Platinum’s dark clouds hang tight

2014-04-06 14:01

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Strike stalemate is starting to affect the small person and big players that depend on the industry, writes Dewald van Rensburg

The 11-week strike at Anglo American Platinum (Amplats), Impala Platinum and Lonmin still shows no sign of a settlement.

The mines have tallied the estimated loss of revenue since January 23 at R11.5?billion by Friday. They also said employees had collectively lost more than R5?billion in earnings over that period.

Impala and Lonmin mines are at a standstill while Amplats is operating at 60% of production. Fewer than 20% of employees in the sector are on duty and Impala has sent nonstriking employees on leave.

The three companies claim that, apart from nonstriking employees, “most” strikers do not support the strike any longer.

According to Lonmin CEO Ben Magara, “the overwhelming majority” of Lonmin employees want the strike to end. This was based on replies to questions sent to employees via SMS.

Magara says if members of mine workers’ union Amcu were to be given a fresh mandate today, it would settle for something close to the standing wage offer of 9%.

Attention has this week shifted to small businesses in mining areas, as well as the mines’ suppliers that are losing their source of income.

All three mining companies have issued force majeure notices?–?a legal term that allows companies to suspend payments and deliveries because of circumstances beyond their control?–?to suppliers, suspending contracts for mining supplies and services.

Impala had already announced the suspension of purchases from suppliers in February, but news of Anglo Platinum and Lonmin doing the same thing only broke this week.

None of them have declared force majeure on their customers and are continuing to supply the market using their stockpiles.

But if these run out, some of the companies will have to buy metal to resell. This week, Lonmin indicated it had “flexible” arrangements with its larger customers.

This week, Impala said it might have to buy metal soon although it has managed to supply all its key customers.

The companies are sending somewhat mixed signals about how imperilled they are although all three are adamant that workers will have to settle for something close to the standing offer of 9% for the lowest underground job level.

This week, Magara declared his company was sitting pretty, relatively speaking.

On Thursday, he told reporters Lonmin was “in a very competitive position” with regards to weathering the strike and its ability to efficiently restart operations when strike action ended.

The strike had been anticipated well in advance and Lonmin was able to build up a war chest of platinum and “prepare” its big customers for possible supply interruptions, he added.

Lonmin had also prepared its mines for an extended period of inaction to guard against damage, according to Magara.

The platinum price has remained steady throughout the strike while the share prices of the three companies have reacted very differently.

Amplats shares are trading almost 25% higher than at the beginning of the year while Lonmin’s have fallen by about 10%.

Amcu has marched on all three of the platinum companies’ head offices in the past three weeks, handing over similar memorandums to them.

In the memorandums, it reiterates its demand for a R12?500 basic salary, phased in over four years.

Amcu’s memorandums also insist on a collapse of the seven bottom job categories from A4 to B3.

This is also a major structural change to the mines’ labour system. The monthly cost-to-company earnings of A4 workers amount to R9?831 at Lonmin while it is R13?348 for B3 workers.

At the best-paying company, Lonmin, the basic salaries of these categories range from R5?713 to R8?483.

Amcu has also lambasted the Chamber of Mines’ involvement in the negotiations, asking the CEOs of the three companies to “act independently”.

The involvement of the chamber has contributed to the effective derailment of the talks, which have made practically no progress since January.

Amcu said the chamber’s overriding concern in the platinum talks is to keep the companies from setting a new benchmark that would unsettle the gold mines, where Amcu remains a minority union and the bargaining system with the National Union of Mineworkers remains mostly intact.

SA should play the supply card to influence price

The Public Investment Corporation (PIC), a shareholder in all three strike-hit platinum companies, this week endorsed the idea that South Africa should “influence” the platinum price by limiting supplies.

PIC chief executive Elias Masilela told Bloomberg that South Africa should not have to remain a “price taker” when it dominated the mining of platinum globally.

The creation of a cartel like the oil producers’ Opec or the Canadian potash producers’ Canpotex has been suggested before as an answer to the woes of the platinum and ferrochrome sectors.

In the past, Mineral Resources Minister Susan Shabangu has expressed support for it, but the three major platinum companies have rejected the idea.

In a document released two weeks ago answering “frequently asked questions”, they say large reductions in South African platinum production in recent years have done very little to raise prices.

The implication is that further concerted reductions might also have little effect.

Raising prices could also push more platinum users towards recycling and substitution with palladium, they added.

Most of the major companies’ output is sold through long-term contracts with large customers, which would also make collusion to raise prices a risky move.

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