* Unions want pay hikes of 15 to 150 percent
* Companies have cash but strikes will still hurt
* Gold industry in sharp decline, from world's top producer
* Soaring costs, falling prices push industry to edge
By Ed Stoddard
JOHANNESBURG, Aug 23 If South Africa's gold
miners strike over wages next week, the loss of output will drag
down companies already being crushed between rising costs and
falling prices for the metal.
The strikers, seeking better pay and conditions for one of
the toughest jobs in the world, may also be putting their own
livelihoods on the line if a protracted stoppage or the scale of
their wage demands force some mines to close.
This live-or-die dilemma hangs equally over boardrooms,
mining shafts and communities in an industry which could lose
over $35 million a day in output due to stoppages, and also slow
already sluggish growth in Africa's biggest economy.
The National Union of Mineworkers (NUM) has threatened to
downs tools next week over wages, a move that would effectively
shut a gold sector already in a state of steep decline.
Johannesburg's index of gold producing companies
has lost 62 percent since a life high reached in September 2002,
and 42 percent so far this year.
South Africa's overwhelmingly black mining work force is in
a restive mood as it fights for a greater share of the spoils
from an industry built on low wages and migrant labour.
But it has reached a point where soaring costs and falling
prices have made big pay rises unsustainable. As production has
fallen the industry has shed 340,000 jobs since 1990, over two
thirds, and more will need to be slashed if wages, which have
outpaced inflation the past decade, spiral higher.
The numbers just don't add up at a time when gold's spot
price has lost close to 30 percent from the record peak
of over $1,920 an ounce it scaled almost two years ago.
NUM, which represents two-thirds of South Africa's gold
miners, is seeking a 60 percent wage hike for entry-level
workers and 15 percent for all other categories.
Its more hardline rival the Association of Mineworkers and
Construction Union (AMCU) wants increases of up to 150 percent
at the entry-level but is still in talks with the companies.
The country's chamber of mines says about half of the
lower-skilled gold mining workforce of 95,000 would fall into
the entry-level category.
Currently, such workers are making 5,000 rand ($490) a month
as a basic wage and NUM wants 8,000. So that demand alone would
add 142.5 million rand to the industry's monthly wage bill.
In addition to the basic wage, the chamber of mines says
that in the gold sector there are other benefits which can
translate into a total of 8,800 rand a month in costs to a
company. These include meals, housing, and other allowances.
NUM also wants various increases for non-wage benefits as
well a 15 percent hike on basic pay for all worker categories.
SURVIVAL OF THE LEAST EXPOSED
Some producers are better placed than others to withstand
protracted strike action, which could start next week if NUM's
members vote to walk off the job.
Gold Fields spun off the bulk of its South African
assets earlier this year and its home base now only accounts for
about 12 percent of the company's global production.
So it can easily ride out a strike at its only operation in
the country, South Deep, even though at close to $1,900 an ounce
for all-in cash costs, it is the most expensive gold mine in the
country to run, according to David Davis, mining investment
analyst at SBG Securities.
Sibanye, the company created from the spin-off, is
more vulnerable with all of its mines in South Africa.
An estimated 14,000 of its workers are entry-level miners,
and so NUM's 60 percent demand would add 42 million rand a month
to its wage bill, or 500 million rand a year.
In the first half of this financial year, Sibanye generated
an operating profit of 3.3 billion rand, so an additional 250
million rand every six months might at first glance seem doable.
But the main profit measure in South Africa - the bottom
line to shareholders - is headline earnings, which strip out
certain one-off items, and Sibanye's number for the same period
was 880 million rand.
Other costs such as power are also rising and Sibanye's
all-in cash costs for the period were $1,275 an ounce against
gold's current price around $1,375 - giving it little room,
especially if spot bullion falls further.
The producers' latest offer to NUM is 6 percent, just below
the current inflation rate.
"I think the mining companies will remain steadfast because
they can't afford the increases," said SBG's Davis.
He also said the companies could hold out longer than the
unions as they have cash and debt facilities to lean on. Sibanye
for example in its first-half results said it had over $200
million in available cash.
AngloGold Ashanti this week secured a relaxation in
a financial ratio covenant on its revolving credit facilities.
Miners on the other hand may struggle to hold out without
pay for several weeks. The typical South African mine worker has
eight dependants, many of whom are peasants in rural areas far
from the shafts. This stokes their demands but also means they
cannot survive for long without an income.
Even with deep pockets, the mining houses will also battle.
It is instructive to look at the impact of last year's wave
of illegal strikes, which spread from platinum to gold and were
rooted in a turf war between NUM and AMCU.
Africa's top producer AngloGold said its fourth-quarter
adjusted headline earnings last year were 2 U.S. cents compared
to 61 U.S cents the previous quarter, largely because of the
250,000 ounces in output it lost to the strikes.
Harmony Gold, which gets almost all of its
production from South Africa, fell into a loss in the March
quarter because of the temporary closure of its Kusasalethu
mine, which shut because of the union rivalry and violence.
The once towering industry has been sinking for decades.
South Africa accounted for 79 percent of world production in
1970 but Thomson Reuters GFMS ranked South Africa sixth in
global output in 2012, when it produced 177.8 tonnes of gold,
just 6 percent of the world total.
($1 = 10.2789 South African rand)
(Additional reporting by Sherilee Lakmidas; editing by David