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Platinum Producers Bet on 8-Week Stockpile to Beat Strike

Photographer:Alexander Joe/AFP/Getty Images

The stoppage will continue as wage talks between the companies and the union resume in Pretoria, Association of Mineworkers and Construction Union President Joseph Mathunjwa, center, said today by phone. Close

The stoppage will continue as wage talks between the companies and the union resume in... Read More

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Photographer:Alexander Joe/AFP/Getty Images

The stoppage will continue as wage talks between the companies and the union resume in Pretoria, Association of Mineworkers and Construction Union President Joseph Mathunjwa, center, said today by phone.

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. (AMS) and Impala Platinum Holdings Ltd. (IMP), the two largest, can continue to fulfill customers’ orders for six to eight weeks, spokesmen for the Johannesburg-based companies said. Lonmin Plc (LMI) 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. It declined to say how long demand could be met in a walkout.

“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 Jan. 23 over pay, including demands that entry level wages be more than doubled to 12,500 rand ($1,127) a month.

The stoppage will continue as wage talks between the companies and the union resume in Pretoria, AMCU President Joseph Mathunjwa said today by phone.

Proper Negotiations

At yesterday’s session, producers talked mostly among themselves rather than engaging with the union, according to AMCU Treasurer Jimmy Gama. “Nothing much in terms of proper negotiations were taking place,” he said after the meeting.

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

Platinum has climbed 3.6 percent to $1,421.38 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.”

Credit-Positive

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.

“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. (NHM) 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 larger pay increases. It has gained in membership and influence since the deaths of at least 44 people, including 34 killed by police in a single day, at Lonmin’s Marikana operations in August 2012.

Ruling Party

The union has said it isn’t 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 Jan. 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.

Striking employees today complied with rules on picketing at Impala, after the company and Amplats won court orders compelling the AMCU to prevent unlawful conduct by its members, Theron said. “We should see a lot more people reporting for duty.”

Rand Weakness

While members of Uasa, another minority union, were able to report for work at Impala today, they still experience intimidation at Amplats, Franz Stehring, the labor group’s head of mining, said by phone.

The companies’ stockpiles have eased investor concerns that the strike will disrupt earnings. Amplats stock has dropped 1.2 percent to 434.80 rand since the strike started, Impala is down 3.8 percent while Lonmin gained 0.2 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 5.4 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.

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 Officer Chris Griffith, Impala CEO Terence Goodlace and Lonmin CEO 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.”

To contact the reporters on this story: Kevin Crowley in Johannesburg at kcrowley1@bloomberg.net; Paul Burkhardt in Johannesburg at pburkhardt@bloomberg.net; Andre Janse van Vuuren in Johannesburg at ajansevanvuu@bloomberg.net

To contact the editor responsible for this story: John Viljoen at jviljoen@bloomberg.net

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