Platinum producers build stockpiles to beat strike

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Reuters.

Mineworkers gather at Wonderkop stadium outside the Lonmin mine in Rustenburg, northwest of Johannesburg January 27, 2014. Government-brokered talks between South Africa's Association of Mineworkers and Construction Union (AMCU) and the world's top three platinum producers began on Monday in a bid to end a strike that has hit half of global output of the precious metal. Hopes for an immediate resolution to the strike, which began on Thursday, remained dim given AMCU's uncompromising approach to negotiations and with the two sides poles apart over wages.

Johannesburg - The world’s biggest platinum producers have built stockpiles to last as long as eight weeks, helping them weather a strike that’s begun crippling their mines in South Africa, source of about 70 percent of global supplies.

Anglo American Platinum Ltd. and Impala Platinum Holdings Ltd., the two largest, can continue to fulfill customers’ orders for six to eight weeks, spokesmen for the Johannesburg-based companies said.

Lonmin Plc, the third biggest, stockpiled 42,000 ounces of unrefined metal in the year through September and also had 13,000 ounces of unsold refined platinum, it said in November.

The company declined to say how long demand could be met in a strike.

“These strikes have been coming for some time and the companies have been preparing for them for 12 months plus,” said Justin Froneman, a Johannesburg-based equity analyst at SBG Securities Ltd., the securities unit of Africa’s largest lender.

“They’re ready for this to drag out for a long time.”

The strike is costing the companies 9,900 ounces a day in lost production, valued at about $14.2 million at current prices.

At least 70,000 members of the Association of Mineworkers and Construction Union began striking January 23 over pay, including demands that entry level wages be more than doubled to 12,500 rand ($1,115) a month.

Yesterday, wage talks between the companies and AMCU resumed in Pretoria.

“Nothing much in terms of proper negotiations” took place because the companies talked among themselves rather than engaged with the union, AMCU Treasurer Jimmy Gama said after the meeting.

 

Platinum Price

 

The platinum companies have called the demands “unaffordable and unrealistic.” AMCU President Joseph Mathunjwa last week warned of “marathon negotiations” to resolve the dispute.

Platinum has climbed 4.5 percent to $1,433 an ounce since the beginning of this year, amid concern supplies could be disrupted by a strike called by the AMCU, which last year displaced the National Union of Mineworkers as the dominant labor group on the mines.

“We should be OK for six to eight weeks,” said Johan Theron, a spokesman for Impala.

“We are continuously communicating with our customers and they are also implementing their own mitigating measures.”

Once platinum is mined it must be smelted and then refined.

Stockpiles refer to platinum that is in a form somewhere between the mined and finished products.

 

Lost Production

 

“We don’t see a temporary loss of production as a major credit risk for Amplats, given that it has considerable stockpiles of platinum above ground,” Moody’s Investors Service said in a note published yesterday, referring to Anglo American Platinum.

The strike in fact may be credit-positive in the short term because Amplats can sell its stockpiled platinum at a higher price, it said.

The NUM, as the National Union of Mineworkers is known, struck at a smaller producer Northam Platinum Ltd. starting in November.

It lasted 11 weeks and cost the company 750 million rand in revenue and employees about 152 million rand in wages.

Northam signed a two-year deal with workers that includes wage increases as much as 9.5 percent and a payment of 3,000 rand.

The AMCU, led by former NUM member Mathunjwa, has replaced NUM at the country’s biggest platinum mines through arguing for bigger pay increases.

It has gained in membership and influence since the deaths of 44 people, including 34 shot by police in a single day, at Lonmin’s Marikana operations in August 2012.

 

Ruling Party

 

The union has said it is not affiliated to any political party, in contrast to the NUM, which supports the ruling African National Congress Party.

“It will be very hard politically for the AMCU to back down and accept an offer that does not surpass that agreed by the NUM,” Robin Bhar, a London-based analyst at Societe Generale SA, wrote in a January 24 note.

“At the same time, the producers have repeatedly indicated they have no appetite to arrive at double-digit wage settlements.”

South Africa’s inflation rate is 5.4 percent.

The companies’ stockpiles have eased investor concerns that the strike will disrupt earnings.

Amplats stock has dropped 0.5 percent to 435.28 rand since the strike started, while Impala is down 1 percent and Lonmin 2 percent.

The three producers are also being aided by the weakness of the South African rand, the currency in which they incur most of their costs.

The rand has fallen 6.4 percent against the dollar this year, taking the decline since the start of last year to 24 percent, the worst of 16 major currencies tracked by Bloomberg.

 

Find Resolution

 

The platinum companies began boosting stockpiles of the metal last year, following strikes at Impala in the first quarter of 2012 and the violent disruptions at Lonmin later that year.

After yesterday’s talks Amplats chief executive Chris Griffith, Impala chief executive Terence Goodlace and Lonmin chief executive Ben Magara said in a joint statement the three-day process was off to a constructive start and that they were hopeful of a successful outcome. “In the end, resolution must be found.” - Bloomberg News


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