All Talk and No Progress as South African Platinum Miners Meet with Unions

The Easter weekend brought the tabling of a new wage offer for striking South African platinum miners, and since then, talks between the miners and affected companies have resumed; however, so far, negotiations have failed to yield significant results.

Following the renewed offer from platinum miners Anglo American Platinum (LSE:AAL), Impala Platinum (JSE:IMP) and Lonmin (LSE:LMI), the miners met with leaders from the Association of Mineworkers and Construction Union (AMCU) this week in an attempt to come to a resolution, Reuters reported.

The three-month strike has continued due to the AMCU’s demands that platinum-mining companies immediately increase entry level wages to about $1,200 a month before allowances, although the union has recently relented somewhat by saying it will accept incremental pay increases that would see this goal reached within three or four years. Last Thursday’s offer from the three miners ostensibly met this demand, outlining an increase in compensation to $1,200 per month by 2017.

However, that number accounts for allowances such as housing and holiday pay, and the AMCU has been adamant that wage increases should be considered separate from and in addition to these items. Accordingly, AMCU leaders were unenthusiastic about the new offer. Although Amplats and Implats have said that even their latest offer will put a significant strain on their budgets, the miners have not received formal feedback from the AMCU, and neither party has commented on the progress of the talks so far, Business Day Live said.

The AMCU will still have to hold mass meetings to discuss the offer with its members before it can be approved, and since many workers were bussed to their rural hometowns at the expense of the union just before the Easter long weekend, organizing the meetings could prove to be a fairly involved process. Furthermore, as Reuters notes, workers will have to vote on the offer once it is presented by leaders, and there is no certainty that it will pass.

At the expense of the workers

While fair wages are an important consideration in principle, some analysts are looking at the AMCU’s actions as a move towards adaptation in light of the imminent mechanization of platinum mining. Adcorp labor economist Loane Sharp was skeptical of the mining union’s motives, suggesting on Tuesday that, “[a]mcu’s ulterior motive is to price entry-level workers out of the market in order to reduce competition for older, more experienced skilled workers,” BD Live said.

Furthermore, Bernadine de Clercq of Unisa’s Personal Finance Research Unit has taken an uncomfortably realistic view of the workers’ plight, noting that any pay increases will not make up for three months of lost wages. “Their access to future debt will be very difficult,” she told the Times Live. “They will struggle. If they ever recover from this, they will be stuck with a bad payment record. These people will still be hounded by the financial institutions for payment. This debt is going to remain with them for longer and will become more expensive to pay.”

The AMCU has opened a bank account to solicit donations for strikers in debt, but tellingly, Ubank has stopped lending to mineworkers. De Clercq also questioned whether platinum miners will truly be able to afford wage increases and wondered about future job cuts despite resolutions.

What does it mean for the market?

Platinum prices may finally be reacting to the strike. The fact that the end is in sight may mean a drop in prices due to perceived imminent increase in production, although analysts believe that the white metal’s vulnerability towards losses will be short lived. According to Kitco News, platinum prices dropped with gold last Tuesday, but fell even more on Thursday following the offer to platinum mine workers from Amplats and Implats, dipping slightly below $1400 at the start of this week.

Bart Melek, vice president and head of commodity strategy at TD Securities and Yet Edel Tully, metals strategist at UBS both have a keen eye on platinum and are waiting to see if the metal drops further, but Melek also sees strong industrial demand for platinum from European auto producers as well as an improving global economy as supporting platinum prices in the long term. Furthermore, HSBC analyst James Steel drew attention to the current holiday period in South Africa, and stated that,“it takes at least a month for producers to ramp up production and a return to full production would most likely not materialize until July,” Kitco reported.

Between a rock and a hard place

Platinum may see a light at the end of the tunnel, but for platinum miners, the future does not look so bright. Lost revenues are mounting by the second, last clocking in at over 14 billion rand excluding lost wages for workers, and as Lawrence Williams writes in an article for Mineweb, the best option for top producer Amplats may be to attempt to sell its operations.

Williams notes that mechanization of mining at the Rustenburg mine has proved difficult, forcing Amplats to spend extensively on labour intensive methods instead. However, closing unprofitable areas and cutting jobs to save costs would be looked on unfavorably in light of high unemployment in South Africa, meaning that finding a buyer could be an “easy way out,” for the producer.

In any case, struggles for South African platinum seem set to continue. As Platinum Investing News wrote in December and early April, South Africa is not the only miner in the platinum game, and if market demand for platinum continues to hold strong, investors would be wise to start looking to projects and companies in Zimbabwe and elsewhere.

 

Securities Disclosure: I, Teresa Matich, hold no investment interest in any companies mentioned.

Related reading: 

Platinum Price Unmoved as South Africa Strikes Enter Week 11

South Africa: A Dying Star in the Platinum Space?