A mineworker works at the rock face at the Impala Platinum mine in Rustenburg, South Africa, on Wednesday, June 4, 2008. Impala Platinum Holdings Ltd is the world's second-biggest platinum producer. Photographer: Nadine Hutton/Bloomberg News

Johannesburg - If platinum producers increased their entry-level basic salary offer by 9 percent, labour costs would eat up the entire platinum basket price of R25 000 an ounce before they even met the R12 500-a-month demand by the Association of Mineworkers and Construction Union (Amcu), according to Impala Platinum (Implats).

If the industry met the current Amcu wage demand, labour costs would increase to just over R30 000 an ounce, Andile Sangqu, the group executive of sustainability and risk at Implats, said in Cape Town yesterday.

“It would be irresponsible for companies to agree to increases that will cause irreparable damage to our businesses and result in significant restructuring consequences.”

During a roundtable organised by UCT’s Graduate School of Business, Sangqu said the new offer Implats had put on the table was a R5 500 basic salary plus benefits such as the living-out allowance, and retirement and medical aid benefits. These took the basic package for an entry-level worker to R9 279 a month.

According to Sangqu, labour costs at present claimed R10 000 an ounce of the platinum basket price for companies on the platinum belt.

During the roundtable it emerged that last year South Africa exported 266 tons, or 8.55 million ounces, of platinum.

Industry players said getting to the pre-2008 levels – where the platinum basket price could be increased beyond R25 000 an ounce – was not possible. With the shift from platinum to palladium in automotive manufacturing and more recycling taking place, the demand for platinum shrank by 0.5 percent between 2007 and 2012.

“We need to dispel the notion that South Africa has price power in the platinum game. It has now disappeared. We no longer control the price, it’s set for us,” said Michael Spicer, the former chief executive of Business Leadership SA and a former executive director of Anglo American.

Sangqu said an estimate by the Chamber of Mines indicated that almost half the platinum mines in the country were not making a profit. These were the mines largely located on the western limb of the Bushveld complex, where the strike is taking place.

He said labour costs accounted for between 50 percent and 55 percent of operating costs on these mines.

“And the increased cost base is not offset by projected earnings and productivity improvements,” he said, adding that Amcu refused to discuss productivity in the negotiations.

But John Capel, the executive director of the Bench Marks Foundation, pointed out that while it was understood that commodities were a cyclical business, research published by the University of Witwatersrand last week showed that during the cyclical high between 2000 and 2008, workers got only 29 percent of the platinum profits pie.

While the business representatives said there was no boom in the platinum sector during that period, Capel said the Bench Marks Foundation quantified that Lonmin, the least profitable of the three mining houses locked in the strike, paid dividends of $847 million (R8.97 billion) between 2003 and 2012.

Peter Major, the mining analyst at Cadiz Asset Management, said executive remuneration was out of control, which would never have happened during the time of Harry Oppenheimer at Anglo American.

But he also blamed the government, saying the Labour Relations Act was unconstitutional. “The right to vote [ballot] secretly isn’t there… Government has to stop being a populist and enforce the constitution to all people,” he said.

Sangqu said that in a telephonic survey the company conducted among striking employees, 85 percent indicated a willingness to accept the new wage offer but could not return to work because of intimidation.

Business representatives said automation of platinum operations was unavoidable because they could not keep up with rising costs. - Business Report