AngloGold Ashanti’s South African Wage Deal Brings Production Certainty
Last Friday, AngloGold Ashanti Limited (AGA, Baa3 negative) announced that it had successfully negotiated
a three-year wage deal with a majority of its employees in South Africa, a credit positive for the company.
The acceptance of the offer by trade unions representing 59% of AGA’s workforce brings three years of
wage certainty to 25% of its total production, averting a strike and a consequent production loss. We view
the agreement as a win-win for AGA and its miners in ensuring job security in an economically
advantageous and sustainable manner for both sides.
Given that the wage agreement was accepted by the National Union of Mineworkers, Solidarity and the
United Association of South Africa, it constitutes majority employee acceptance by 59% of AGA’s unionised
employees, and 66% of the workforce including non-unionised employees. Under the South African Labour
Relations Act, an acceptance by a majority of employees constitutes an acceptance by all employees to
whom the increases are subsequently extended.
AGA has the capacity under its current Baa3 rating credit metric parameters to absorb the wage increases,
which we calculate to be around 7% higher than the current wage bill and which is above the prevailing
4.6% consumer price inflation level in South Africa (the exhibit below shows the credit effect). The main
driver for this is the relief on AGA’s predominantly South African rand-denominated expenses, which have
depreciated significantly against their US dollar revenue stream. The South African rand has depreciated by
18.68% against the US dollar year to date.
AGA’s credit quality benefits because the wage agreement avoids a strike at its South African mines. Under
our calculation, a month-long strike action at AGA’s South African mines would have cost it around $50
million of EBITDA, which is almost equivalent to the additional amount it will incur for the agreed increase
on its entire 2016 wage bill. In our experience, South African mining companies and miners are worse off
when strikes occur. Producers lose EBITDA with a production disruption, which often outweighs the cost of
an increased annual wage bill.