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Monday, 11 November 2013

The Mining Employment Problem

KCM plans to cut at least 1,529 jobs by March 2014. The policy is with immediate effect. Some have already being laid off, though KCM disputes that. It cites the coming to end of the lifespan of some of the mines at Nchanga (Nchanga Open Pit and the Nchanga Underground Lower Ore Body) in the next three years as contributing factors.

Over the years, copper grades at Nchanga underground have significantly decreased, from an average of five per cent up to the 1980s, to three per cent in 2000 and currently 1.6 per cent, while open cast mine grades had dropped from three per cent to one point zero today.

To make matters worse KCM's annual output is around 8 tonnes per employee compared to the global average of 100 tonnes. The reason is that the Nchanga operations are still using the costly conventional method of mining compared to mechanised /automated mining used by its global competitors. So KCM is shifting towards mechanisation and automation for all of its operations in order to increase productivity. Which means job losses!

Earlier this year KCM announced that it was planning to cut its workforce by 24% after costs rose and the copper price dropped. It was temporary talked out of that one with Government allegedly promising to make concessions on tax and other things. This time round it appears to be going ahead. Although GRZ is again "rejecting" it's move. Labour Deputy Minister Rayford Mbulu says the company has not notified the Government as required by law. Mineworkers Union of Zambia is "calling on Government to quickly come in and investigate why the company is behaving in this manner", and "failing to run the mine".

I have previously noted that mining contributes very little to employment because it is not a labour intensive sector. This is becoming increasing pronounced as technology improves and companies seek to raise productivity. As for the unions, they are no longer as powerful as they used to be due to rampant casualisation, dwindling labour force and multiple investors. Many mining union bosses in recent years have been easily captured through political and business corruption. It is just not the same industry that it once was!

And of course this same industry has bigger problems on its plate next year. The outlook for copper prices next is negative. Zambia remains vulnerable to China’s ongoing adjustment which has seen copper prices fall by $3000 per tonne over the last two years. There’s a high likelihood of further fall in copper prices as supply expands off the back of new mines and expansions in Chile, Mongolia, Indonesia and Zambia. The lack of diversification of Zambia’s economy means a significant fall in copper prices may negatively affect the economy. Some small mining closures may also occur, with possible job losses.

AUTHOR Chola Mukanga | Economist Copyright © Zambian Economist 2013

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