S. African Gold Producers Need More Than Price Surge: Spotlight
S. African Gold Producers Need More Than Price Surge: Spotlight
Johannesburg, Sept. 28 (Bloomberg) -- For 16 years, miner Charles Stofile worked for Gold Fields Ltd., the world's No. 2 gold producer. This month, Stofile and 670 other workers at the Oryx mine were fired as part of the company's attempts to cope with low prices and high costs.
South African gold companies have been dismissing miners in record numbers, and they vow that won't change just because gold prices have risen 13 percent this week to their highest level in more than 16 months. ``Most of them are uneducated, they will have to go and beg for jobs at another mine,' said Stofile. ``There is no hope for them to get other jobs at this point in time.'
In South Africa, the world's biggest gold producer, the industry's problems run deep: mining costs 6 percent above the world average, strained labor relations and poor safety records. The National Union of Mineworkers has threatened national strikes, but companies say the cuts are necessary. ``The process of restructuring has to continue,' said John Brownrigg, the managing director of Western Areas Ltd., the country's sixth-biggest producer. ``Companies are still under pressure.'
South Africa's companies, unions and the government banded together in recent months to try to persuade European nations and the International Monetary Fund to hold off on any more gold sales, the main reason for a four-year slide in gold prices that culminated in prices dropping to a 20-year low in August.
On Sunday night, it appeared the effort had some success, as European central banks said they would limit future sales, and the IMF said it would only sell gold in ``off-market' transactions that wouldn't affect prices. The banks said they were motivated by a desire to bolster the gold price.
Shares Surge
Gold prices and mining shares surged Monday on news of the agreement and are still rising today. The 12-member Johannesburg All Gold Index has soared 33 percent in two days, its biggest gain in at least four years, with No. 1 producer AngloGold Ltd.'s, shares rising 27 percent in the period to a record.
But today, the old animosities and cold realities of the mining business re-emerged, and it seemed that little had changed.
Western Areas and Placer Dome Inc. say they will follow through with plans to fire 2,900 miners, or 35 percent of their workforce, at their South African joint venture. Durban Roodepoort Deep just fired 500 workers, and last month East Rand Proprietary Mines Ltd. closed, putting 5,000 out of work.
Tension
Some analysts say tension in South Africa's gold industry is at its greatest since August 1987. Then, 300,000 miners struck for three weeks. By the time the strike ended, one in ten had been fired, a quarter of a million ounces of gold output had been delayed and labor relations in the gold industry, the cornerstone of the apartheid economy, had been shattered. ``There's a lot of concern,' said Hamilton Ndimande, deputy industrial relations adviser at the Chamber of Mines, which represents, among others, the world's top two producers, Anglo American Plc's AngloGold and Gold Fields. ``We're getting really close to wiping out the memories of 1987. That's being jeopardized.'
Miners say they are angry that conditions haven't improved more since South Africa's first all-race elections in 1994. Working conditions are little changed from the apartheid system of overcrowded, single-sex hostels and low pay, which kept the mines profitable. Miners earn as little as $175 a month.
South Africa's gold mines require more workers than most because the country has some of the world's deepest deposits. Some mines extend more than three kilometers underground, far more than their counterparts in North America and Australia.
Gold Field's Driefontein mine produces 1.5 million ounces of gold a year and employs 20,000, Barrick Gold Corp.'s Goldstrike mine in Nevada, with 1,700 workers, produces 2.1 million ounces.
In North America, labor accounts for 25 percent of gold mining costs. In South Africa, it's 50 percent. ``In South Africa you are substituting labor for big machinery,' said Terry Bell, an analyst at Toronto Dominion Securities in Toronto. ``Most open mines are more sensitive to oil prices than to labor.'
Safety
Worker safety is also a problem. Last year, 371 of South Africa's 500,000 miners died at work while fewer than 10 died in Canada, where mining employs 370,000.
While the productivity of South Africa's gold miners has improved, with annual output rising by a third to 1.9 kilograms per miner, the gains haven't come quickly enough to keep pace with the falling gold price. ``How much you get paid isn't a question of fairness,' said Michael Hume, an economist at London's Lehman Brothers. ``It's how productive you are.'
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