact between unions and companies to negotiate peacefully on July 3. It was signed by all parties except the AMCU, which became the biggest union in platinum last year and has been gaining gold employees in 2013.
“The strikes might not be violent per se,” Mashego Mashego, an executive director at Harmony, said in an Aug. 28 interview. “But there’s a tug of war between the historically majority union, which wants to keep the status quo, and the new kid on the block, which wants to get a bigger stake in the industry. It’s not just about wages, it’s about power.”
The last industrywide strike over pay in gold was in 2011 and lasted four days. The stoppage ended after producers agreed to boost pay by 7.5 percent to 10 percent in each of two years, exceeding the increase in the consumer-price index.
Gold CEOs have been much more aggressive in their negotiations this year, according to Mike Fafuli, a spokesman for the NUM.
“Even before the commencement of negotiations, CEOs were saying they have a mandate not to pay above inflation,” Fafuli said in an Aug. 28 interview. “Going in with such a blueprint defeats the object of engagement. Mineworkers are already living hand to mouth. If they think they can get more then there will be appetite to strike.”
The AMCU is “still in touch with our constituencies” about how to proceed with negotiations, President Joseph Mathunjwa said in a phone interview today.
AngloGold CEO Srinivasan Venkatakrishnan almost doubled his pay 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’ Holland got a total package of 45.3 million rand, 39 percent more than a year earlier. The shares fell 17 percent.
Harmony’s Briggs earned 7.3 million rand in 2012, excluding share options, which was 8.5 percent lower than in 2011. The company’s stock fell 22 percent.
Weeks of strikes and violence led Harmony to suspend output at its biggest mine for two months this year. A precondition to reopening the operation was that employees sign a code promising to respect the rule of law. The AMCU is the majority union at the mine.
A wave of mining strikes cut about 15 billion rand in output last year. Stoppages in the industry have already shaved 0.3 percent off growth in 2012, President Jacob Zuma said June 13.
Should gold miners down tools, they would join 30,000 operators at car manufacturers including the local unit of Toyota Motor Corp., who have been on strike since Aug. 19. Another 90,000 construction employees and 72,000 workers at gas stations and car dealerships may walk out after talks failed.
The six-member FTSE/JSE Africa Gold Mining Index has fallen 44 percent this year compared with a 7.7 percent increase in the FTSE/JSE Africa All-Share Index.
“Our shareholders think we’re probably too good to our employees and our employees think we’re too good to shareholders,” Harmony’s Briggs said on Aug. 14. “The numbers are taking the shareholders’ view that there’s too much of our profits going elsewhere but we need to get a balance. That’s where it’s difficult.”
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