State must take up the burden of protecting lost mining jobs

First Published in Business Day on   October 14th, 2019   |   by   Gracelin Baskaran

State must take up the burden of protecting lost mining jobs

Increased mechanisation and automation means SA’s number one job-creator of the past two centuries is losing top spot

These are trying times in the SA mining sector, and particularly for the platinum industry. Minerals Council SA has estimated that 90,000 of 168,000 jobs — 54% of the platinum’s sector’s employment — are at risk.

After Sibanye-Stillwater announced plans to cut 5,270 jobs from the mines it acquired from Lonmin, mineral resources & energy minister Gwede Mantashe criticised the mining sector’s plan to implement large-scale retrenchments amid a struggling economy. In the second quarter alone, 36,000 mining jobs were lost. The question arises — should companies bear the burden of protecting unprofitable jobs, or should the government bear the burden of protecting the people?

Over the past decade, platinum has been the apple of the economy’s eye. In the years leading to 2011 the metal was trading at about $1,800/oz. The sector absorbed a substantial amount of labour, and wages were relatively high when factoring in bonuses.

However, a storm was beginning to brew — in the years that followed, prices fell by more than half, volatile industrial relations translated to strikes that brought production to a grinding halt for prolonged periods, and demand crumbled as recycled platinum entered the market from Asia. Today, platinum sits at $930/oz , an amount often exceeded by the costs of extraction. According to S&P Market Intelligence, labour costs alone averaged $735/oz at Impala’s conventional mines. At the same time, labour cost $70/oz at Anglo Platinum’s open-pit mechanised Mogalakwena operation.

Companies have cited lack of profitability as a driving force behind retrenchments. However, despite the closing of many conventional mines due to declining demand and pricing, mechanised mines are still opening and expanding. Impala Platinum is an example here too — despite announcing the closure of five cash negative operations and 13,000 retrenchments last year, amounting to one-third of its total workforce, the mining giant has invested in the construction of the Waterberg project, a fully mechanised mine in Limpopo that will use 400 trackless machines to carry out operations.

In addition to drastically reducing operating costs, the productivity increase is substantial. Anglo Platinum’s conventional Amandelbuilt mine employs just more than 14,000 workers and averages an output of 50oz per person per annum, while its mechanised Mogalakwena operation employs just 1,800 workers and averages an output of 600oz per person per annum. The mechanised operation requires just one-eighth of the workforce, while production has gone up more than 11-fold per worker employed.

Labour has not just proved to just be costly, but its lack of consistency, even for justified reasons, has severely affected both the industry and the larger macroeconomic stability of the country. The 152-strike days in 2014 had a significant effect on revenues. According to S&P Market Intelligence data, between 2013 and 2014, stoppages caused a revenue decline of 48% for Lonmin’s Marikana operation, 46% for Amplats’ Rustenburg operation, 42% for Amplat’s Amandelbult operation and 64% for Impala’s operations.

From a macroeconomic stability perspective, a presentation by Chris Loeweld at the SA Reserve Bank earlier in October identified the platinum mining strike and load-shedding as the key drivers of the GDP decline from 4% in 2010 to just under 1.5% in 2014.

There is an illusion that mining’s share of employment will rebound when the next commodity boom starts. However, after spending years studying the platinum sector, both underground and above ground, one thing is clear: SA’s pre-mechanisation employment share will never return. Maybe Anglo Platinum’s Twickenham mine will return to production from being on care and maintenance — but it is likely to require fewer than 1,000 workers rather than the 15,000 of yesteryear, and will be powered by machines run by a small number of engineers, rather than blasters.

Shifting the burden of protecting people to the private sector is unlikely to attract investment. Every year the Fraser Institute carries out a survey of mining firms in mining jurisdictions worldwide. In 2011, in SA almost 3% of firms surveyed said they would not pursue investment due to labour regulations/employment agreements and labour militancy/work disruptions. By 2015 that percentage had jumped to 26% — the highest level of deterrence on the survey scale.

Rather than guilt-tripping firms to subsidise social protection, the government needs to play a central role in transforming the human capital landscape. There are two tangible efforts that can be supported — improving educational outcomes for communities around mines and strengthening the workforce that will be retrenched due to low profitability and increased mechanisation.

When I first moved to Rustenburg in 2014 during the mining strikes, I visited schools around the mines and asked secondary students what they wanted to do. The most common response was that they wanted to work in the mines. Why? Because their parents and grandparents worked in the mines. Little did they realise that in the coming years the area would be devastated by a drastic reduction in mining employment.

Maths pass rates at schools in areas around mines in Limpopo averaged less than 5% in 2018. Although firms have tried to provide educational support through corporate social responsibility programmes, this has been inadequate. Education is a social good, and the government has a responsibility to step up the provision of high-quality education in mining towns and rural areas. A strong foundation of maths and sciences is key to ensuring that students will be able to survive in a technology-intensive world.

The second area for human capital improvement is redesigning the provision of skills for workers facing retrenchment. Currently, as part of the retrenchment process, firms must provide a minimum amount of training to workers who will lose their jobs. However, after going from mining firm to mining firm to assess the effectiveness of these programmes I have concluded that they simply do not work. The process of reskilling workers is not demand-driven, it is supply-driven. Workers are essentially asked to pick a skill or skill set they would like to receive training for — plumbing, sewing, carpentry, gardening and so on. But how many plumbers or tailors does the small area around a closing mine need?

Turning the reskilling and human capital development efforts into a demand-driven process requires working with other industries. For instance, can we provide a tax incentive to another industry to retrain workers and hire them afterwards? A cross-sectoral effort is the only way to ensure workers are retrained for non-mining industries that remain labour-intensive, and the process does not just perpetuate the growing skills mismatch.

Ultimately, the government must play a more active role in protecting people, rather than placing the burden of job protection on the private sector. It will be virtually impossible to restore SA as an attractive investment destination without getting this right.

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