Platinum and gold miner Sibanye-Stillwater, which had to close down its gold mining operations in SA for more than three months this year during protracted wage negotiations, says the company cannot continue to pay above-inflation wage increases as it has done since the company was established in 2013.
During the industrial action, Sibanye, the world’s largest primary producer of platinum and third-largest producer of gold, implemented a lockout of all employees at its gold operations in SA as the wage negotiations were being held. This resulted in gold production falling 63% year on year for the six-month period to end-June 2022.
Unions initially demanded an increase of at least 7%, but the final wage agreement provides for inflation-linked annual increases (an average increase of 6.3% a year) “which caters for the current elevated inflationary environment”, the company said in its interim results.
During the interim results presentation on Thursday, Richard Stewart, Sibanye’s chief regional officer for Southern Africa, said that in future wage negotiations and wage increases would have to be linked to inflation. “Without doing this, we will negatively impact all stakeholders in the long term, including employees.”
In the period between 2013 and 2021, entry level employees at Sibanye have seen wages increase by about 84%, while inflation was 46%. “This means entry level employees have seen a real wage increase of about 40%. We recognise that this was very necessary to make those wages fair,” Stewart said.
But, he said, if wage increases continued to follow this trend, and given that about 50% of the cost base comprised salaries and wages, it would “significantly eat into [the firm’s margins].
“This will impact the sustainability of our operations and it will also make us less globally competitive and ultimately be to the detriment of all current stakeholders.”
He said that to better align future wage increases with inflation, the group is working towards introducing a variable wage scheme through which “all employees will benefit during the up-cycles and tighten belts during down cycles”.
Sibanye CEO Neil Froneman came under fire earlier this year when it emerged, as wage negotiations at its SA gold operations were under way, that he was awarded R300m in remuneration in 2021. The largest part, about R263m, was paid from conditional share proceeds that benefited from the rapid increase in the company’s share price over recent years, from about R10 a share in January 2019 to about R50 a share in December 2021.
The miner said on Thursday the return to work after the industrial action and safe resumption of operations were progressing according to plan. Normalised gold production rates were expected in October.
Despite the large decrease in gold production during the period, and despite suffering significant operational disruptions at some of its mining operations in the US, Sibanye has opted to reward shareholders with an interim dividend paid at the upper end of its policy range — 35%.
However, reflecting the group’s troubled first half in 2022, its R3.9bn payout is still less than half of what it dished out for 2021.
The company declared an interim dividend of 138c from 292c previously, which follows headline earnings that almost halved to R11.9bn.
US platinum metals operations reported a 23% fall in production year on year, partly due to the temporary suspension of operations at the Stillwater mine after severe regional flooding that occurred in Montana.
The group achieved record financial results during the first half of 2021, driven by record platinum group metals (PGM) basket prices, but since then, the average basket price has decreased up to 18%.
Froneman said that while the group’s profit of R12.3bn for the period was 51% lower than the record profit for the corresponding period in 2021, this performance compared favourably with profit of R8.5bn achieved during the second half of 2021, when average precious metals prices were at similar levels.
“The group performance for the six months ended June 2022 reflects the deterioration in the global economic and political environment during the first half of [the year] and a challenging period for the group due to significant disruptions experienced at the SA gold and US PGM operations,” Froneman said in the results.
But, he added, with both the SA gold and US PGM operations resuming production, the outlook for the remainder of 2022 is “significantly improved”.
As previously announced, forecast mined platinum and palladium production from the PGM operations in the US for 2022 was revised to between 445,000oz and 460,000oz.
This is down from 550,000oz to 580,000oz, with all-in sustaining costs for these operations now expected to be about 40% higher than previously expected at $1,380/oz-$1,425/oz due to the effect of the regional flooding and “the repositioning of the operations”.
The forecast for production of the basket of four PGM metals it produces from its SA operations remains at between 1.75-million and 1.85-million ounces.
After the temporary shutdown during the gold strike, which resulted in gold output dropping to 191,600oz for the first half of the year, the group has revised gold production guidance from SA operations to between 450,000oz and 466,000oz for the year (down from about 850,000oz).
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