SA
Sprott's Thoughts on Platinum in SA
Sprott's Thoughts
March 28, 2014
South Africa: Platinum, Gold Miners and Workers Are Stuck – Nick Holland, Gold Fields By Henry Bonner (hbonner@sprottglobal.com) Read online Nick Holland, CEO of major gold miner Gold Fields Inc., has become well-known for his approach to reconciling state and workers’ demands with the drive to maximize shareholder earnings. He helped propose the current sliding tax system in Peru – where tax rates depend on metals prices. The deal helps miners maintain their production during tough times, while government enjoy a higher take when miners are most profitable. On a call to his offices in South Africa, I asked Mr. Holland to comment on the situation unraveling on the ground there. An eight-week strike by the South African Association of Mineworkers and Construction Union (AMCU) mining union has blocked operations at platinum producers Anglo American Platinum Ltd. (Amplats), Lonmin Plc., and Impala Platinum Holdings Ltd. (Implats). As of March 21st, losses to these companies’ revenues were 9.4 Billion South African Rand, or around $865 million, because of the strikes2. “Unfortunately, I believe the miners will not be able to get what they want from the big mining companies,” said Mr. Holland. “The real issue in South Africa is that there is a very big gap in incomes,” he continued. “You have a situation where unions are now becoming much more aggressive in terms of what they want as base wages. “This comes against a backdrop in the platinum industry where the price of platinum has come down and costs are escalating rapidly. Producers are not in a position to give more – otherwise, they will roll over.” It’s not simply that mining companies pay too many taxes to be profitable, he adds: “I don’t think that the taxes we pay here are out of line with worldwide taxes. I think that taxes are reasonably competitive and fair. “ “I think that there is probably a big political undertone in the actions of the new dominant union – the AMCU – which is leading the strikes. They are trying to score points in the political arena – independent of the economic viability of their demands.” Is there any resolution in sight? Can mining companies meet the workers’ terms? “Well, it seems like there is not much room for compromise. Miners cannot pay more because productivity has declined as the mines have gotten deeper, and as the ore bodies grow further away from the surface. The costs of mining have thus gone up, but productivity has not matched it. “Meanwhile, the industry is simply carrying too many people. Mechanization of mines – which requires less labor – is severely lagging the rest of the world. Over the past 40 years, Australia and Canada have gone through the mechanization revolution, but South Africa has stuck with the old labor-intensive mining methods. “The platinum and gold industries carry about 280,000 employees. With the kind of increases that these workers want, you will need gold and platinum prices substantially higher than where they are today – assuming costs do not rise as well. “Because of strikes and political action, wages have actually risen faster than inflation over the past, while productivity has decreased. I am afraid that there is no easy solution at the moment. “In fact, you will notice that we have decreased our exposure in South Africa over the years. Our only remaining mine in South Africa is mechanized and employs only around 4,000 people. We have chosen to replace our production with mines in new jurisdictions, including Peru, Ghana, and Australia.” Nicholas Holland was appointed an executive director of Gold Fields in 1997 and became CEO on 1 May 2008. Prior to that, he was the Company’s CFO. Mr. Holland has more than 31 years’ experience in financial management, of which 23 years were in the mining industry. Prior to joining Gold Fields, he was Financial Director and Senior Manager of Corporate Finance at Gencor
