BUSINESSES, such as mining companies, need to focus on reducing costs to stay profitable and avoid financial troubles. One common method used is retrenchment, whether it’s voluntary or mandatory.
Amidst the challenge of low platinum prices, Zimplats, a major platinum mining company, offered voluntary retrenchment to its employees. This decision shows how tough economic conditions are for mining companies and highlights the importance of taking proactive steps to stay financially stable.
To understand this situation better, ZiMining journalist Amanda Mavhaza spoke with economic expert Stevenson Dlamini. Their discussion explores the details of cost management strategies in the mining sector, with a focus on Zimplats’ choices and the wider impact on the economy. Read on…
ZiMining: Is retrenchment the most effective cost minimization technique in a volatile economy?
Stevenson Dlamini: Whether it is the most effective cost minimisation is subject to the cost structure of the firm. Ideally, management must also shoulder part of the responsibility through reducing their perks. Other techniques, short term, may include working fewer days a week.
ZiMining: Isn’t retrenchment costlier than other cost reduction measures?
Stevenson Dlamini: Retrenchment is not always the most preferred technique because of expenses associated with it. That is why most companies employ it as a last resort to minimise costs, especially if the firm/industry is labour intensive in its production processes.
ZiMining: In your view, do you think the stagnant price of PGM is justified to do retrenchment of workers?
Stevenson Dlamini: The decline in the prices of PGM is likely to be persistent given the slowdown in the Chinese economy growth rates. We saw a similar trend before with Copper prices when the Chinese economy reduced its growth rate. This is further compounded by the gloomy global economic outlook for the next two to three years. In light of these, the mining companies are being prudent in minimizing their costs to ensure continued survival.
ZiMining: There has been a delay in the pronouncement of the monetary policy. How does it affect business operations?
Stevenson Dlamini: The delay in announcing the monetary policy statement is not favourable for the business community because it leaves them speculating about the implications for the currency and exchange rate. Interest rates are a significant variable in the business environment, and it is determined by the monetary policy statement which is still pending. This has the effect of creating uncertainty and is prompting most businesses to reject the local currency, resulting in runaway inflation.
ZiMining: Mining is a major foreign currency earner, but of late it has not been performing well. What could be the reason for this tumble?
Stevenson Dlamini: Mining industry is indeed one of the largest foreign currency earners for our economy. The recent slump could be attributed to the global economic slowdown.
Closing: Stevenson Dlamini’s insights shed light on the intricate dynamics of cost management in the mining sector amidst economic challenges. As companies navigate these uncertainties, a multifaceted approach, encompassing both short-term measures like retrenchment and long-term strategies, is imperative for ensuring resilience and sustainability in the ever-evolving economic landscape.
