‘Dark days’ on the horizon for SA mining

2012-10-20 13:01

JPMorgan Cazenove report predicts sporadic strikes could continue for up to a year

International financial services firm JPMorgan Cazenove this week warned its clients that the unrest and sporadic strikes in South Africa’s mining industry could continue for at least another six to 12 months.

It said a “positive bias” towards the prospects of the sector was difficult to justify.

In a document titled “Dark days indeed for the mining industry”, the firm’s research division said its conclusion was drawn from the view that factionalism within the governing tripartite alliance wouldn’t be resolved once the contest for the leadership of the ANC was resolved in December.

“As such, there is a view that the ability of the state to suppress future strike and community protest activity is limited,” the report read. In addition, the threat of large-scale dismissals by groups such as Anglo American Platinum was seen as a significant risk not only to the industry, but South Africa in general.

“If Amplats fired workers, South Africa could be headed for a revolution and that broader social unrest would be mobilised on the back of dismissals,” it quoted an official of the National Union of Metalworkers of SA as saying.

UK-based JPMorgan Cazenove is a major international investment advisory firm and represents almost a third of the top 100 listed companies on the London Stock Exchange, according to a survey done by Morningstar in the second quarter of 2012.

The report was compiled by James Wellstead, a former executive manager at Tokyo Sexwale’s Mvela Resources, who now works as a metals and mining analyst for JPMorgan. Wellstead said he came to his findings after meeting with mining company representatives, labour consultants, unions and the Chamber of Mines.

“The general tone was gloomy, with the feeling that the unrest is driven by larger SA-specific issues,” it read. “As such, there is concern that problems may continue beyond the ANC conference in Mangaung in December, which is likely to be negative for mining equities and investment in South Africa in general, in our opinion.

“Until greater clarity emerges, whether by the actions (and resulting consequences) of the mining companies, government or unions/labour, a positive bias to the South African mining sector is difficult to justify.”

The National Union of Mineworkers (NUM), when asked whether it concurred with the view that the strikes could take up to a year to be resolved, said it concurred that some of the social issues underpinning workers’ grievances would take some
time to be addressed.

“The strike may go away, but you still have serious complexities in Rustenburg, for instance,” said NUM spokesperson Lesiba Seshoka.

“At the end of the day though, they (workers) will have to provide for their families. They are running out of cash and Christmas is around the corner.

“I personally think it can’t take that long.”

Political analyst Daniel Silke also agreed with the view that the strikes were a reflection of social and political discontent, but warned these issues won’t be easily overcome.

“The intensity of the strikes will wax and wane as fatigue from both sides (employers and workers) sets in, but will not go away for a long time as the larger issues of inequality and political dissatisfaction are not addressed,” Silke said.

JPMorgan’s note was the umpteenth example of an established player in Western markets expressing concern over a deterioration in South Africa’s investment climate, and came hot on the heels of Standard & Poor’s (S&P) decision to lower the country’s long-term foreign currency sovereign credit rating from BBB+ to BBB.

The ongoing strikes within the mining sector was cited as one of the major reasons for S&P’s decision.

Similarly, influential financial weekly The Economist this week carried a front-page story named “Cry, the beloved country”, with “South Africa’s sad decline” as a subtitle, in which it described South Africa as sliding downhill while much of the rest of Africa was on its way up.

On a more positive note, JPMorgan said there was a sense that the Marikana tragedy had brought a renewed focus on some of the social and labour issues facing mining communities, and that there appeared to be a renewed commitment to addressing some of them.

In addition, another outcome could be a leaner, more profitable platinum industry, although this would result in more job losses.

“There will be greater cooperation between industry players than in the past,” the report read.

“The Chamber of Mines added that most of the companies have new, or will have new, management who may be more open to greater cooperation,” citing the recent drive towards collective bargaining with the unions by the platinum industry as an example.

This view was underscored by another analysis by UK broking firm Fairfax Securities, which said the outcome of the strikes would be net positive for labour relations.

“Ironically, the South African industry may emerge better set from the strike action, with closer ties between management and workers,” it said.

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