south32BL Premium reports that a high wage bill and low productivity at South32’s Hillside aluminium smelter have led the diversified miner to start a retrenchment process which could affect up to 500 jobs.

This comes at a difficult time for SA’s steel industry, which has been haemorrhaging jobs in recent years, losing 8,000 in 2018 alone.

Speaking to Business Day on Monday, COO Mike Fraser said the Richards Bay smelter had “burnt quite a lot of cash” in the six months ended December. Absolute salary levels on site are “very high” while productivity is “too low” compared to the rest of the world, he said.

South32 was spun out of BHP Billiton in 2015.

The aluminium smelting industry is highly competitive, margins are relatively thin and the majority of costs are outside of a company’s control, Fraser said. Labour costs at Hillside, however, account for about 50% of what the South32 deemed “controllable costs”.

“Over 20 years we’ve probably bent over backwards to avoid any kind of industrial action. I think we just bought ourselves peace,” the COO said. “Unless we do something to reset that, we are going to be in difficulty as a business.”

The Section 189 consultation process, as required in terms of the Labour Relations Act, was launched on Monday last week.

Trade union Solidarity said the restructuring process at the smelter appeared highly complex.  “South32 is embarking on extremely complex restructuring process which will involve retrenchments, reorganisation and salary adjustments at the same time. They intend to achieve those three goals by means of one process, which is going to be a difficult task,” deputy general secretary Marius Croucamp said in a statement.

Aside from the restructuring, another matter which is key to the smelter’s sustainability is the renegotiation of a power supply contract with Eskom.

Eskom’s legacy contracts with BHP smelters have been controversial because they were linked to the aluminium price and so caused Eskom to incur large losses when the commodity price was low. Even so, BHP closed its Bayside smelter down in 2014 due to ongoing financial pressure.

South32 wants to renegotiate the contract for Hillside before it expires, ostensibly in 2022, but is yet to obtain clarity from Eskom which is dealing with an operational and financial crisis.

The smelter consumes 1300MW of continuous power and South32 has said a good power contract is needed to ensure Hillside’s sustainability.

Without the smelter, about 29,000 direct jobs are at stake, Fraser said.

Hillside supplies 120,000 tons of liquid metal to the Isizinda project at Bayside and provides material to aluminium supplier, Hulamin.

“Without Hillside we don’t have Isizinda, we don’t have Hulamin and there would also be a further impact on the local customers of Hulamin which then supply into the motor industry,” said Fraser.

“We’ve estimated there’s around 29,000 direct jobs that are dependent on Hillside’s sustainability, because you would actually lose that entire chain.”

Croucamp also expressed concern over the general state of the SA steel industry and the 8,000 jobs lost in 2018, according to the Steel and Engineering Industries Federation of Southern Africa.

South32 is meanwhile progressing well with the sale of its SA energy coal business and expects to have binding bids on the table by the end of June this year.

The original of this report by Lisa Steyn appeared at BusinessLive


Get other news reports at the SA Labour News home page