The rand faltered and mining stocks continued to tumble yesterday while Moody’s Investors Service voiced concern in a day filled with apprehension as Lonmin workers embarked on an impromptu strike in sympathy with an Association of Mineworkers and Construction Union (Amcu) official killed at the weekend.
The wildcat action further drained investor confidence. Last week investors were rattled by a forced reduction in the restructuring plans of platinum producer Anglo American Platinum (Amplats), which suggested interference from the government.
In a report on South Africa’s mining credit profiles yesterday, Moody’s expressed concern over pressures on the industry.
“We think that above-inflation wage increases and productivity losses linked to industrial action will be the main two risk events facing South African mining companies in the next six to 12 months,” Moody’s corporate finance assistant vice-analyst Dion Bate said.
Yesterday’s strike entrenched what have become blood-soaked divisions between Amcu and the Cosatu-affiliated National Union of Mineworkers (NUM). It was a reminder of last year’s labour crisis, which cost local mining companies as much as R15 billion in revenue and contributed to the rand’s 5.1 percent slide in December.
Lonmin’s stock led the descent yesterday, closing 6.83 percent down at R37.70 as work halted at Marikana. Impala Platinum lost 5.13 percent and Amplats fell 3.8 percent while Kumba Iron Ore, Exxaro and Gold Fields all ended down.
Platinum fixed $4 up at $1 489 an ounce. South African platinum producers account for 77 percent of world output.
Investec mining and metals analyst Albert Minassian said: “Since the [Amplats] announcement on Friday, around R26bn of value was wiped off just the three top platinum companies combined: Amplats, Impala Platinum and Lonmin.”
Finance Minister Pravin Gordhan called for a resolution to disputes at Lonmin:
“Returning to normal production in our mining industry is absolutely critical,” he said in Cape Town on the sidelines of a presentation to the Treasury portfolio committee.
The impromptu protest flies in the face of a peace and stability framework signed last month by Mineral Resources Minister Susan Shabangu, unions and the Chamber of Mines, which was meant to prevent such sporadic action.
More bad news came from gold junior Village Main Reef, which announced an impending closure of its unprofitable Buffelsfontein operation, potentially causing 500 job losses.
“Consultations with employee representatives and other stakeholders will commence in terms of the relevant regulatory and legislative prescriptions,” the company said in a statement.
NUM general secretary Frans Baleni promised a fight to save the jobs.
“Any destruction of jobs cannot be supported by the NUM. We are also opposed to the retrenchments at Beatrix, Anglo American Platinum and Lonmin,” Baleni said.
Lonmin spokeswoman Sue Vey said the company had not yet received formal reasons for the strike, and rumours were that Amcu was demanding the shutting of NUM offices and action on the assassination of Amcu’s regional organiser in Rustenburg on Saturday.
“We are waiting for union leadership to come back to tell us whether they will work the night shift,” she said.
Moody’s said if wages rose by between 10 percent and 15 percent, Amplats and AngloGold Ashanti’s margins and cash flows would come under particular pressure as Moody’s estimated that South African wages accounted for between 35 percent and 60 percent of their total South African cash costs and between 10 percent and 20 percent of their total global cash costs.
The rand was bid at R9.2035 to the dollar at 5pm, down 6.7c from a day earlier. Nedbank Group strategic research head Mohammed Nalla said: “Labour issues are the driving factor behind the rand’s decline.
“If you look at what is happening with the stocks today, there is a massive sell-off and some of that has to work through to the rand.”
The effects of the Lonmin strike would include a wider current account deficit, revenue loss for the fiscus and lower economic growth, Nomura International strategist Peter Attard Montalto said.
Kieron Hodgson, a commodities and mining analyst at Charles Stanley Securities, said investors were likely to see the strike as a precursor to further unrest “and are likely to refrain from any further investment in South Africa for some time”.