Sibanye builds war chest amid risk of deepening labour conflict

Sibanye Gold sold about R1.7 billion of shares, a move that will bolster its balance sheet against the risk of an intensifying conflict with one of South Africa’s most militant labour unions.

A four-month-old wage strike by members of the Association of Mineworkers and Construction Union has slashed output at the company’s South African gold mines. While Sibanye is challenging the legality of that strike, it’s also preparing for pay negotiations with AMCU at its platinum business.

“It is a buffer in the event there is a strike at the platinum operations and to counter the impact of the gold strike,” said Arnold Van Graan, an analyst at Nedcor Securities. “They are being prudent.”

The upcoming wage talks will pit Sibanye Chief Executive Officer Neal Froneman against AMCU President Joseph Mathunjwa, who oversaw the longest ever strike in South Africa’s platinum industry in 2014.

Froneman, who sees a political agenda behind the union’s actions, has timed the share sale to take advantage of a surge in Sibanye’s stock this year.

Sibanye dropped almost 14% to R14.67 as of 10:34 in Johannesburg, paring this year’s gain to 46%. The company sold 108.9 million shares in a placing with institutional investors for R15.50 each.

Tough Negotiations

Mathunjwa, who has criticised the bonuses paid to mine bosses, wants his members to share in the benefits of a surge in palladium and rhodium prices. Chris Griffith, CEO of Anglo American Platinum, said on Tuesday that the world’s No. 1 platinum miner is preparing for tough wage negotiations this year.

Sibanye needs to be in a “sound position” as the platinum wage talks start, said spokesman James Wellsted.

“The enhanced balance sheet flexibility provided by this transaction will ensure that the company is appropriately positioned and sufficiently robust to endure any exogenous socio-economic challenges,” Froneman said in a statement on Wednesday.

Sibanye said on Tuesday it will ask the Labour court to invalidate the strike at its gold mines after AMCU was independently found to only represent a minority of workers. Even when the strike ends, it will take two to three months to rebuild production, spokesman Wellsted said.

Ideological Gulf

AMCU disagreed with Sibanye’s assessment of the situation at its gold mines. The union is also separately opposing the company’s plan to buy platinum miner Lonmin because of job losses at operations that were unprofitable for years.

As positions harden, both sides are digging in for a tough round of platinum wage negotiations.

“The ideological gulf between organised labor and business appears to remain significant,” Morgan Stanley analysts said in a note.

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