South African economy dealt fresh blow as mining jobs cut

Lonmin, the world's third largest platinum producer, said Friday it was set to cut 6,000 jobs in South Africa due to falling prices and high costs, signalling further trouble for the country's fragile economy.

The cutbacks represent a large reduction in Lonmin's workforce, which employs 28,000 staff as well as 9,000 contractors, and will add to South Africa's dire unemployment woes.

Lonmin, which owns the Marikana mine in South Africa where 34 workers were shot dead by police during a wildcat strike in 2012, is likely to face a fierce battle with unions over the lay-offs.

"This is a bloodbath of job losses in the mining industry. It is a tragedy," the National Union of Mineworkers (NUM) said in a statement.

"We are going to fight against any job losses. It is very painful to see.

"The high number of retrenchments will contribute to (the) high unemployment rate in South Africa."

Unemployment hit 26 percent in the first quarter of 2015, the highest level in 11 years, while youth employment is reported at over 50 percent.

The South African Reserve Bank on Thursday revised growth forecasts down to two percent in 2015 and 2.1 percent in 2016 -- far below levels needed to tackle the jobs crisis.

The government said no redundancies could be made before it held consultations with Lonmin, and after completion of a legal process.

- Last resort -

"The minister's objective is to see to it that the industry creates and preserves jobs," Mahlodi Muofhe, spokesman for mineral resources ministry, told AFP.

"When people are retrenched, it must be the last resort available.

"It's not as easy as people waking up saying because of the volatility of the market we are retrenching workers."

South Africa produces 70 percent of the world's platinum, and has been badly hit as prices have dropped 14 percent since May, and 45 percent since the start of 2011.

"The Board is taking firm action to further reduce Lonmin's cost base in the current pricing environment so that it will be able to sustain a viable operation," Lonmin, headquartered in London, said.

"A total of 6,000 employees including contractors are likely to be affected by (shaft) closures... It is our intention to achieve this outcome in partnership with our employees, unions and other relevant stakeholders."

"Our objective is to save the majority of the positions in the company and create a sustainable business by taking urgent action."

A five-month strike by 70,000 platinum workers in 2014 was the country's longest mining work stoppage.

Companies reported a combined loss of over two billion dollars in earnings.

"The environment clearly for commodity producers has become quite difficult," Dennis Dykes, chief economist at Johannesburg-based Nedbank, told AFP.

"There will be mine closures and shaft closures, otherwise you'll have companies going down -- especially in South Africa, because costs have been rising at a more rapid ride.

"Unemployment which is just enormously high -- that tells you that there's something drastically wrong. It is reflective of an economy that is under a lot of pressure."

On Thursday, South Africa raised its benchmark interest rate by 25 basis points in an attempt to dampen inflation, which is set to breach the bank's upper-level six percent target range early next year.