South Africa's Kumba Iron Ore to cut jobs and downsize flagship mine
* Kumba to cut jobs and downsize Sishen mine
* NUM says 2,633 of 7,434 jobs to be slashed
* Job cuts could worsen unemployment, hurt ruling party (Adds union, analyst comments, updates shares)
By Peroshni Govender
JOHANNESBURG, Jan 28 (Reuters) - South Africa's Kumba Iron Ore on Thursday said it would scale back operations, cut costs and reduce jobs at its Sishen mine, the largest iron ore operation in Africa, sending its shares up by seven percent.
Sharp declines in prices of the steelmaking ingredient due to oversupply and subdued economic growth in China, the world's biggest metals consumer, have hit companies like Kumba, a subsidiary of global mining company Anglo American (LSE: AAL.L - news) hard.
The National Union of Mineworkers (NUM) said Kumba planned to cut 2,633 of its 7,434 permanent employees and the company added that 1,300 contractors would be affected.
NUM said it had been informed that the company plans to lay-off workers and would engage in talks to avoid job cuts.
"This has been an extremely difficult decision but, after exhausting all other avenues and doing all we could have done to reduce costs, we have no choice but to take more significant steps to preserve the viability of the mine," Kumba's Chief Executive Officer, Norman Mbazima said.
More than a quarter of the population is unemployed in South Africa where food prices are also rising due to a drought, a combination that could hurt the ruling African National Congress in the local government elections later this year.
"Joblessness is a big issue and anything that aggravates that will make voters angry," independent analyst Gavin Brown said.
Shares (Berlin: DI6.BE - news) in Kumba jumped 7.09 percent by 0925 GMT, outpacing the All-Share (LSE: SHRE.L - news) index.
"The market is quite positive that they are taking the steps to right size the company. Downsizing is the first step to turning the company around," Avior Capital Markets equity analyst Wade Napier said.
"The market probably needs at least 6 to 12 months to see Kumba stick to the plan and that will build more confidence."
The price of iron ore slipped after steel prices fell more than 2 percent on Thursday. (Editing by James Macharia)