[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.
Barrick profit beats expectations as copper, gold prices up
Barrick Gold has reported a 78% jump in first-quarter profit, beating analyst expectations thanks to rising gold and copper prices, and said it was on track to meet annual forecasts.
Production in the second half is expected to be higher than the first, the gold miner said, thanks in part to the ramp-up of underground mining at the Bulyanhulu mine in Tanzania and higher expected grades at Lumwana in Zambia, reports Reuters
Barrick’s first-quarter gold production fell to 1.10 million from 1.25 million ounces due partly to lower grades at its Pueblo Viejo mine in Dominican Republic.
Adjusted profit surged 78% to $507mn in the quarter ended March 31, from $285mn a year earlier, and Barrick announced a 9 cent per share quarterly dividend.
Stronger prices helped boost Barrick’s revenue from its copper mines in Chile, Saudi Arabia and Zambia by 31% from the fourth quarter. Overall earnings per share were $0.29, ahead of analysts’ estimate of $0.27.
“We expect a positive stock reaction to the earnings beat and strong cash flow,” said Credit Suisse analysts.
Potential for South Africa merger
Barrick CEO Mark Bristow, who has championed mergers across the gold industry, said he backed the idea of South Africa-listed miners Goldfields and AngloGold Ashanti combining.
Speculation has been swirling around the two companies and Sibanye-Stillwater, whose CEO Neal Froneman floated the idea of a three-way merger.
“I’m a South African, and this country has such a great mining history and it would be great to see a real gold business come out of the many failed discussions that we’ve seen,” said Bristow.
Goldfields declined to comment. In a statement, AngloGold Ashanti said it was focused on delivering on its growth plan to unlock value from its portfolio of gold assets.
Bristow also said he had met with the Democratic Republic of Congo’s new mines minister and other officials and was continuing to work on getting $900mn belonging to its Kibali mine joint venture out of the country.
“We have a solution, it just needs to be sanctioned by the appropriate authorities which haven’t been around for a while,” he said, referring to a recent government overhaul by President Felix Tshisekedi.