Mining Firms in South Africa Move Toward Mechanization

Labor costs are only one part of the problem. Many of South Africa's platinum, gold and diamond mines have operated for years, leading to lower ore quality and deeper and narrower mines. Narrower mines limit the amount and type of equipment miners can use. Deeper mines mean that mining companies have to enact more health, safety and environmental measures and laboriously move people and machinery into place. This requires more time, more labor and more expenses.

South Africa's platinum sector suffers from the rivalry between the Association of Mineworkers and Construction Union and the competing National Union of Mineworkers. This competition, which is especially fierce in the platinum sector, leads to disruptive strikes, which result in financial losses for the mining companies.

However, Anglo American Platinum's decision to focus on mechanized mining is by no means the result of the latest strike. Unions in South Africa have constrained the mining industry for some time, and in the gold and platinum sectors, where labor makes up an estimated 40 percent of total costs, mechanized mining has become much more economically viable. This transition has also become necessary in the gold sector; the hazardous deep drilling required to find substantial amounts of ore far from the surface has made finding new technological means of extraction an imperative for the mining companies.

Although Anglo American Platinum wants to get rid of its most labor-intensive mining operations, either through sales or by isolating them in a separate holding, the company still plans to invest heavily in the further development of mechanized mines that are seen as more promising. Anglo American Platinum said it could invest up to $9 billion in its remaining mining operations over the next decade.

In contrast, major companies in the much larger South African coal mining sector will not be so quick to abandon labor-intensive operations. The coal mining sector, which is less labor intensive than the platinum and gold sectors (labor is estimated at about 20 percent of total costs), is much more strategically valuable to Pretoria, and this grants the sector some added stability. Part of this stability includes wage negotiations that occur through the Chamber of Mines rather than directly between individual mining companies and unions. Even though coal prices are not immediately expected to skyrocket, significant local demand provides the coal sector with a safety net, allowing more room for compromise with labor than in the gold and platinum mining sectors.

The reason that coal mining is much less labor intensive than gold and platinum mining is that coal mining companies have already focused on more mechanized operations in South Africa, albeit in a different way. This could inform the decisions among platinum and gold mine operators as they seek to deal with labor relations in South Africa. Most coal mines are opencast or open-pit, allowing for the use of big machinery and the movement of large quantities of rock, and these methods may not work as well for platinum mining. Platinum mining companies have already begun experimenting with open-pit operations to supplement the aging underground mines. Problematically, the platinum ore grade is already very low to begin with, and a further decline by 1 or 2 percent as a result of different mining methods would be significant.

A transition to greater mechanization in the gold and platinum sectors would inevitably lead to job losses. Although mechanization could offer higher wages and safer working environments to some mine workers, laying off the rest could put stress on the South African government, which is already struggling with unemployment in the country. This means the government will try to shape the mining environment by balancing the needs of businesses with those of laborers. In the past, workers criticized the government for being too friendly with the mining companies, but the mining corporations are likely to issue criticism of their own if the government speaks up for laborers by discouraging the use of greater mechanization in mining.