Energy tariffs, market slump blamed as retrenchment process begins at Rustenburg smelter

Merafe Resources [JSE:MRF] says that "unsustainable electricity tariffs" have played a role in its decision to start a consultation process to retrench employees in terms of section 189 of the Labour Relations Act.

In an update to shareholders on Monday morning, the miner said talks around possible job cuts resulted from deteriorating operations and market conditions across the South African ferrochrome industry. This included unsustainable electricity tariffs and interruptions, cross subsidies and real cost inflation. Merafe did not say how many employees have be affected. 

Mining companies have for some time been warning government, - including at Cape Town's 2019 Investing in African Mining Indaba in February - that Eskom's operational challenges and resulting energy instability were some of the biggest threats to their businesses.

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The shareholder notice said the consultation process will impact employees at its smelter operations in Rustenburg in the North West Province. Notices had already been given to employees there. The Rustenburg smelter is a joint venture between Merafe and the Glencore Alloys. 

The group's statement said energy instability and market challenges had led to the displacement of significant volumes of ferrochrome production to lower-cost competitors overseas. "Despite significant investment to make the operation more competitive, the Rustenburg Smelter has suffered material financial losses which are expected to continue for the foreseeable future".

• READ: SA must brace for more hikes in taxes, electricity tariffs - economist

Merafe said parties had been engaging in extensive consultations with employee representatives, and local and regional government officials. These would continue to do so to attempt to secure the future of the Rustenburg Smelter operation. It said it was looking to appoint a facilitator from dispute resolution body the CCMA. 

The head of wealth at investment advisory firm Cratos Capital, Greg Davies, tweeted on Monday that the smelter would have put great pressure on the electricity grid if allowed to continue operating at current levels.