Strike hits bonds of Implats as lost ounces limit sales

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Bloomberg

The 20-week mining strike has sent the yields on bonds issued by Impala Platinum (Implats) to eight-month highs as lost output cuts revenue at the mining firm.

Yields on the producer’s February 2018 rand notes rose to 8.28 percent last Monday, the highest since September 2013 and 230 basis points more than on January 24, the day after the strike began. The bonds have lost 4.1 percent on a total-return basis since that day, compared with a 20 basis-point gain for dollar debt of emerging market metals and mining companies, JPMorgan Chase indices show.

The local mining industry’s longest-running labour dispute cost Implats 246 000 ounces of platinum production by May 16, equivalent to over 20 percent of the previous financial year’s total and representing almost a fifth of its annual revenue.

Mineral Resources Minister Ngoako Ramatlhodi told SABC News last week that the two sides were “very close” to a solution, which hinges on wage demands by workers at the three biggest producers.

“Even if it’s solved tomorrow, it will be another quarter before you can return to pre-strike production levels,” Esther Krukowski at BlueBay Asset Management said last week. “That’s good for underlying metal prices but not for the cash flows of these producers.”

Supply shortages for platinum, used in pollution-control devices for vehicles, would be the largest in more than three decades this year on stronger demand from car manufacturers and restricted supplies because of the strike, multinational chemicals and precious metals company Johnson Matthey said on May 20. The metal has declined 1.9 percent since the stoppage began.

Anglo American Platinum and Lonmin, the two other producers affected by the strike, do not have publicly traded bonds.

Implats declined to comment.

“The shutdown has gone on far longer than anyone anticipated,” Rashaad Tayob at Abax Investments said. The notes “didn’t react at first but now the strike is weighing on them”, he added.

About 45 percent of the group’s total production was unaffected by the strike, Implats said on May 16, adding that it had imposed “stringent” cash-preservation measures.

Implats’s rand-denominated bonds can be exchanged into stock at R214.90 a share. The shares fell 0.36 percent to close at R111.76 on Friday.


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