How will new pay demands from South Africa's AMCU affect gold mining firms?

South Africa’s Association of Mineworkers and Construction Union (AMCU), the second-biggest in the country, wants the pay wage for entry level workers in the gold mining industry to double, despite the sector’s recent struggles.

AMCU President Joseph Mathunjwa told reporters Wednesday his union would seek a monthly wage of $1,050 for workers who currently earn roughly $500, along with housing benefits doubling as well.

• Related content: [REPORT] Gold Miners Face Likely Wage Cuts Following Platinum Strike

"The mineworkers are enslaved across the country. Whatever we put forward is to liberate the mining workers from this oppression," Mathunjwa said.

The union is also seeking improvement in benefits, including medical insurance and retirement packages.

“I’ve never seen any mineworker after leaving employment go and build a house based on the money he received” from the retirement scheme known as the Provident Fund, Mathunjwa said. “We haven’t started negotiating but all the components” are essential to daily life, not luxury living, he said.

The demand in pay comes at a time when mining companies are experiencing declining profits. The top bullion producers in Africa – AngloGold Ashanti Ltd., Sibanye Gold Ltd. and Harmony Gold Mining – say the pay hike would likely lead to the downfall of a besieged industry.

"We have to consider that up to 50 percent of gold production is either unprofitable or marginal," said spokeswoman for the companies Charmane Russell in reaction to AMCU's demands.

Last year AMCU rallied for a doubling of wages in the platinum sector, igniting a five-month strike that crippled output by the world’s three biggest producers. The two sides eventually settled for raises of 20 percent annually, but there have been ripple effects.

According to Reuters, platinum companies found the pay increase and long strike hard to swallow. Lonmin said last week it would cut 3,500 jobs at its South African mines.

The platinum strike also paved the way for new pressures for fresh wage agreements in the gold mining sector.

“Gold mining companies could face the biggest impact as they are at least as labor-intensive as platinum miners, but less profitable and with higher commodity price risks,” said rating agency Fitch Ratings.

“While the platinum miners' settlement could be used as a negotiating benchmark by unions in these sectors, labor costs for these companies tend to be a significantly lower proportion of total costs. However, if the length of the platinum miners' strike – around five months – were also to be repeated in other sectors, the disruption caused would have a much more significant impact.”

The AMCU represents about 29 percent of the 94,500 employees at AngloGold Asahnti Ltd., Sibanye Gold Ltd. and Harmony Gold Mining.

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