adminINVESTMENT bank JPMorgan Cazenove has warned that unless South Africa’s platinum producers restructure the cheap-labour model, industrial strife will not abate and the industry will continue on a journey to “self-destruction”. The warning, in an in-depth report on the platinum industry published last week, comes at a time when the world’s three largest platinum producers — Amplats, Lonmin and Impala — appear to have run out of solutions to the crippling 16-week strike.
Talks between the companies and the Association of Mineworkers and Construction Union (Amcu) have broken down over the union’s demand for a basic wage of R12 500 in four years, a 30 percent annual wage increase that the companies cannot afford.
While agreeing that the union’s wage demand is not affordable, JPMorgan Cazenove analysts Steve Shepherd, Allan Cooke and Abhishek Tiwari suggest that the only way out of the impasse was to “remodel the labour-intensive industry in such a way that labour is more productive and therefore can be better paid, with a lesser risk of putting the mines out of business”.
At today’s platinum prices, even current levels of remuneration are unaffordable for most mines, whose cash flows can barely cover the capital expenditure needed to continue mining, the report said. But the R12,500 wage demand was “psychologically entrenched”, the report said, and now that the workers’ “aspiration genie” was out of the bottle, it would not be wished away.
“We foresee ongoing pressure for an unaffordable structural shift in wages and conditions of service for many years to come.”
While many brokers’ reports have expressed the essential financial and economic problem of the industry in the same terms — that at present prices platinum cannot generate enough cash to sustain operations into the future — none has seen the solution as requiring a new deal for labour.
The JPMorgan report considers mechanisation as a possible avenue out of South Africa’s labour problems but said this would not be feasible for the next 10 to 20 years. Both the structure of South Africa’s ore bodies — which lie in very thin reefs — and the existing infrastructure of mine shafts are not conducive to mechanised mining.
“It is unsurprising that producers are scrambling to reduce exposure to labour by adopting mechanised mining approaches in the future. But this process is likely to be far less than straightforward given the fact that at least 70 percent of the ounces produced in South Africa are derived from the labour-intensive model. Existing infrastructures and most ore bodies currently being tackled by this method are just not amenable to effective mechanisation,” the report said.
The low levels of literacy and education of workers are also not in South Africa’s favour in mechanising. Maintaining and operating the type of machinery required to implement mechanised mining on a wide scale could take years to implement efficiently. Putting in place the required skills could take “a decade or more” even if the education system were mended.
Labour productivity improvements are therefore a more viable option and “conceptually and practically possible”, the report said. Two options are suggested: well-conceived and material incentive bonus schemes for workers; and shift arrangements that allow more shifts to be worked and assets to be “sweated more effectively”.
Past bonus schemes had not brought much improvement in productivity as management had “adulterated” them in response to pressure from labour. Instead of focusing on “area broken on reef” they focused on tonnage. But with a thin reef, the focus had to be on the reef package as most of the tonnage carried little value.
If shift arrangements were to be altered from the present five-day week to a six-day week system, in which workers rotated working five weeks on, followed by two weeks off, significant productivity improvements could be realised. This would present 310 blasting cycle opportunities in a year as opposed to the current 276.
An added advantage would be that migrant workers could spend two weeks out of every seven at home, creating more stable communities.
However, innovative suggestions have not found their way into talks. The last round, 10 days ago, ended in failure with Amcu rejecting a 10 percent wage offer, and no more talks have been scheduled. Employers are now pinning their hopes on workers trickling back to work, and have all but given up on a collective deal.
The JPMorgan report expressed some doubt that employers, workers and the government could build the relationship necessary to explore these ideas.
“The events of the past three years have highlighted a distressing lack of partnership between the three groupings. We have yet to see the leadership emerge to lift the industry out of what we see as a journey to self-destruction,” said the report.-Businessday.
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