Labour Unrest Spreads to South Africa’s Gold Sector

on Sep 11, 2012

On 3 September 2012, the Financial Times reported on the latest outbreak of violence in South Africa’s mines, with labour unrest spreading from platinum mining into other parts of the sector and raising concerns for Africa’s largest economy.

The latest labour violence incident occurred in the Johannesburg gold mine of Gold One International (ASX:GDO), with the company reporting on September 3 that about 60 workers at its Modder East site had staged a wildcat strike, preventing half of the workforce from reporting for their shifts. According to the company press release, the South African Police Service had to use teargas to disperse the group which had become violent.

In addition, the mining news website Mineweb recently reported that South African bullion miner Gold Fields (NYSE:GFI) also had problems with its workforce, with some 12,000 of its workers going on an “unlawful and unprotected strike”.
!m[](/uploads/story/316/thumbs/pic1_inline.png)The new instances of labour unrest come in the wake of the police action at the Marikana mine of platinum producer Lonmin (LON:LMI) which saw 34 striking miners shot dead in an incident which was quickly labelled as the worst mine violence since the end of apartheid in 1994.

As noted in the FT article, world platinum prices have risen nearly 10 percent since the Marikana shootings in the expectation that Lonmin’s loss of production will result in market shortages.
The Lonmin violence was reportedly caused by a turf war between two rival unions, namely the established National Union of Mineworkers (NUM) and the emerging and militant Association of Mineworkers and Construction Union (AMCU). According to the FT, miners have accused the NUM of caring more about political connections than about the plight of workers deep underground.

With labour violence spreading to other mines and minerals, investors and credit rating agencies have started expressing concern about South Africa’s economy. Mineweb reports that mines minister Susan Shabangu has acknowledged that the recent labour violence is likely to adversely impact on potential investment into South Africa, which is rated as having the world’s richest deposits in several minerals. Mineweb quoted Gary van Staden, a Johannesburg-based political scientist at NKC Independent Economists, as observing, “I think there is a good prospect for contagion. There is a very good chance that we will see a spreading of wildcat action on the mines.”

Both Moody’s (NYSE:MCO) and Fitch Ratings have cited South Africa’s unemployment and poverty as brakes on economic growth and the nation’s credit rating. The recent labour unrest has also highlighted the existing wealth gap in the country, a factor which is seen as threatening the Rainbow Republic’s fledgling democracy. On August 29, deputy president Kgalema Motlanthe told reporters in Cape Town that distribution of wealth in South Africa was “unfair” and an “ingredient for revolution”. And Bloomberg has quoted Razia Khan, an economist at Standard Chartered Plc (LON:STAN) in London, as noting in an e-mailed response to questions that the Marikana violence indicated that social instability was “much more of a ’present‘ risk than many had previously thought – that it is already serious enough to impact on economic outcomes today”.


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