South Africa girding for another platinum strike

In what seems like an annual event, platinum mining companies in South Africa are bracing for what could be another year of labour unrest.

The firms that mine the precious metal and the labour unions that represent their workers are in talks next week, trying to hammer out a deal that could avert a strike of similar magnitude to 2014.

That year, a strike led by the Association of Mineworkers and Construction Union (AMCU) forced major producers Amplats (LSE:AAL), Implats (OTCMKTS:IMPUY) and Lonmin (LSE:LMI) to shed over 70,000 jobs. The strike lasted 21 weeks, cost the industry R24 billion, and resulted in 1.3 million ounces of lost production – about a third of global output. South Africa and Russia combined account for close to 80% of global supply of palladium and 70% of platinum output which are mainly used to clean emissions in automobiles.

BDLive, via Reuters, reports the AMCU is demanding a pay rise of 56%, in line with a "living wage", while the National Union of Mineworkers is asking for a 20% wage hike – well over the 6.1% rate of inflation. The mining companies say they can't afford the pay increases, arguing that last year they were forced to tap shareholders to raise cash, and that the unions' demands are unrealistic:

"We have ensured that shop stewards have been appropriately trained and have a good understanding of our business and the challenging environment in which we operate," Implats spokeswoman Alice Lourens told Reuters.

The unions however will no doubt argue that the market is turning. Platinum prices are up by 22% this year and the World Platinum Council said earlier this year that the market will be in a deficit supply situation for the fifth year in a row.

In a weekly newsletter last year, reported by Mineweb, Metals Focus explained the problems with the South African platinum mining industry are many, and include:

  • narrow and deep underground mines that are both labour and capital-intensive.
  • poor working conditions due to the high temperatures in the mines and cramped conditions.
  • the Big 3 major platinum mining companies prefer to keep unprofitable mines operating and subsidize them from more profitable ones, rather than close them. This often leads to a philosophy of maximizing production despite high costs, thus exacerbating losses when prices are low.