R12?500 recedes as mines dig in for week seven

2014-03-09 14:00

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Cracks are beginning to form in the united front presented by platinum mining companies. Dewald van Rensburg reports

The Association of Mining and Construction Union (Amcu) strike has finally come down to something like negotiation as platinum stockpiles dwindle and companies lose the incentive to maintain a united front.

Amcu has now played the hand it has been hinting at for weeks: revising its demand for R12?500 “at a go” into a progressive realisation by 2016.

Although the concession was rejected out of hand by all three major platinum companies, this in effect marks the beginning of bargaining after six weeks of striking.

While the mines are sticking to their “final” offer, which was made on January 29, they have also started talking about negotiating “within a feasible settlement zone”.

The key development on the employers’ side is that Lonmin on Wednesday became the first of the three companies to publicly cut its sales forecast due to the strike.

That likely means the company has exhausted its inventories and the strike may now actually start to affect the platinum market.

Most importantly, thin cracks are appearing in the united front the three mining companies have thus far presented to Amcu and the world, raising the possibility of a breakaway deal that would leave the other two under massive pressure.

The most astonishing thing about the strike has been its apparent lack of any influence on investors.

“The market seems to be ignoring [or even forgotten about] the strike,” says Peter Montalto, a researcher at financial services company Nomura.

The three companies’ share prices are following no particular trend. Anglo American Platinum (Amplats) shares have risen by almost 15% this year, while Lonmin shares are pretty much where they started out. Only Impala Platinum has really lost value, about 8%.

The platinum price first fell by $60 (R636), then rose by $60, showing that no one believes platinum supply is at risk of falling short of demand just yet.

The rand, which should theoretically weaken when such a key export sector is lying mostly idle, has been strengthening throughout the strike.

All of that might change if the two larger producers follow Lonmin and declare themselves to be out of ready-to-sell platinum. Amplats is estimated to have started the strike with up to eight weeks worth of platinum stockpiles, leaving it with about a week’s breathing room.

Impala Platinum had the means to keep supplying international customers up to the end of March, Bloomberg reported last week.

Mining as a whole comprises 5% of GDP and platinum is more than a quarter of that, meaning mines contributing about 1% of GDP are currently shut down.

Survival

All for one?

During the wage talks and strike, the platinum companies took a page out of their gold mining peers’ book and maintained a strong show of unity.

But as the strike drags on, this united front is growing increasingly fragile, something reflected in the wildly different performances of their shares during the strike.

Added to that, the companies pay different wages, meaning Amcu’s demands in rand terms rather than percentages are in effect different for each company.

The companies are also holding up differently.

Amplats still has all its most profitable operations up and running, especially its Mogalakwena mine in Limpopo.

Having all the lossmaking operations shut down might explain why the company’s shares are doing so well out of the strike.

Like Amplats, Impala also has mines in Zimbabwe.

But Lonmin is completely shut down.

Wage FACTS

R2?009 versus R640

Amcu is now in effect asking for the R12?500 basic wage only by 2016 after revising its demand twice. First it asked for the politically charged sum to be achieved over three years. By Tuesday evening, this was four years.

There is speculation that it may be paving the way for a five-year scheme. At the same time, the union says it is willing to drop all other demands relating to the allowances mine workers receive on top of the basic wage.

As the talks are meant to replace the wage deal that already expired in September last year, it will result in a backdated agreement for the first hike, with the second one implemented in September this year and R12?500 achieved at the end of 2016, according to Amcu’s proposal.

The companies still stick by their offer to increase wages for the lowest earners by 9% last year (backdated), 8% this year and 7.5% next year. In rands and cents, the difference between Amcu’s demand and the offer on the table is stark.

Under Amcu’s proposal, Lonmin would be raising the lowest-paid employees’ total guaranteed pay by R2?090 a year to R10?250 on a cost-to-company basis, including provident fund contributions and bonus accruals.

At Amplats, that would be roughly R2?300 to reach about R9?400 in year one. In contrast, the companies’ current offer for the first year amounts to something in the region of R640.

The difference comes from varying current wages. Amplats pays the lowest basic wages of R5?000, Lonmin pays the highest (R5?713) and at Impala it is R5?500. Even after the ­employers’ proposed increase in year one, ­Amplats will still be paying less than Lonmin is currently paying.

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