Platinum Producers Accepting Strike Pain for Gains on Costs

Feb 17, 2014 11:16 am ET

(Updates with comment from mediator in sixth paragraph.)

Feb. 17 (Bloomberg) -- Platinum’s three biggest producers are accepting crippling output disruptions and lost sales from a South African strike rather than yielding to union demands and higher wage costs, according to Stanlib Asset Management.

Keeping expenses under control is more important than reviving production by giving up ground on a wage settlement for Anglo American Platinum Ltd., Impala Platinum Holdings Ltd. and Lonmin Plc, said Kobus Nell, an analyst at Johannesburg-based Stanlib, which manages about $50 billion in assets.

“This is short-term pain,” Nell said by phone today. “Should this pain bring about more viable and solid businesses, it will be better for everyone.”

Shares in the three producers have all advanced since the Association of Mineworkers and Construction Union called more than 70,000 workers out on strike on Jan. 23. Mediators resumed talks with the union today in a bid to resolve the standoff that’s costing the companies almost $18 million a day in sales.

Amplats, as the world’s largest producer is known, lost more than 60,000 ounces valued at 1.5 billion rand ($139 million) in the first three weeks of the walkout, Chief Executive Officer Chris Griffith said Feb. 14. South Africa accounts for about 70 percent of global production of the metal used in jewelry and catalytic converters for vehicles.

The AMCU is demanding that monthly wages for some workers be more than doubled to 12,500 rand and has rejected an offer from employers of an increase of as much as 9 percent. Union leadership will meet tomorrow to deliberate on its position after talks with South Africa’s Commission for Conciliation, Mediation and Arbitration today, the state mediator said in a statement. The AMCU will report back to the CCMA on Feb. 19.

Currency, Metal

Amplats was unchanged at 462.00 rand by the close in Johannesburg, maintaining its 14 percent gain since Jan. 17, the last day before the AMCU gave notice of its strike. Impala, the second-largest producer, ended 0.4 percent lower at 123.45 rand, paring its advance to 2.8 percent since Jan. 17. Lonmin has gained 3 percent in the same period and was 0.5 percent lower at 325.7 pence at 3:44 p.m. in London.

The stocks are supported by better prospects for platinum demand and a slide in the value of the South African currency, Stanlib’s Nell said. Producers pay their costs in the rand, which is down 22 percent since the start of last year against the dollar, the currency in which platinum is priced.

Strike-disrupted mines run by Amplats near Rustenburg in North West province are unlikely to be part of the company’s core operations in future, Business Day reported today, citing Mark Cutifani, CEO of parent Anglo American Plc.

Labor Intensive

“Those assets that are highly labor intensive, where we are very exposed to the sort of things happening at the moment, are the assets that we are going to have to be very careful with,” Cutifani was quoted by the Johannesburg-based newspaper as saying.

Amplats is suing the AMCU for 591 million rand, claiming compensation for damage to property, increased security costs and production losses caused by non-striking employees being prevented from going to work, company spokeswoman Mpumi Sithole said by e-mail on Feb. 14.

Some roads leading toward Amplats’s mines were blocked today, making it difficult for non-striking employees to report for work, Sithole said. Incidents of violence have subsided since an AMCU official was killed in a clash with police on Feb. 7, she said.

The situation around Lonmin’s mines is calm, spokeswoman Sue Vey said by phone, after the company won a court order Feb. 14 compelling the AMCU to keep to picketing rules. Four Lonmin employees had been violently intimidated during the strike, she said.

Impala was preparing for the strike to last until May, Johan Theron, a spokesman for the company, said on Feb. 14.

--Editors: John Viljoen, Tony Barrett