Diversified miner Glencore may cut up to 665 jobs at its Rustenburg ferrochrome smelter, adding to the growing list of companies shedding employees in SA as the economy slows down.
Glencore said in a formal section 189 notice to the National Union of Metalworkers of SA (Numsa) and trade union Solidarity on Friday that steep price hikes from SA’s electricity monopoly Eskom and the country’s new carbon tax, combined with aged furnace technology, contributed to the smelter being “no longer financially viable to operate as a going concern”.
“Rustenburg Smelter is under threat of closure as it is no longer profitable due to an increase in costs and adverse market conditions,” said Glencore, one of the world’s largest commodity traders and miners. Glencore, in a joint venture with JSE-listed Merafe Resources, is the largest, single producer of ferrochrome, a key ingredient in stainless steel manufacturing.
The smelter has run up a loss of R700m over the past two years and is forecast to make a R500m loss in 2020, the notice said.
Earlier in January, the World Bank cut SA’s economic growth forecast to 0.9% for 2020 because of the electricity constraints from Eskom, which struggled to provide a reliable electricity supply during 2019, and coming into 2020.
Businesses have, for years, warned the government that embattled Eskom, which has more than R450bn of debt and an old, unreliable fleet of coal-fired power plants, is the single largest threat to SA’s economy and that it needs urgent attention.
The section 189 notice is a requirement under the Labour Relations Act to give unions and management 60 days to find alternatives to job losses. Glencore said it will use the talks to “explore all possible avenues to keep the smelter operational”.
“The last resort will be the closure of the smelter should no meaningful alternative be available, as the company has a responsibility towards its shareholders to provide a fair and adequate return on investment,” it said. The smelter employs 665 people.
Sibanye-Stillwater, the world’s largest source of the six platinum group metals (PGM), said on Thursday that it had reduced its entire workforce at its Marikana assets — which are those it acquired as part of a R4.3bn all-share takeover of Lonmin — by 4,775 positions, of which 1,142 were retrenched.
The cuts come as companies such as telecoms giant Telkom and retailer Massmart also warn of job reductions.
Eskom’s ‘excessive increases’
The mining sector, as well as companies operating furnaces, which are intensive electricity users, have long flagged Eskom as the biggest threat to their businesses. Glencore said in its notice to the unions that Eskom’s “excessive increases” mean energy costs now make up about a third of production costs and the state-run utility’s prices have “aggravated the situation”.
The Minerals Council SA said in late 2019 that electricity prices for mining companies has increased six-fold since 2006.
Glencore said there are additional “rural and affordability subsidies paid by industrial customers of Eskom”. Eskom also charges its large industrial clients, such as mines and smelters, winter tariffs that further increase production costs. With higher logistics costs and the need to import reductants for the furnace, the production costs at the Rustenburg smelter have increased over recent years, Glencore said.
SA is one of the major exporters of chrome ore to other countries in which electricity is cheaper and more reliable, most notably China, and this has led to the SA ferrochrome industry, once the world’s biggest, no longer being as competitive.
The “unavailability of energy for expansion and beneficiation in SA resulted in an increase in ferrochrome capacity outside SA, more specifically China”, Glencore said. “The demand for ferrochrome from SA producers therefore decreased significantly, resulting in its lower market price.”
Glencore has tried to save the smelter. “Despite significant investment to make the operation more competitive, the Rustenburg smelter has suffered material financial losses, which are expected to continue for the foreseeable future,” Glencore said in a media statement.
Merafe holds 20.5% of the Glencore-Merafe Chrome Venture, and Glencore the rest.
In August, Merafe reported in its half-year to end-June that profit after tax had decreased 61% for the period. It said at the time that global ferrochrome production growth had outstripped growth in demand in the period, largely as a result of increasing output from China.
In afternoon trade, Glencore’s share price was up 1.05% to R45.98. Merafe’s share price had fallen 3.75% to 77c.
With Karl Gernetzky
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