Are Anglo, Amplats aligned on labour?

[miningmx.com] – ANOTHER meeting with the Commission for Conciliation, Mediation and Arbitration (CCMA), another blank is drawn.

An agreement on wages between the Association of Mineworkers & Construction Union (AMCU) and platinum producers Anglo American Platinum (Amplats), Lonmin, and Impala Platinum (Implats) can’t be found until the union enters “the settlement zone’, code for the 9% take-it-or- leave it annual wage offer.

But as with the “search zone’ of which the Malaysian authorities refer as they seek for the missing Boeing 777-200, the “settlement zone’ is maddeningly elusive.

The way Chris Griffith, CEO of Amplats, described the current tenor of negotiations earlier this week, CCMA meetings without a settlement zone is merely an exercise in futility.

“This cannot be called negotiation in the current sessions with the CCMA,’ he said. “If we’re not in the settlement zone, they are just engagements for parties to put positions across.’

Addressing again why platinum producers couldn’t accept AMCU’s R12,500 per month demand, Griffith explained that it would end up in Amplats having to ask shareholders for an extra R9bn a year to foot the wage bill.

Amplats dominant shareholder is, of course, Anglo American which begs the question what it and its CEO, Mark Cutifani, thinks of the situation. Says Griffith: “The major shareholder is completely aligned with the strategy [of restructuring and the wage stance]’.

It’s an intriguing dynamic because Cutifani and Griffith are not in reality aligned. How can they be when the run different companies with differing mandates?

The pressure is arguably greater on Cutifani, than Griffith. Griffith is subject to a force majeure (although the company can still continue to supply customers), whereas Cutifani has options and has to think actively about the interests of Anglo American shareholders.

Cutifani was brought in on a ticket of restructuring and operational strategy. It won’t have escaped him that since taking up the Anglo hotseat in May 2013, the group’s share price has lagged all in the peer group bar Glencore Xstrata – and by some margin.

Goldman Sachs, citing an article in the Chicago Tribune, made a similar observation in a note to clients. Whilst the potential divestment of Amplats was not ‘new news’, it believed “… the potential for a restructuring of this nature is a significant reason for the stock’s recent out-performance.

Said Investec Securities: “This [divestment of platinum] may well be an attractive option to Anglo as it could reduce its exposure to this troubled platinum sector that faces militant unions, rising capital intensity and operating costs”.

One wonders the extent to which Anglo’s exposure to South Africa’s dangerously shifting labour environment informs the share price performance, and whether even a wage agreement, by some miracle of settlement zone convergence, will placate the long-term concerns Anglo shareholders may have regarding the South African discount.

Just how easy would it be for Anglo to divest itself of Amplats, however? Extremely difficult, said Goldman Sachs as buyers would be unlikely to take on assets with a negative net present value without incentives.

“The South African government was unlikely to exacerbate the current account deficit and high levels of unemployment by allowing marginal production to be shut down,” said Goldman Sachs. “With the platinum market in industrial oversupply, cost reduction will also be unlikely to have a meaningful impact, with any gains likely to be lost to price, it said.