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Lonmin bloodshed has global implications

Aug 17 2012 12:33 Reuters & I-Net Bridge

Company Data

Lonmin plc [JSE:LON]

Last traded 40.36
Change -1.13
% Change -0.03
Cumulative volume 797846
Market cap 22.95bn

Last Updated: 01/08/2014 at 01:24. Prices are delayed by 15 minutes. Source: McGregor BFA

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London - The deadly union turf war at a Lonmin [JSE:LON] platinum mine is a sovereign challenge and a global concern. South Africa has most of the world’s platinum, an essential metal in car exhausts. It’s up to the government to restore order. The mining groups are stuck and have no easy options.

The London-headquartered company has been forced to shut down all its South African platinum operations, which account for 12% of global platinum output. 

As a result of the disruption, Lonmin has so far lost six days of mined production, representing approximately 300,000 tonnes of ore, or 15,000 platinum equivalent ounces.

South Africa is home to 80% of the world's known platinum reserves, but rising power and labour costs and a steep decline in the price of the precious metal this year have left many mines struggling to stay afloat.

World platinum prices spiked nearly 3% on Thursday as the full extent of the violence became clear, and rose again on Friday to a 5-week high of $1 450 an ounce.

Lonmin shares in London and Johannesburg fell more than 5% to 4-year lows, bringing their losses since the violence began a week ago to nearly 20%.

Economists warn that the violence could scare away foreign investment.

Analysts believe the violence could spread to other mining sectors and hurt employment‚ when nearly a quarter of the country’s work force is unemployed.

Andrew Joannou‚ chief investment officer at Afena Capital‚ said foreign investors could become nervous when looking for investments in SA.

“When it starts getting attention in the international news‚ it will make offshore investors even more nervous‚ not just for Lonmin and the platinum industry as a whole‚ but they will worry about whether or not it could spread into the other sectors like gold‚” Joannou said.

“We haven’t seen it yet‚ but it could happen. With the rand platinum group metals basket price so low‚ any additional production cuts or cost increases will have a significant impact‚” he said.

Chris Hart‚ chief economist at Investment Solutions‚ said the situation at Lonmin could be damaging to investment and the employment sector.

“The investor response would be to invest in platinum but (not) platinum mining shares. Companies won’t be able to attract capital for investment‚ which may contract the industry‚” Hart said.

He said the responsibility rested with the leadership of unions.

“This is about leadership and unions trying to gain prominence and make a name for themselves. Unions can make demands on behalf of labour but if those demands can’t be met then it is simply political grandstanding‚” he said.

Hart said this could be damaging to workers as well as the unemployed‚ as such violence could deter investments that could create jobs.

Although the striking Marikana miners were demanding huge pay hikes, the roots of the trouble lie in a challenge by the upstart Association of Mineworkers and Construction Union (AMCU) to the 25-year dominance of the National Union of Mineworkers (NUM), a close ally of the ruling ANC.

“There is clearly an element in this that a key supporter of the ANC - the NUM - has come under threat from these protesting workers,” said Nic Borain, an independent political analyst.

President Jacob Zuma, who faces an internal ANC leadership election in December, said he was “shocked and dismayed” at the violence, but made no comment on the police behaviour.

“We believe there is enough space in our democratic order for any dispute to be resolved through dialogue without any breaches of the law or violence,” he said in a statement.

Lonmin Chairperson Roger Phillimore said in a statement: “We are treating the developments around police operations this afternoon with the utmost seriousness. The South African Police Service (SAPS) have been in charge of public order and safety on the ground since the violence between competing labour factions erupted over the weekend, claiming the lives of eight of our employees and two police officers. It goes without saying that we deeply regret the further loss of life in what is clearly a public order rather than labour relations associated matter.”


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