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Behind the strike madness

WEDNESDAY next week is the three-month anniversary of the start of the the Association of Mineworkers and Construction Union's (Amcu's) strike on the Rustenburg platinum producers.

When the strike began, we said that it might not last long as the unpaid and indebted workers would be eager to return to work and such unrealistic wage expectations would lead to loss of support for Amcu.

However, the strike seems to have got ‘stuck’, not helped by a number of factors:

1. The level of violence has been relatively low but the level of threat and intimidation has been very high, and is believed by the mining companies to be the key factor preventing workers from returning to work across the picket line.

2. Given a large number of workers have loan repayments taken directly from their pay packets, the lack of income has not (temporarily) had an impact on debt repayment demands.

3. There appears to have been some external support of miners through Amcu and churches for instance with food. Amcu has also set up a strike fund to support members financially.

Anglo Platinum and other companies have also been running humanitarian assistance programmes for food and child healthcare to striking workers – an extension of their usual support operations.

4. A large number of the migrant workers may have gone home to families in the Eastern Cape, Zimbabwe or Lesotho, hence reducing local tensions.

5. The National Union of Mineworkers (NUM) has made no move to capitalise on the situation and recapture lost support, and the ANC has also steered clear. We think the Economic Freedom Fighters (EFF) is still deeply connected with Amcu, but more recently has not been as active in the Rustenburg as it was before Christmas.

6. Other unions such as the Workers' Association Union (Wau) have emerged as more moderate forces in the strike, wanting to return to work, though they have little real support.

7. The mining houses have managed to stretch out customer deliveries and have been able to continue processing already mined ore, and so are feeling little pressure from the strike so far in financial terms. Indeed, they still have the substantial upside from not paying wages.

Rallying stock prices as a result of this dynamic have also bolstered them, and we would expect the increasing 2014 expected platinum deficit to cause higher platinum group metal prices increasing earnings potential (as stocks are rebuilt once the strike has ended).

8. Amcu has been weakened by infighting and questioning of the leadership of Joseph Mathunjwa – especially after shifting its wage demands from requiring a R12 500 a month minimum wage in one year to over three years.

9. The government, ANC, Commission for Conciliation, Mediation and Arbitration and mining companies remain exasperated that Amcu’s approach is so different from normal behaviour for a mining union – making demands but not being prepared for any give or take on those demands.

10. The government has been exceptionally quiet on the strike. Mining Minister Susan Shabangu and her department have said virtually nothing since the start of the strike in January. The government, still sore from the Marikana fall-out, seems paralysed on the issue. Deputy President Kgalema Motlanthe continues to be eloquent on the issue, but has no real power to sort the situation out.

Finance Minister Pravin Gordhan has said more, but generally, and oddly, trying to play down the impact of the strike. All this suggests to us that the government simply has no idea how to handle Amcu (see below).

Amcu may well self destruct as part of this process, leaving a dangerous vacuum which the NUM, Wau, the National Union of Metalworkers of SA (Numsa) and others will likely compete to fill.

So what comes next?

However, defining the end point from here remains difficult:

a. Amcu’s demands and mining houses’ ability to pay are so wide apart that there is simply no way one can accommodate the other. Amcu has not moved to anything like the CPI+x% sort of demand that mining houses could realistically cooperate on.

b. The situation for miners who normally have little savings is not getting any better but nor is it getting much worse, especially if Amcu and others can provide subsistence support.

c. An important factor could be the mining houses’ decisions on restructuring and shaft closures due to the strike (see below). This could force an escalation of protest which would then end with layoffs, but it would risk wider solidarity worker strikes.

d. An internal leadership battle or crumbling of Amcu support, prompted by the factors above, and a gradual return of workers to work could also prompt an end, especially if other union bodies accept mining houses’ (rather generous in our view) offers.

e. Mining houses have already declared force majeure on their suppliers and may well have to on customers if (/when) they run out of reserves. However, to keep customers happy we think they will aid open market purchases (without taking price risk), which would support the platinum price further.

f. There is little the government or ANC can do to force the strike to a conclusion as Amcu is not a signatory of Motlanthe’s mining stability charter of last year. The mining houses separately have been driving many of the changes such as improving housing.

g. The post-election period may be fertile ground for Numsa to make a more aggressive move into the mining space though this would not be a quick process and the Rustenburg would not be the most obvious place to start.

h. None of this is particularly helpful in determining when the strike will end, though it does suggest sooner rather than later. However, there is little movement from any side to act as a catalyst at the moment.

We notionally put a date of the week after the election as a time to watch for the end of the strike, but with low conviction.

Many of the factors pull in opposite directions though all point to challenging medium-run prospects for the platinum sector in terms of smooth operations. However, this is not the same as our strategic view on the stocks of these companies.

The period after the strike will likely see a lower global surplus of the metal and higher prices, weakened unions and economic rationale gaining the upper hand over politics, not to mention more institutionalised and solid cooperation between the producers as an outcome of the strike.

Fixed income markets have largely ignored the strike, especially after Amcu’s initial wish to also have a parallel gold strike was scuppered (and it appears it has made no progress, legally or otherwise, on this front).

Equity markets have also broadly ignored the strike, including wider mining stocks. It is just the platinum sector stocks that have underperformed the index by around 6% and the broader mining sector by 9%. Even there though there has been more support in recent weeks, as the more positive platinum stock cash flows story has filtered through.
 
- Fin24

*Peter Attard Montalto is a director and emerging markets economist at Nomura. Views expressed are his own.
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