[REPORT] Gold Miners Face Likely Wage Cuts Following Platinum Strike

Following the agreement reached this week between striking workers and the country’s platinum miners, gold miners face the most risks associated with wage cuts.

According to ratings agency Fitch Ratings, the recent deal will likely add new pressures for fresh wage agreements in other sectors of the mining industry.

“Gold mining companies could face the biggest impact as they are at least as labour-intensive as platinum miners, but less profitable and with higher commodity price risks,” the agency reported.

“This is largely owing to the fact that platinum is predominantly an industrial metal and South Africa produces around 70% of the world's supply. Rising production costs are, therefore, more likely to feed through into platinum prices than gold, where pricing is influenced far more by its use as an investment or inflation hedge and South Africa controls a smaller proportion of global supply.”

The issue for gold miners lies in a new two-year pay deal accomplished in September. The deal, according to Fitch, leaves miners unprotected if they decide to strike, allowing companies to dismiss workers at will.

Higher wage demands are likely to continue in other sectors, including construction, manufacturing, transport and utilities. Iron-ore and coal miners are best positioned to deal with potential wage issues in the future.

“While the platinum miners' settlement could be used as a negotiating benchmark by unions in these sectors, labour costs for these companies tend to be a significantly lower proportion of total costs.

“However, if the length of the platinum miners' strike – around five months – were also to be repeated in other sectors, the disruption caused would have a much more significant impact,” Fitch explained.

Higher wages and poor labor relations can, and will, reduce the incentive for mining companies to invest.