If things were more muted in 2013 compared to the previous year, it’s hardly surprising – 2012 was probably the worst year the local mining industry has experienced since the Rand Rebellion of 1922.

In 2013 there wasn’t anything like the deaths of strikers at Marikana in August 2012, there was little wild talk of nationalising the industry and, while levels of industrial action remained high, strikes were – in the second half of the year – shorter and more contained. The level of antagonism between the industry and government appeared to drop dramat ically as the state and Chamber of Mines engaged in less strident and more productive ways.

However, the moderate tone of events is more than a little deceptive. The industry remains in crisis and its major international, structural and long-term problems have deepened.

Some think neither of the two big initiatives of 2013 – the industry’s framework agreement of June and amendments proposed to the Mineral Resources and Petroleum Development Act – do much to improve the situation.

The DA’s James Lorimer, shadow minister of mineral resources, says: ‘The [amendment] bill will dry up low levels of mining investment, earning government less tax resulting in more job losses.’

The amendment is intended to streamline the regulatory system and improve confidence in the mining sector. According to Lorimer it does the opposite. He says: ‘It leaves too much decision making in the hands of the minister and officials, and this means the law could be unevenly applied.’

Among other things, the amendment removes the exemption from ministerial approval when a listed mining company is sold. It grants the minister discretionary powers to order beneficiation as a licence condition and suggests a move away from the previous ‘first in, first assessed’ method of dealing with applications.

By September 2013, mineral production was up a mere 0.6% on September 2012. In reflecting on this ‘improvement’, it must be remembered that at the end of 2012 the industry looked like a slow motion train smash. In the fourth quarter, production of platinum group metals (PGM) was down 23.2%, gold 21.2%, copper 19.5% and chrome 13%.

Recovery was off a low base. Statistics South Africa figures for June 2013 reveal an industry in overall decline. They show SA’s overall mining production had fallen 6.2% in 12 months.

Wage increases in the mining sector have averaged 12.3% per year over the last five years

Gold production was most heavily hit, down 14% and dropping from third to the country’s fourth most important mineral, behind coal, PGM and iron ore. Although there are exceptions such as iron ore, the trend is downward. Production in 2012 was lower than 2011, which in turn was lower than 2010.

In 2013, SA dropped behind Peru to become only the world’s sixth biggest gold producer, a far cry from the glory days of 1970 when the country mined almost 80% of the world’s gold.

One of the headwinds affecting the sector is lower global demand, which has seen commodity prices dropping for a couple of years. Prices of most commodities move largely in response to industrial demand, which has been muted since the recession of 2008.

The gold price is the big exception, fluctuating according to its own rather obscure imperatives, many of them psychological. However, the gold price has been declining since 2011 when it hit a peak around $1 800 per ounce. By December 2013, it declined even further than reputable analysts such as Citigroup, Morgan Stanley and Société Générale had predicted, to a low of around $1 200.

MD of the MSA Group Keith Scott argues that only ‘the rand is saving us’. The rand has steadily weakened against the dollar over the last year, from R8.50 to the dollar to over 10 at the end of 2013. As mining costs in SA are denominated in rands while revenues are in dollars this has provided some relief for local miners.

The question is how productively the industry and government have been in using this period of relief. Although there has been some progress, the biggest, most obvious problem in SA mining remains labour relations. The industry has been destabilised by violent rivalry between trade unions as well as rising labour costs.

According to Peter Leon, partner and head of Africa mining and energy projects at Webber Wentzel, wage increases in the mining sector have averaged 12.3% per year over the last five years, well above inflation. He points out that before the Marikana massacre, labour costs represented 50% of the mining industry’s fixed costs and that ‘these have been increasing steadily since’.

The greatest instability comes from the violence associated with the rivalry between the established National Union of Mineworkers (NUM), a formal ally of the ANC, and radical newcomer the Association of Mineworkers and Construction Union (AMCU).

The emergence of AMCU, initially on the platinum mines is perhaps the most significant development in SA mining in many years. AMCU, unlike NUM, is not allied to the ANC and thus the SA government.

It is far more organic and less bureaucratised and appears much closer to the real views and interests of ordinary miners. Some have commented that the leadership of NUM had become a ‘labour aristocracy’, insulated by wealth and comfort from the conditions of ordinary mineworkers.

AMCU is more radical, inclined to outrageous (and unfeasible) demands, and more likely to act outside the framework of labour legislation.

The second half of 2013, however, saw signs that AMCU is becoming a more ‘ordinary’ trade union. The original demand of a basic minimum salary of R12 500 a month, articulated before Marikana, was moderated in negotiations with Impala Platinum in November to R8 600. But it has taken over a year to get to this position.

All the signs in 2013 were that the Chamber of Mines was working hard – and quietly – to aid channels of communication

What is more worrying is the way the emergence of AMCU, the Marikana shootings and subsequent events exposed not the mining bosses, but govern ment. The crisis broke as dramatically as it did because the Department of Mineral Resources had been pottering away in a dream world, happily following an agenda (partly set by NUM) that was out of touch with the mood of mineworkers.

Minister of Mineral Resources Susan Shabangu’s primary articulated concern prior to Marikana appeared to be mineworker safety, politically a relatively soft option, useful mostly for criticising the industry (although to be fair SA’s mining death toll is still high by world standards). Not too long before Marikana her main concern in a major speech was opposition to production incentives on the grounds that they made workers operate faster and hence more dangerously.

What are the chances of July’s framework agreement for the industry making a real difference? This is a tripartite stability pact between government, industry and labour designed above all to contain conflict and to confine disagreements to negotiation within existing forums.

The major shortcoming of the framework agreement is that one of the key labour actors (AMCU) has refused to sign it. Although this is a threat, it is difficult to see AMCU thriving in the long term if it stays outside of formal industry structures. If AMCU remains too recalcitrant, its members are likely to bear the brunt of industry retrenchments. In wage negotiations in the second half of the year, signs have emerged that AMCU leadership understands that its demands cannot be too immoderate.

It’s true that SA’s mining industry has faced labour threats many times before and has always managed to absorb them. But this time around it faces a less-than sympathetic government that has refused to publicly acknowledge the depth of the crisis. However, all the signs in 2013 were that the Chamber of Mines was working hard – and quietly – to aid channels of communication.

Chamber COO Roger Baxter, often a harsh critic of government in the past, was remarkably conciliatory in his September presentation to parliament. He stressed the fact that negotiations between the industry and ministry were ongoing and supported the ‘policy of greater beneficiation of raw materials’. It’s one sign that the mining industry and government took significant steps towards finding common ground.

Whether this will adequately restore investor confidence is unclear. Restoring the government-industry relationship doesn’t deal with too many other negative macro factors, such as global and domestic prices and the national licensing regime. The industry may be stabilising, but still has a lot of ground to make up.

By David Christianson