[miningmx.com] – A PLATINUM industry source close to the wage negotiations described new demands submitted by Joseph Mathunjwa’s Association of Mineworkers & Construction Union (AMCU) as “naive”.
The demands, which AMCU counters aren’t new at all, are for a R3,000 return to work payment, the reinstatement of dismissed employees, and the dropping of criminal charges against employees. The latter is probably one of the demands that extends beyond the mandate of the platinum firms.
The additional demand the mining sector can least tolerate, however, is a freeze on retrenchments. Nothing is as likely to emerge from this strike than a complete rescaling of Rustenburg’s platinum business.
As for Mathunjwa’s AMCU, it’s expectation that a strike of nearly half a year would not have consequences comes as a major misjudgement. “Naive and inexperienced in managing end-game strategy,” is the way one industry source put it.
Kieran Daly, a mining analyst for Macquarie Research demonstrated in a report dated June 13 just how severe the in-principle agreement signed by AMCU last week will be on the earnings of South Africa’s platinum mining stocks.
Including back-dated increases – which will be from July 1, 2013, but excluding the months of the strike (so six months of pay) – total compensation at Anglo American Platinum (Amplats) will increase 18% in its 2014 financial year, and then 5.6%, 9.6% and 8.1% in subsequent years.
“Our initial calculations suggest that earnings for Amplats, over the next five years, will be lower by between 7.7% and 8.5% if compared to normal inflationary increases,” Daly said in his report.
There is a similar impact on earnings for Impala Platinum (Implats), while Lonmin would generate a loss in its 2014 financial year. “[L]ater year’s earnings would be reduced by more than 30% over normal inflationary increases,” Daly said.
The upshot is that South Africa’s platinum producers have no alternative but to respond to these hits on profitability through restructuring.
Eugene King, an analyst for Goldman Sachs said in a recent report that layoffs in the sector look inevitable. “We believe that companies will undertake significant restructuring post the strikes as they look to cut unprofitable ounces from their business and move down the cost curve,” he said.
“All three companies throughout the strike period have reiterated that they will have to undertake significant restructuring to return to profitability.”
Anglo American CEO, Mark Cutifani, has made no secret of his intention to reduce the exposure of Amplats to labour-intensive mining in favour of Mogalakwena, an open-cut mine amenable to mechanised mining.
The timing of the retrenchments may not be immediate as platinum companies get back into the mines to assess the deterioration during the last five months, but it will be inevitable.
First, however, there may also be some political sniffing out of the new mines minister, Ngoako Ramatlhodi.
The last time Amplats restructured its Rustenburg mines there was an unholy blow-up with Ramatlhodi’s predecessor Susan Shabangu, although Goldman Sachs believes that the government may be more supportive of sector restructuring this time.
What’s certain is that AMCU’s strike has already changed the future of the Rustenburg platinum mines. It’s a consequence from which the union cannot escape.
