Strike a heavy burden for Lonmin

REUTERS

Protesters hold placards as police officers stop them from proceeding with their march in Rustenburg, South Africa's North West Province September 16, 2012.

London-listed platinum company Lonmin has suffered a heavy financial blow from a six-week strike and a hefty unplanned pay rise, a mining analyst said on Thursday.

“Financially, it's close for them. They were already sitting on around one billion dollars in debt,” said Peter Major, mining analyst at Cadiz Corporate Solutions.

According to Major, Lonmin's acting CEO Simon Scott estimated that the company would spend approximately R190 million on wage increases of up to 22 percent.

The settlement was reached earlier this week, bringing an end to the strike.

Production was halted at the company's Marikana mine when workers downed tools in August.

A total of 46 people died in violence related to the strike, with 34 workers killed on August 16 when police opened fire.

Major calculated that each day of the strike had cost the company around US5 million per day, or R40 million, in lost revenue, based on its normal annual production.

Because it would take another week or so for Lonmin to reach full production after miners returned to work, the company was expected to lose a total of US200 million, or R1.6 billion during the full eight-week period.

“And most of that, they can't make up,” Major said.

Mines such as Driefontein, or Anglo Platinum, which were owned respectively by Gold Fields and Anglo American, had a parent company which could step in with funding when necessary.

“But when you're an independent, like Lonmin, you've got to stand on your own two feet and you have to give up a lot to get bank funding,” he said.

Earlier in the week, Lonmin reduced its sales forecast for the year to between 685,000 and 700,000 platinum ounces Ä down from 750,000 platinum ounces before the strike, the Financial Times reported.

Lonmin had recently shelved a mechanisation strategy they embarked on over six years ago, Major said.

This was actually good news for creating more jobs, as it showed increased mechanisation was 'not' always better than the labour it was supposed to replace.

“But after the past six weeks, management will maybe now go back to the drawing board and say, let's try mechanisation after all.”

Mechanisation reduces the number of workers a mine needs to employ.

It is safer and supposedly more productive, and thus lowers costs.

Acrimonious relations were, however, a barrier to job creation.

“In many cases, mines would be willing to take on more workers, if relations between management, unions and workers improved,” Major said.

In many situations, mining could be done more efficiently and productively with humans than with machines.

“But you don't want to hire the guys who will burn you down, sabotage your equipment and threaten your staff,” he said.

He agreed with Cosatu general secretary Zwelinzima Vavi that the settlement, which occurred outside the collective bargaining process, had not set a good precedent.

“These guys just got their best increase ever, and they did it without a union,” he said.

Lonmin spokeswoman Tanya Chikanza was not immediately available for comment. - Sapa