Will South Africa Seize Platinum Mines?

The recent decision by Anglo American Platinum (Amplats) to close four unprofitable mine shafts and sell another mine that it deems “unsustainable” is the latest flashpoint after several months of violence and unrest in South Africa’s mining sector. The mine closures will result in the loss of 14,000 jobs.

However, Amplats, which is South Africa’s largest single employer and the world’s largest platinum producer, has sustained significant economic losses due to the low price of platinum, escalating production costs, and lost production due to work stoppages. It is already 10 billion rand in debt ($1,128,170,000 USD). It made the decision to “mothball” the four platinum shafts as a cost-saving measure until economic conditions allow them to be operated at a profit.

This has ignited a nationwide furor, with one mining trade union demanding that the government nationalize Amplat’s mines. President Joseph Mathunjwa of the Association of Mineworkers and Construction Union (AMCU) declared that “If Anglo persists with the retrenchments, it’s a window for the government to take those mines and nationalize them.” Speaking about the proposed layoffs, he said “This is very unacceptable.” Another plan floated by Mathunjwa was for the government to seize a 51% stake in all South African mines, as Mugabe did in Zimbabwe.

Frans Baleni, leader of rival union National Union of Mineworkers, took a more conciliatory approach, vowing to work with Amplats in an effort to save jobs. The NUM has been losing members to AMCU.

Secretary General of the ruling African National Congress and chairman of the South African Communist Party, Gwede Manthshe, called for the shuttered mines to be seized by the government with no compensation to Amplats, and sold at public auction to any company that promises to re-open production.  However, he disagreed with the call from Mathunjwa and others for wholesale nationalization.

Other ANC officials have called the announced layoffs “insensitive” and “a provocation,” and said that Amplats has no right to unilaterally decide to lay off workers. They say the company should have approached the government and tried to work out a solution.

Amplats is not the first mining company in South Africa to recently lay off workers and close mines. In fact, it is the third. Eastern Platinum and Aquarius Mining have both closed mines in the last year. Because they acted to cut costs last year by suspending operations at unprofitable mines, they were able to help their miners find jobs in other mining companies. Part of the anger towards Amplats seems to be that they did not alert the government ahead of their announcement of the layoffs, or form a joint plan with the government and the powerful trade unions before deciding on a course of action.

Chamber of Mines chairman Bheki Sibiya states that more than half the mines in South Africa are only breaking even or operating at a loss. In November, before the Amplat announcement, he estimated that job losses in the mining industry would total 10,000 at least.

Unemployment in South Africa has been over 20% every year since records started being kept in 2000. Recent unemployment levels have been over 25%, and analysts say that if those who have given up looking for work are counted, it is over 36%. The closure of the Amplats mines is expected to mean a reduction of 300,000 ounces of platinum production a year, and drop national exports by 6.4 billion rand a year, as well as unemployment for 14,000 workers.

The South African government mandates that mining companies spend a certain amount of their profits in social programs and to build infrastructure in the villages around their mines. In 2011, the mining industry spent 1.4% of their profits before taxes – $147 million – on social programs for the villages that have sprung up around the mines. The government decided recently to raise taxes on mining companies and take the money into the general fund for growth and development needs.

On top of these expenses, the cost of electricity to run the mines has increased an average of 20% a year, and labor costs are rising at a faster rate than inflation. Great Basin Gold filed for bankruptcy protection in September, and cited among its expenses spending $950,000 on social projects for the village surrounding their mine.

South Africa has the world’s largest reserves of platinum, but the increasing hostility of the government and trade unions towards mining companies, who are teetering on the edge of viability due to low spot prices, may result in more mine closures. Nationalization of mines in South Africa would harm the workers, their villages, and the nation, which is in no shape to supply the social services now paid for by the mining companies, as well as discourage any company, no matter the industry, from investing there.

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