Tensions keep rising in the South African mining sector. Today that's taking a toll on shares of companies with major mining operations in the country. Sibanye-Stillwater (NYSE:SBGL) stock fell by as much as 13.4%, Gold Fields Limited (NYSE:GFI) stock dropped by as much as 12.3%, and Harmony Gold Mining Co. (NYSE:HMY) fell by as much as 9.9%. Others such as AngloGold Ashanti, Anglo American, and Randgold Resources also saw significant declines in their share prices.
It's a complex issue, but the 30,000-foot view is relatively easy to understand. Many mining companies have begun restructuring their underperforming assets in the country and leaning heavily on job cuts to stem operating losses. While necessary from an operations standpoint, it has led to an estimated 50,000 job losses in recent years -- and the African National Congress (ANC), the ruling party of South Africa, issued a stern warning today against further layoffs.
The warning comes just one day after Gold Fields announced it would cut 1,560 jobs at its South Deep mining complex, which has struggled (a lot) since being acquired in 2006. The warning is also making Wall Street worried that companies in South Africa could find it very difficult to improve operating efficiency at their mines.
As of 12:34 p.m. EDT today, shares of Sibanye-Stillwater had settled to an 11.8% loss, while Gold Fields Limited stock and Harmony Gold Mining stock were down 9.6% and 8%, respectively.
South Africa is home to some of the world's most lucrative mining assets. In fact, it's the top producer of gold, platinum, and chromium, among other metals. It also suffers from some of the world's highest levels of unemployment (27% in 2017), poverty, and inequality. So the central government has instituted some of the friendliest mining regulations in the world to lure investment and create jobs for its citizens.
Unfortunately, the lax rules have also led to waste and inefficiency, further compounded by the fact that the delicate topic of employment has made it difficult to modernize mining operations with machinery and automation. As a result, many mines suffer from relatively low production and high operating costs. In a bid to clean up their act and boost operating margins, many miners have begun restructuring operations in the country, which has tended to include a heavy dose of layoffs. Due to mining's importance to the overall economy and jobs, the ANC signaled it's willing to push back against the industry's plans, although exactly how it will do so remains to be seen.
Layoffs are a significant factor in the growing tensions between the ANC and the mining industry, but the issue of worker safety has also become a point of contention recently. For instance, an accident in June at the Driefontein mining complex owned by Sibanye-Stillwater pushed the number of worker deaths at its South African operations past 20 -- and only since the beginning of 2018. It's an unfortunately common occurrence in the country. Workers have also died at the South Deep mine that Gold Fields is in the process of restructuring, which is one of the main reasons the company wants to improve operations in the first place.
The important takeaway for investors is that the situation is likely to remain very complex for the foreseeable future. The inconsistent arguments being made suggest there will be no easy solutions -- and no solutions any time soon. For instance, it will be difficult to improve worker safety without modernizing the country's mining industry with newer machinery and equipment, and that will inevitably result in job losses. But if the ANC insists that companies have to keep a minimum number of workers employed, then the current stalemate on these issues is likely to remain.
Until all stakeholders -- the ANC, miners, and worker-rights groups among them -- can sit down and navigate the nuances of the situation, mining in South Africa will be accompanied by inefficiency, dangerous working conditions, and uncertainty for investors. That's why it's likely better to steer clear of gold stocks with major operations in the country for the time being.