Trouble ahead for metal, engineering sector deal

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BUSINESSES in the steel and engineering industry, together with automotive and construction companies, will breath a sigh of relief that the month-long strike in the industry has finally been resolved.

However, this relief is tempered by the knowledge that the wage deal struck by the Steel and Engineering Federation of SA (Seifsa) and the National Union of Metalworkers of SA (Numsa) is likely to have consequences that will result in further pain in the industry.

The National Employers Association of SA (Neasa) has not signed the agreement and apparently intends to apply for exemption from it because it was unaffordable to its membership, which comprises mostly small businesses.

Neasa chief executive Gerhard Papenfus has warned that the settlement would only serve to further destabilise the industry and would inevitably result in “massive job losses”.

Azar Jammine, the chief economist of Econometrix, has also warned that the settlement agreement would result in retrenchments.

Jammine added that the government, big business and organised labour had come to an agreement and small business were left behind, which was not conducive to job creation and poverty alleviation.

Papenfus claimed employment levels in manufacturing were now at the same level as in 1972 and the metal industry was on average 40 percent more expensive than other industries covered by bargaining council agreements.

Jammine said research done by Econometrix showed that wage increases in the mining and manufacturing sectors had been cumulatively between 10 percent and 15 percent higher over four years than in other sectors of the economy.

“The result has been less employment growth and in fact job losses in those sectors compared to other sectors,” he said.

Numsa has described the settlement deal as a victory but these statistics suggest that the pain in the industry will intensify.

Exxarro Resources

Black-owned Exxaro Resources made a big announcement on Monday when it said it was buying 100 percent of French multinational subsidiary Total Coal South Africa (TCSA), together with its export allocation at the Richards Bay Coal Terminal (RBCT) for $472 million (R5 billion).

The company said it was comfortable with the $472m acquisition despite TCSA having reported an attributable net loss of TCSA of R55m for the year to December.

During a telephonic conference with journalists and analysts, company chief executive Sipho Nkosi said he was delighted with the acquisition as it would build Exxaro into a premier coal producer.

He said the deal meant that its coal allocation at RBCT would double to about 8 million tons a year and about 10 million tons when the terminal reached its 91 million ton capacity.

Exxaro finance director Wim de Klerk shrugged off the R55m net loss: “The R55m includes once-off payments and is not an indication of the TCSA potential.”

The deal was signed on Friday and is subject to approval from the competition authorities, the regulator as well as the SA Reserve Bank. It is great news for the diversified company.

A sector report by Renaissance Capital was positive about the announcement.

It noted that among others the acquisition was a positive development because coal prices were well off peak levels which meant coal company valuations were more realistic.

It also said the capital intensity of the transaction compared favourably with other coal projects and that the company could use TCSA’s infrastructure to leverage existing resources. Also coal is Exxaro’s core competency, said the report.

Investors welcomed the deal as the Exxaro share rose 1.95 percent to R144.01 on the JSE on Monday.

Exxaro’s financial results for the six months to June are scheduled to be made public on August 21.

Edited by Peter DeIonno. With contributions from Roy Cokayne and Dineo Faku.


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