Worst Platinum Stock Seen Leading South Africa Post-Strike Rally

Lonmin Plc (LON), South Africa’s worst-performing platinum stock this year, is poised to lead a rally that will follow the end of the longest mining strike in the nation’s history, according to Cadiz Holdings Ltd.

More than 70,000 members of the Association of Mineworkers and Construction Union stopped working on Jan. 23, halting operations at most mines owned by Anglo American Platinum Ltd. (AMS), Impala Platinum Holdings Ltd. and Lonmin, based in London. The world’s three biggest producers will cut jobs and shut shafts once the dispute over pay increases has been resolved, helping bolster profitability with lower-cost output and improved productivity, said Peter Major, a mining analyst at Cadiz who’s been tracking the industry since 1989.

“If I was forced to take some of my pension and put it into a platinum stock that I couldn’t touch for two years, I’d probably choose Lonmin,” Major said in a May 6 phone interview from Cape Town. “Once the strike is over, all of the platinum companies’ boards will be focusing on the same thing: How do we get our investment, our share price up? They are just going to do whatever it takes to get these mines to generate earnings.”

The strike in the world’s biggest platinum-producing nation curbed exports as South Africa battles to spur growth from the slowest pace since the 2009 recession. Lonmin, which has had to shut all of its mines, has declined 11 percent in 2014, the most among the six-member FTSE/JSE Africa Platinum Mining Index. Impala’s output in the country has also been halted while Amplats, as Anglo American Platinum is known, is running at 33 percent capacity in South Africa.

Bollinger Band

Lonmin fell for a fifth straight day, dropping 0.4 percent to 47.40 rand by 9:34 a.m. in Johannesburg, the lowest since Dec. 17 on an intraday basis. The stock pushed through the lower end of its Bollinger band yesterday, a sign it may be set to rebound. Developed by John Bollinger in the 1980s, the bands are used by technical analysts to identify the turning point in an asset’s trajectory. The upper limit represents two standard deviations from the 20-day moving average and typically implies that the likelihood of the stock dropping below the band is about 2.5 percent.

Impala retreated 3.9 percent this year while Amplats climbed 22 percent as the world’s biggest producer continues to refine metals and has operations in Zimbabwe that are working normally.

Workers are increasingly reporting for duty at Amplats as incidents of violence or intimidation against non-striking employees subside, minority unions said on May 9. Lonmin has “overwhelming support” from employees for a return to work on May 14 after it appealed directly to workers, Chief Executive Officer Ben Magara said on a conference call yesterday.

Platinum Price

The price of platinum, used in catalytic converters to reduce harmful emissions from automobiles, will probably decline after the strike, Cadiz’s Major said, as there was an oversupply of the metal before the stoppage. Major joined Cadiz in 2006 after starting HBD Asset Management as chief investment officer in 2001 with information technology billionaire Mark Shuttleworth, who was the first African in space.

The long-term price for platinum is about $940 an ounce, Major said.

Amplats Chief Executive Officer Chris Griffith said March 28 job losses would be “inevitable” after the strike. Questions about cost cutting following the stoppage “are speculative,” Amplats spokeswoman Mpumi Sithole said in an e-mail yesterday. Lonmin’s business “will have to be restructured with a consequence on job losses” if there’s a further delay in ending the strike, CEO Magara said.

‘Step In’

With national elections on May 7 resulting in the fifth straight win for the ruling African National Congress, the government may now have the political will to push for a strike resolution, said Hanre Rossouw, commodities chief for frontier and emerging markets at Investec Asset Management, which manages about $13.4 billion.

“At least the government can step in as they have been absent from discussions,” he said by phone from Cape Town on May 6. The union “will need to settle because the internal pressure is building,” Rossouw said. Employees have lost 7.8 billion rand ($752 million) in wages, according to a website run by the mining companies.

Mac Maharaj, a spokesman in the office of President Jacob Zuma, didn’t immediately respond to questions that he requested be sent by e-mail when contacted by phone today.

“It’s a dawning of a new age,” Rossouw said. “You’re going to have a smaller, more sustainable, more profitable platinum industry with hopefully some labor peace.”

To contact the reporter on this story: Emily Bowers in Johannesburg at ebowers1@bloomberg.net

To contact the editors responsible for this story: Vernon Wessels at vwessels@bloomberg.net Emily Bowers, Ana Monteiro

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