Wage negotiations in South Africa's gold industry opened Thursday with both sides wide apart and the country's largest mining sector union holding out the threat of a strike.

The Chamber of Mines, which bargains on behalf of the gold producers, offered workers a 5% increase in pay among other benefits. Unions rejected this and said they are sticking with demands for a 15% pay hike.

"Negotiations started on a positive note," said Elize Strydom, negotiator for the chamber.

However, Strydom said that it would be important to find a balance between the need for the industry to function sustainably into the future and the needs of employees. Any increase in the wage offer would be conditional on reconsidering other matters that "have significant cost implications," she said.

The National Union of Mineworkers was less conciliatory, describing the chamber's position as insulting.

"Our members have given us a strict mandate and we are going to live up to it," NUM General Secretary Frans Baleni said. "If the chamber continues with its dilly-dallying, then we have no choice but to call an indefinite strike action."

NUM on Wednesday also warned coal producers represented by the chamber, including Anglo American PLC (AAUK) and BHP Billiton Ltd. (BHP), risked strike action after no offer was tabled against unions' demands for 15%.

Official data next week are widely expected to confirm South Africa, the continent's largest economy, tipped into recession in the first quarter of this year. Gross domestic product contracted an annualized 1.8% in the final three months of 2008.

At the same time, though, inflation has been easing from a record high in August. Consumer price inflation was 8.5% on the year in March and the South African Reserve Bank has forecast it will continue on a downward trend, averaging 5.4% by the final quarter of 2010.

Still, trade union Solidarity said Africa's biggest gold producers - AngloGold Ashanti Ltd. (AU), Gold Fields Ltd. (GFI) and Harmony Gold Mining Co. (HAR.JO) - are better positioned than miners of other metals. The bullion price has risen 51% in rand terms in the year to March 2008 to ZAR9,380.23 an ounce, it said.

At the same time, workers face food, health and education price inflation well above the official CPI rate, Solidarity said.

"Gold producers are in a sound financial position to award a decent wage increase," Solidarity spokesman Jaco Kleynhans said.

The next round of wage negotiations is set for June 3.

-By Robb M. Stewart, Dow Jones Newswires; +27 11 783 7848; robb.stewart@dowjones.com