Rand slide gives twist to AMCU wage talks

[miningmx.com] – IT’S difficult to know whether the weakening in the rand against the dollar is positive for the progress of South Africa’s strike-hit platinum sector, or negative.

It certainly adds a twist to wage negotiations currently underway because it will provide the Association of Mineworkers & Construction Union (AMCU) with ammunition it needs to argue for the affordability of its wage demands, however steep.

The basket price in rands for the platinum group metals has far outpaced the dollar price. According to a recent note by Macquarie Research this “… reduces the need to make production cuts and allows miners to offer higher wage increases, both of which imply a lower dollar platinum price’.

Platinum producers will probably argue a slighter weaker rand makes no in-roads to offsetting the disastrous impact of agreeing to a R12,500 per month basic, as Investec Securities argued this morning.

“The South African rand continues to suffer from lack of confidence in the government and the economy – ironically this will help the cost base of the platinum miners, but not sufficiently to offset the inflationary pressures from wage rises,’ it said.

What’s certain is that above-inflation wage increases will continue to pressure the industry. Whatever AMCU eventually settles at, the increase remains structural while it is so far ahead of inflation. In fact, the days of inflation-linked wage increases are over, it’s thought.

Says Johan Theron, head of corporate affairs at Impala Platinum (Implats): “We will have a much smaller platinum industry in the future. A lot of the marginal mines have closed. We will see what else will fall over’.

What’s interesting about the weakness in the rand – now at levels last seen since the financial and economic crisis – is that it doesn’t seem to be driven by the short-term consequences of prolonged strike action by AMCU.

Analysts at Goldman Sachs and Nomura International believe the weakness in rand is caused by fundamental factors such as attitudes towards emerging markets and the prospects of QE (quantitative easing) tapering rather than the 80,000-strong platinum strike.

“We said at the start of the year that we thought domestic South Africa idiosyncratic would not cause a breach of 11.0. We can probably say this is true. There seems to have been little selling of ZAR on the AMCU strike,’ said Peter Attard Montalto.

In the short-term, this is promising for South Africa’s miners, including the gold producers who find that the rand gold price is near all-time high levels. In calendar 2013, the dollar gold price received decreased about 16% while the rand gold price declined only 2%.

Harmony Gold spokesperson Henrika Ninham said the current US dollar gold price of $1,260/oz was much lower than the average received in the last 24 months, but in rand terms – some R447,000/kg – the price is higher than in the 12 months average received in rands.

“It gives us a short-term boost,’ said James Wellsted, head of corporate affairs for Sibanye Gold. “Long-term it’s not good for the country. The inflationary effect of a weaker rand will increase the cost of growth,’ he says.