Wage negotiations to commence next week

(Reuters) - South Africa's gold producers and unions kick off wage negotiations next week, in talks both sides expect to be tough because workers have demanded pay increases nearly double the inflation rate.

Jabu Maphalala, the spokesman for the Chamber of Mines, which negotiates on behalf of big South African mining firms, told Reuters on Tuesday the talks will start on Wednesday and Thursday next week for the coal and gold sectors respectively.

The National Union of Mineworkers (NUM), which represents some 190,000 workers in the two sectors, and two other smaller unions, have asked for a 15 percent wage increase from gold and coal producers, compared with inflation at 8.5 percent.

"We shall go into the talks with a sober mind, and hope to come to an agreement that will be beneficial for the industry," he told Reuters.

"The 15 percent demand is on the wages alone, there are also other increases that have been asked for and all these have huge cost implications."

The NUM has also asked for improved medical cover, and higher allowances for workers living outside company hostels.

A wage deal will take effect in July 2009 for two years.

Wage negotiations in the gold sector are watched closely by markets because there is a chance of disruption in output, as experienced in 2005 when about 100,000 workers went on strike for days in the country's largest gold mining strike in nearly two decades, costing gold firms about $20 million a day.

The 2007 wage talks hit deadlock and required arbitration to reach an agreement, which was below inflation at the time.

"Wage negotiations in the coal and gold sectors are likely to be extremely difficult; breakdowns can be expected and strikes are possible," said Mike Davies, Middle East & Africa analyst at political risk consulting firm Eurasia Group.

The NUM has said its demand is meant to ensure workers enjoy the benefits of the robust gold price, which has withstood the shocks of global economic turmoil and weaker commodity prices better than other metals, and to shield members from inflation.

Any wage hikes are likely to boost production costs for mining companies. Already about half of total costs for gold producers, who sell for dollars and pay costs in the local currency, is taken up by wages.

Among the gold producers represented by the Chamber of Mines, are AngloGold Ashanti, Gold Fields, and Harmony. The Chamber also represents coal producers, including Anglo American Plc and rival Xstrata.


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