Rising costs and falling prices may prompt South Africa’s largest platinum mines to stare down a union threat to halt 70 percent of global production over pay demands, pushing the industry toward a prolonged strike.
The Association of Mineworkers and Construction Union, the largest at the platinum mines, has rejected pay offers exceeding South Africa’s 6 percent inflation rate. An AMCU-led strike would halt operations at Anglo American Platinum Ltd. (AMS), Impala Platinum Holdings Ltd. and Lonmin Plc, which together employ about 150,000 workers and contractors on the world’s richest deposits of the precious metal.
“The health of the industry is already in question,” Tyler Broda, an analyst at Nomura International Plc in London, said by phone. “It is going to be very difficult to give much more. The companies are unfortunately heading toward a path where they will take their chances with a protracted strike.”
The three companies have all in the last year either turned to investors for funds, set plans to shut mines or cut production and scaled back on capital spending to confront a slump in the price of platinum, down 16 percent from its highest level in 2013. Anglo Platinum, the largest producer, and Lonmin (LMI) reported losses in their previous financial years, while profits at Impala, operator of the biggest mine, fell by 76 percent.
The AMCU is demanding that pay be more than doubled for some miners and has voted for a strike at Impala without setting a date. It will next week start last-ditch arbitration talks with Anglo Platinum, the company said yesterday. Negotiations with Lonmin are in deadlock after the union last week rejected a pay offer.
“If the platinum industry on the whole settles for double digits, it will send a hell of a negative message,” said Sean Ashton, chief investment officer at Anchor Capital in Johannesburg. “They can’t afford those kind of increases.”
Entry-level monthly wages average about 8,700 rand ($850) and include benefits such as accommodation allowances and pension fund contributions. The AMCU is demanding basic monthly pay of 12,500 rand, before benefits.
Impala (IMP) has offered lower-paid workers an increase of 8 percent in the first year of a three-year agreement. Johannesburg-based Anglo Platinum, or Amplats, and Lonmin have offered 7 percent. Production costs at Amplats and Impala climbed by more than 20 percent last year because of higher labor expenses and lost production caused by strikes.
At Lonmin, costs rose by 13 percent in 2012 and the London-traded producer said its wage bill alone would rise by 11 percent in the 2013 fiscal year. Lonmin settled with workers to end a six-week strike last year, during which at least 44 miners died, including 34 killed by police in a single day near the Marikana mine in North West province.
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