The classic Mexican standoff requires three opponents, all with guns aimed at each other. Each side wants something, that will require a concession to be made, but what they offer is considered by the other sides to be worthless. In this case, all sides would benefit from a change, but neither side can agree to the right amount of compensation and thus they all refuse to negotiate and nothing is accomplished.
In the South African mining sector the three sides would be, the bullion producers, the union NUM (which is in a labour coalition with solidarity and UASA), and the union AMCU. The gold producers want everyone to smile and go back to work, the unions, want the gold producers to stop whining and pay more and then between the unions, there is a turf war and they want the other side to move out of the way. Doesn’t sound like a playground investors would want to be in.
Just when analysts think things cannot get worse, there is more bad news for South Africa’s mining industry after recent labour negotiations have gone south. The NUM-Solidarity-UASA coalition has declared an official wage dispute, further protracting the negotiation process and leading analysts to doubt the mining industry’s hopes of getting back on its feet any time soon.
Rising costs in the gold mining sector, coupled with all time low prices of gold, have led to the mining sector shedding thousands of jobs and further deepening the crisis. Displeasure with the state of affairs in recent months has led to violent protests by miners, resulting in the loss of life.
Gold producers have offered a 5% increase in wages, up from an initial 4%, something miners and their unions have rubbished as being far below what is required to improve the quality of life for miners and their families. The gold producers have stated that giving into union demands for a 60%-100% salary increase would cripple business and require more massive lay-offs, leaving some miners unemployed and in worse financial conditions than at present.
Stalemate. That is the current state of the industry, both parties are in effect dependent on each other, without miners, there is no gold and without a profitable gold mine, there are no jobs. To put things into perspective, one-day strikes cost gold producers about R350 million in lost revenue and workers R100 million is wages.
The effect on the economy is also quite significant, as gold production is one of South Africa’s biggest currency earners. Apart from the loss of revenue to the economy from gold sales, foreign investment in the gold sector has fallen, as the stability of the mining industry has been damaged due to wildcat strikes and bloody turf wars between rival mining unions. This has in part led to the nation’s credit rating being downgraded, adding to the woes of economists.
Sorting out the current Mexican standoff will hopefully be put on the presidential task force to-do list, heavy government weight-in might just be what’s needed to get all parties to lower their load pistols and get the mining industry back on track.