Platinum Soars Over Strike Fears

January 20, 2014

PLATINUM share prices soared on Friday as fears over strikes at the world’s three biggest producers sent platinum prices to their highest level in two months.

Anglo American Platinum gained 2.7% on Friday. Its workers who belong to the Association of Mineworkers and Construction Union (Amcu) will meet on Sunday to vote on a strike.

Impala Platinum and Lonmin, where strikes are expected to start on Thursday, also rose. Impala gained 2.8%, Lonmin was up 1.6% and Northam gained 2.6%. The JSE All Share index was down 0.1%.

This came after Northam apparently reached a wage deal on Friday that could end a strike entering its 77th day on Sunday.

This strike has cost the platinum miner more than R500m.

The wage deal could result in Northam’s members of the National Union of Mineworkers (NUM) accepting increases of 7.5%-9.5%.

However, the NUM has yet to sign the wage agreement and call off the strike. It wants another meeting with Northam’s management on Monday.

The settlement at Northam, one of a handful of operations where the NUM is still the majority union, is expected to serve as a benchmark for further wage settlements.

Although the Northam strike was peaceful, investors will be watching negotiations with the more militant Amcu, which represents the majority of workers in the platinum sector but is embroiled in internal strife, to gauge the level of labour stability in the sector.

Labour contributes about 50% of the industry’s cost base. The industry has been struggling to address falling productivity and rising costs.

Lengthy strikes will also cause the country significant foreign-exchange losses, apart from damaging its reputation as a reliable supplier. Major buyers might look at alternative sources of metals.

Amcu is demanding a minimum basic wage of R12,500 -more than double the basic wage of about R5,000 in the sector. Impala and Amplats have offered increases of 8.5%. Lonmin declined to comment on its offer.

The demand for a basic wage of R12,500 was simply unaffordable, said Johan Theron, spokesman at Impala.

Implats reached settlements with the NUM at its Marula mine and Springs refinery of 8.5% in the first year and 7.5% in the second. It made the same offer to Amcu.

“We can barely afford those increases -8.5% means an additional cost of R800m. Unless we see a significant improvement in platinum prices or productivity, we won’t be out of trouble,” Mr Theron said.

Michael Kavanagh, analyst at Noah Capital Markets, warned that an industry-wide strike could lead to a jump in platinum prices. “However, the industry is still facing a lot of headwinds. While the weaker rand has helped, the price increases have not been sufficient to offset lower productivity and rising costs.”

An industry source said Amcu had established itself by promising mineworkers a basic wage of R12,500.

“They’ve made this promise to win members from NUM, and their members haven’t seen anything yet. They cannot just walk away from that promise,” he said.

For Amcu’s leaders, it is a high-stakes gamble. “They know the companies cannot afford R12,500, and they know their members don’t want to go on strike, especially not in January.

“A strike is always a lose-lose situation; nobody wins. There is a real risk that, if they call a strike and they don’t achieve the R12,500, which they won’t, they could lose all their members,” the industry source said.

Should Amcu members agree to lower their demands when they meet in Rustenburg on Sunday, the union may go back to employers to table the new demands before calling a strike.

That may be why Amcu delayed issuing strike notices to Impala and Lonmin until Monday, even though workers at these companies have already voted in favour of strike action. Spokesman Mpumi Sithole said Amplats had a confirmed meeting with Amcu on Tuesday.

At Lonmin, talks were continuing, but no formal meetings were arranged at the weekend, said spokesman Sue Vey. “We expect the strike to start on Thursday across the platinum belt.”

Should the NUM sign the Northam wage agreement on Monday, restarting operations was likely to take time as workers had to undergo training and inspections were needed to ensure that it is safe to return underground.

But despite the extended stoppage, Northam shares outperformed those of its rivals over the period on the JSE.


Courtesy of bdLive South Africa

Jana is a business reporter at the Sunday Times's Business Times.

During 1500s the Spaniards had taken 16,000,000 kilograms of silver from Peru.