AngloGold says wage, power hikes threaten South African gold sector

May 11, 2015 7:54 AM

By Peroshni Govender and Zandi Shabalala

AngloGold Ashanti's main sulphide treatment plant is seen in Obuasi in a file photo. REUTERS/Kwasi Kpodo

JOHANNESBURG (Reuters) - AngloGold Ashanti Ltd, Africa's top bullion producer, said on Monday steep wage demands and rising power costs could turn South Africa's once thriving gold sector into a "sunset" industry.

AngloGold, which reported that it had swung to a quarterly profit on robust performance in its international operations sending its shares 5 percent higher, said looming wage and electricity tariff rises were a concern.

"We cannot have year-on-year discussions on wages without any economic consequences. That effectively creates a sunset industry for gold mining in South Africa," Chief Executive Officer Srinivasan Venkatakrishnan said at a results presentation, referring to the salary demands.

South Africa's National Union of Mineworkers (NUM), which represents more than half of the workers in the gold sector, is seeking increases of up to 75 percent in the basic pay for entry-level workers to 10,000 rand ($823) a month.

South African power utility Eskom has requested the energy regulator to approve a 25.3 percent increase for 2015/2016 (June-July) in electricity tariffs, which would include a previous 12.69 percent granted in March.

AngloGold said this too would hurt the gold sector, where profit margins are under pressure.

Africa's most advanced economy is facing its worst electricity crisis since 2008 and Eskom cuts power almost daily in order to prevent its grid from collapsing as the utility battles with breakdowns and a huge maintenance backlog.

"As an industry, we can’t take kindly to the fact that a service provider says I can’t control my costs, so give me an increase," said the chief executive who goes by the name Venkat.

"We manage our costs and request other service providers to manage their costs."

Venkat said power made up 7 percent of AngloGold's costs in 2010 but this had risen by up to 25 percent, despite the gold producer having slashed its consumption by 20 percent under an agreement with Eskom meant to reduce supply to big power users.

The company said robust performance in AngloGold's international operations, which benefited from lower oil prices, helped to offset lower South African production. This raised adjusted headline earnings to 9 U.S. cents per share from a loss of 29 cents in the three months to end-December.

Production fell to 969,000 ounces from 1,055 million ounces a year earlier, partly affected by a slow start in South Africa after the Christmas break and the sale of a mine.