Analysts see the Lonmin Marikana mine violence – due to deep-seated problems in labour relations – as a tsunami that could strike the biggest blow to foreign investor’s confidence and threaten an already fragile sector’s credit profile.
“The actual strike isn’t a deterrent to investors. But certainly the inability to get it under control will be of concern, particularly as this is now the third platinum mine that has seen conflict resulting in deaths this year after unrest staged at Impala Platinum Mine and Aquarius Platinum,” Frontier Advisory analyst John de Villiers said this week.
“I do feel the government’s inability to safeguard the investment of multinationals will be of far bigger concern to investors.”
Credit ratings agencies warned Lonmin’s handling of the illegal strike could affect its financial evaluation.
“The specific way each of the producers in the industry deals with these issues would determine the impact on the medium-term evaluation of each company’s credit metrics,” Fitch Ratings director Roelof Steenkamp said.
“A sustained weakening of credit metrics would constrain ratings, although labour costs are one of a number of key cost inputs considered by the agency,” he added.
Fitch Ratings had warned previously that increasing cost pressure, with labour cost increases above inflation, represented a challenge to the profitability of the platinum sector.
This week, Lonmin said rising cost pressures might threaten its credit profile, and its chief executive Ian Farmer had been admitted to hospital with a “serious illness”.
“The company continues to monitor the position closely regarding the additional pressure which the current disruption to production may put on its bank debt covenants when they are next tested on 30 September,” it said in a statement.
It also said it was unlikely to meet its full-year guidance of 750 000 saleable ounces of platinum, and it had lost six days of production amounting to 300 000 tons of ore or 15 000 platinum equivalent ounces.
Attribution of the violence to a turf war between the National Union of Mineworkers (NUM) and the Association for Mineworkers and Construction Union (AMCU) is denied by both unions .
Labour relations within the platinum sector were under strain and high expectations from employees had fuelled the above inflation wage increases demanded by unions.
“This was a tsunami waiting to happen, the violence has shown there are structural problems, skewed union representations and high expectations by the workers,” said an analyst who spoke on condition of anonymity. He said there were distortions in labour representation as unions were affiliated to the government.
Labour analyst Andrew Levy said there had been no strategy for labour relations by the government, and nothing had been done to end the spike in violent protests since 2005.
“There has been no attempt for government to intervene in bringing an end the violence in protests. They [government] want Cosatu support, they don’t want to upset them [Cosatu], that is why they have been quiet,” Levy added.
He also said the leadership of the labour unions had also been caught napping.
“We see violence in protests in the mining [and] other sectors including security but also in service delivery protests. Our strikes descend into violence and damage to property. The unions have remained silent in condemning this and expelling those responsible,” Levy said.
NUM secretary general Frans Baleni said there was a possibility of a spillover effect of the violence as rock drill operators were vulnerable to influence because they were poorly paid.
“It’s possible it will spill over to other mines, we are still going to see. They are targeting rock drill operators who are illiterate and this is going to damage normal bargaining processes,” he said.
Lonmin had a two-year wage agreement with recognised unions, namely the NUM, trade union Uasa, and Solidarity. An increase of between 8 percent and 10 percent was expected this month, and wage negotiations are expected to resume next year.
The illegal protest was started last week Friday by 3 000 rock drill operators demanding higher wages. By Sunday, 10 people had been killed, including two police officers.
On Thursday police opened fire on protesters gathered at a hilltop at Wonderkop near Marikana and reports were that 34 people were killed, more than 70 injured and more than 250 arrested. The 5 000 employees had refused to leave the hilltop until their demand for a R12 500 salary was met.
It is not the first time that violence has broken out in the platinum mines in North West Province. Earlier this year, 17 200 people were fired at Impala Platinum’s Rustenburg operations for participating in a six-week illegal strike fuelled by tensions between AMCU and the NUM. The strike reportedly left four people dead and 50 injured.