Wage war – should Australian miners exercise ‘wage restraint’?

As the Australian mining boom experiences a dip, miner’s wages have come under attack from the likes of BHP Billiton’s President Dean Dalla Valle as being too high compared to other countries. In the face of a string of job losses, should Australian miners exercise ‘wage restraint’ or is it up to mining companies to make operations more cost efficient?


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A slew of job losses and mine closures have troubled the Australian mining industry in the first half of 2014, as companies scramble to cope with an enduring slump in the price of iron ore and coal - the industry's two biggest exports.

BHP Billiton coal president Dean Dalla Valle has been especially vocal about the industry's need to be more cost-efficient and productive in order to ride out the slide in commodity prices. Most notably he has attacked Australian miners' wages, stating in April that BHP Billiton's coal mining workers in Australia receive wages 50% higher than equivalent employees in the US - he didn't, however, offer any specific figures to support his statement.

"Using our systems, I can identify that it costs our business approximately 1.5 times more for a truck operator in the Bowen Basin compared to the same truck in New Mexico in the USA," he said. He went on to suggest that miners should exercise "wage restraint" due to the "productivity and cost challenge we have in Australia".

Australia's Council of Trade Union's secretary Dave Oliver responded: "The truth is that productivity is up, wages growth is slow, businesses are enjoying huge profits while workers' share of the pie is getting smaller and smaller, and Australia is a high-cost country to live in."

In February, BHP Billiton and its partner Mitsubishi announced plans to cut 230 jobs at the Saraji coking coal mine in Queensland and Brazilian mining company Vale said in May it would close its Integra coal mine in New South Wales costing 500 jobs. These are just two of the recent announcements. On 27 May, BHP Billiton and Rio Tinto warned that the Australian mining industry will witness more mine closures and job losses.

Despite widespread job losses, miners' wages remain robust. According to job website Seek's 2014 annual review, mining and oil and gas command some of the highest salaries in Australia. The report states that in the mining, resource and energy sector wages range from AS$107,900 to $ 135,087. Mid-range pay is listed as AS$121,494. Average mid-range pay for all sectors listed on Seek is AS$80,152.

Strong salaries but slow growth

According to Australian Bureau of Statistics figures, mining wages in Australia grew at their slowest rate since 2000 (up 2.4 %). However, they are still considered high - both relative to general wages in Australia and to other mining jurisdictions, according to Nicki Ivory, partner, Corporate Finance and National Mining Leader, West at at Deloitte.



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"This is mainly because of the massive, unrestrained investment boom we experienced over the past eight years in both the Australian mining and gas sectors which led to frenzied competition for skilled people," she says.

In 2011, during the boom years when skilled people were considered to be in short supply, BHP said rising manpower and capital costs reduced earnings by $1.2bn in the first half of the year, but the company still posted profits of $11.2bn.

According to Andrew Vickers, general secretary of Construction, Forestry, Mining and Energy Union, in the coal industry all mines are covered by enterprise-based agreements negotiated between employees - in most cases, their union - and the employer. Individual agreements contain the mechanisms for wage movements. Most miners receive a bonus, which is also a feature of the agreement.

"The Union makes no apologies for the rates of remuneration it has been able to gain for its members in Australia," says Vickers.

"Wages have merely increased in line with negotiated outcomes in enterprise-based agreements. The employers have signed up to these agreements," he points out.

Despite BHP Billiton's high outgoings on wages in the first half of 2011, the company still made a healthy profit. It's also worth noting that Dalla Valle, who was appointed coal president of BHP Billiton in 2013, in the same year earned $1m plus a 25% pension contribution, $60,000 in performance incentives and the equivalent of another $60,000 in differed shares and options. Rio Tinto's chief executive of energy Harry Kenyon-Slaney last year earned AS$4.2m in overall pay.

"It's unlikely Australian miners' wages will fall but more likely they will continue to experience a lack of growth."

Is wage restraint really the best answer?

While Ivory says that some miners such as Rio Tinto and BHP Billiton are still making good profits, others - the fourth and maybe third quartile producers - are finding their profit margins extremely strained. So is it necessary for employees to accept lower remuneration for their work?

"No," says Vickers, although he concedes prices have fallen from "historic (and abnormal) highs". He insists, "The biggest squeezes on companies at the moment are increased capacity, which the miners themselves are responsible for, and the higher than normal Australian dollar."

"The main focus still remains on costs and productivity. This is not only about wages," agrees Ivory.

"Miners need to critically evaluate and transform their processes to optimally address the productivity issue - from project evaluation, mine planning, workforce planning and risk management, through to the use of new technology to improve operations," she adds.

"At the end of the day it all boils down to the quality of the resource and whether it is being mined in the most efficient way that is what really drives the cost equation."

"Wages are fairly sticky and it will take several years of restraint for levels to moderate to globally competitive levels," Nicki adds.



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Australia has been a leader in adopting autonomous technology, negating the need for some workers altogether. When asked if this could be a direct response to the high cost of wages, Vickers says "Perhaps marginally," adding: "I personally believe that the real issue is that companies just don't want to have to deal with people."

However, Ivory says: "As you automate you use less unskilled (cheaper) labour, and obviously the skilled labour you use to operate your mechanised processes is paid more than their unskilled counterparts elsewhere. So there is an inherent link between increased automation and higher wages."

Long-term outlook

It's a possibility that mine closures could boost prices by removing supply, but it is also thought that not enough production will leave the market to have a significant impact on supply. It's also been suggested that BHP Billiton and Rio Tinto, which operate at capacity, could withhold some production so prices are not driven down further, but Dalla Valle is reported by The Sydney Morning Herald as saying, "We are not playing that game".

The outlook, however, isn't all doom and gloom. According to a Reuters article by commodities and energy columnist Clyde Russell, the forecast for Chinese imports in 2014 is to be steady near last year's level of 267 million tonnes, with modest increases for India, Japan and South Korea, Asia's next three biggest buyers. Although this may not be enough to absorb the surplus, Clyde writes that those who do 'weather the storm' will emerge stronger.

Despite Dalla Valle's comments, it's unlikely Australian miners' wages will fall but more likely they will continue to experience a lack of growth. We already know more job losses are on the horizon; even if wage restraint was exercised, it would only be one small part of the solution. It's likely the focus will remain firmly on increasing efficiency and productivity.

"High wages can only be sustained in the longer term if they result in improved productivity and improved financial returns for investors. Otherwise the industry will struggle to attract new investment," says Ivory.

"If mining companies can get the productivity equation right over the coming year or so, the debate over wages will probably die down."

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