Salary hike could worsen mining sector crisis

Salary hike could worsen mining sector crisis

Mines Minister Walter Chidhakwa

LOCAL mining companies conceded to workers’ demand for a wage increase last week, despite perennial difficulties caused by plummeting mineral prices as well as a raft of taxes that have made the resources sector unviable.
According to information obtained by the Financial Gazette’s Companies & Markets (C&M) this week, the workers in the mining sector received a 1,5 percent salary increase backdated to January.
Employers had initially proposed a reduction in the minimum wage during negotiations, arguing that they were operating at a loss due to plummeting mineral prices on the global market.
But at the end, the workers, represented by the Associated Mine Workers Union of Zimbabwe (AMWUZ), were able to force the employers, through the Chamber of Mines, to agree to an increment, which raised the minimum wage to US$251,72 per month, up from the US$248 per month.
AMWUZ president, Tinago Ruzive, told the (C&M) that the workers were not happy with the agreement because they were pushing for a 10 percent increment.
“Employers came to the negotiation table proposing a 1,6 percent salary cut for the lowest paid mine worker,” said Ruzive.
“(But) we refused and argued further until we ended up agreeing to a 1,5 percent increase. (However) we are not happy (with the outcome of the negotiations) but we finally said let’s just take what is there.”
The development comes at a time when the sector is facing challenges that include antiquated mining equipment, unending job cuts, escalating of costs and plunging commodity prices.
The mining industry has also been affected by power outages, high electricity tariffs, high royalties, taxes and fees that have compounded the mining industry’s woes.
Just like other sectors which have for the past few years failed to review salaries, the effects of economic challenges have been painful for all miners as operating cost structures increased significantly over the past few years.
Undoubtedly, 2015 went down as one of the worst years on record for mining companies, hit by record-low commodity prices that forced them to shed jobs, reduce production and even postpone expansion projects.
The question now is whether miners would afford to pay the new salaries or not.
Some mining companies had been failing to pay monthly salaries even before the latest increment.
Isaac Kwesu, the Chamber of Mines chief executive officer, said: “The Chamber has never been against any fair compensation but this (increment) is coming at a time when the industry is depressed.”
“Effective payment is a function of affordability but I tell you most mines will not be able to pay this because all fundamentals are pointing south. The situation on the ground is that most mines cannot afford to pay that increment and we might see them applying for exemptions,” he said.
Kwesu said the mining sector had been giving its workers pay increases annually since 2009 when the country adopted a hard currency regime after ditching its own defenceless currency.

A conveyor belt carries ore extracted at Mimosa Platinum mine

Just like other sectors which have for the past few years failed to review salaries, the effects of economic challenges have been painful for all miners as operating cost structures increased significantly over the past few years.

“Sometimes we were paying twice a year. This had become like a culture but this should change now because the industry is depressed and mines are no longer able to pay,” said Kwesu.
Analysts said commodities were likely to continue to “bump along the bottom” until there was a turn in the global economy, with a change in fortunes in China.
The crisis confronting mines has been compounded by a slowdown in Chinese consumption, which has wreaked havoc in the sector.
China is the world’s biggest consumer of most of the minerals and metals.
Its slowdown, coupled by weak economic recovery in Europe and weak growth in the United States, has severely undermined demand for commodities and affected prices.
This year looks even worse for an industry decimated by the commodities slump.
The outlook remains highly uncertain for the sector which has been the backbone of the economy since 2009 when the country dollarised, and no one knows when it will get better.
The mining sector recorded negative growth of –3,4 percent and –2,5 percent in 2014 and 2015 respectively. Capacity utilisation in the mining sector also went down to 60 percent in 2015 from 74 percent in 2014.
A 2015 Chamber of Mines of Zimbabwe State of the Mining Industry Survey indicated that except for gold, which recorded a 20 percent growth in revenue to US$737 million in 2015 from US$616 million in the prior year, there was a marked decline in the income from other minerals.
So far this year, gold has been a shining light again, becoming the best performing commodity, something which has given miners some hope.
The price of the yellow metal was on Tuesday sitting at US$1 236 per ounce, from US$1 115 per ounce which was prevailing in January this year. At its peak, the price of gold was at around US$1 660 per ounce in September 2012.
Prices for other minerals have gone down to levels below the cost of production and mining firms are therefore failing to break even.
To produce an ounce of gold, local miners require about US$1 200.
Zimbabwe has the world’s second largest platinum resource estimated at 2,8 billion tonnes of PGMs ore.
The price of the commodity tumbled to about US$957 per ounce as at Tuesday this week, casting a dark cloud in the platinum sector. At its peak, the platinum price reached US$1 450 per ounce in 2012.
Costs have gone up by over 85 percent in recent years to about US$1 500 per ounce, meaning miners are losing about US$510 per ounce produced.
Revenue from platinum sales dropped by 23 percent to US$381 million in 2015, from US$495 million recorded in 2014.
Nickel sales last year declined by 30 percent to US$142 million, from US$202 million in 2014, while diamond revenues recorded a 46 percent slump to US$180 million.
According to the Chamber of Mines, the country could lose US$1,3 billion in potential export revenue due to a decline in commodity prices on international markets, a situation likely to exacerbate the mining industry’s woes.
The situation is so desperate that mining operations could be forced to close, particularly in an environment of high production costs.
The mining sector however remains the highest foreign currency earner, accounting for about 45 percent of the country’s export earnings but the weakening prices are a cause for concern for the country as it also affects the overall growth of the economy.
It contributes more than US$3 billion to gross domestic product.
Export earnings for Zimbabwe’s mining sector plummeted by about 17 percent in 2015 due to falling prices on international markets.
Declining revenues were driven by low output and subdued international commodity prices.
The struggling industry, according the Chamber of Mines, requires in excess of US$4 billion in fresh capital for recapitalisation and new projects.

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