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Gold Fields Limited (ADR) (GFI), AngloGold Ashanti Limited (ADR) (AU): Who’s Affected By This Unrest?

South African labor unions have never been easy to deal with. The country is notorious for outbreaks of violence related to negotiations between unions and mining companies. Once again, the situation is getting tense. The South African National Union of Mineworkers (NUM) announced that its members were ready to go on strike.

Gold Fields Limited (ADR) (NYSE:GFI)

Workers want higher wages. The negotiations between miners and unions, however, have not lead to any consensus agreement. Miners, who have suffered from lower gold prices this year, cannot afford another wage hike. On the other side, unions do not want to lose any ground.

Who is affected?
Among miners who operate in South Africa are AngloGold Ashanti Limited (ADR) (NYSE:AU), Harmony Gold Mining Co. (ADR) (NYSE:HMY) and Gold Fields Limited (ADR) (NYSE:GFI). Harmony Gold Mining Co. (ADR) (NYSE:HMY) is the most exposed company. It gets 91.6% of its total production from operations in South Africa. AngloGold gets 32.8% of its gold production from South African mines, while Gold Fields Limited (ADR) (NYSE:GFI) gets 17.2%.

AngloGold Ashanti Limited (ADR) (NYSE:AU) has already had a strike this year
AngloGold Ashanti Limited (ADR) (NYSE:AU) faced an illegal strike in the second quarter. Fortunately for the company, the strike did not last long enough to create any substantial damage. AngloGold Ashanti Limited (ADR) (NYSE:AU)’s South African unit’s cash costs per ounce rose 14.2% in comparison with the second quarter of 2012. The company had to invest in safety measures to curtail fall-of-ground incidents.

Falling gold prices have made AngloGold Ashanti Limited (ADR) (NYSE:AU) strive to battle costs. The company has reduced its capital expenditures forecast for 2013 by 8%. In addition, it has omitted its interim dividend. The company finds it difficult to operate profitably at the current level of gold prices despite all cost-cutting measures, and a strike would only make things worse.

Harmony Gold Mining Co. (ADR) (NYSE:HMY) is very exposed to South Africa
It’s easy to see that Harmony Gold Mining Co. (ADR) (NYSE:HMY) is overwhelmingly dependent on its South African operations, which puts the company at the biggest risk in case of a massive strike. The company did not manage to make any profit in the second quarter due to falling gold prices.

However, gold prices have bounced 16% higher from their lowest levels and now Harmony Gold Mining Co. (ADR) (NYSE:HMY) has a chance to operate profitably in the third quarter. The company has managed to reduce its cash costs to $1,156 per ounce, down 9% from the results of the first quarter. If the strike spreads among unions, Harmony Gold Mining Co. (ADR) (NYSE:HMY)’s operations could become paralyzed.

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