[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.
Vale invests $150mn to extend life of Manitoba operations
Vale has announced a $150mn CAD investment to extend current mining activities in Thompson, Manitoba by 10 years while aggressive exploration drilling of known orebodies holds the promise of mining well past 2040.
Global energy transition is boosting the market for nickel
The Thompson Mine Expansion is a two-phase project. The announcement represents Phase 1 and includes critical infrastructure such as new ventilation raises and fans, increased backfill capacity and additional power distribution. The changes are forecast to improve current production by 30%.
“This is the largest single investment we have made in our Thompson operations in the past two decades,” said Mark Travers, Executive Vice-President for Base Metals with Vale. “It is significant news for our employees, for the Thompson community and for the Province of Manitoba.
“The global movement to electric vehicles, renewable energies and carbon reduction has shone a welcome spotlight on nickel – positioning the metal we mine as a key contributor to a greener future and boosting world demand. We are proud that Thompson can be part of that future and part of the low carbon solution.”
Vale continues drilling program at Manitoba
Coupled with today’s announcement, Vale is continuing an extensive drilling program to further define known orebodies and search for new mineralization.
“This $150mn investment is just one part of our ambitious Thompson turnaround story. It is an indicator of our confidence in a long future for the Thompson operations,” added Dino Otranto, Chief Operating Officer for Vale’s North Atlantic Base Metals operations.
“Active collaboration between our design team, technical services, USW Local 6166, and our entire Thompson workforce has delivered a safe, efficient and fit-for-purpose plan that will enable us to extract the Thompson nickel resources for many years to come.”
The Thompson orebody was first discovered in 1956 by Vale (then known as Inco) following the adoption of new exploration technology and the largest exploration program to-date in the company’s history. Mining of the Thompson orebody began in 1961.
“We see the lighting of a path forward to a sustainable and prosperous future for Vale Base Metals in Manitoba,” said Gary Annett, General Manager of Vale’s Manitoba Operations.