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Oct 18 2012 09:46 Jarred Myers

Company Data

Anglo American Plat Ltd [JSE:AMS]

Last traded 398.70
Change 1.24
% Change 0.00
Cumulative volume 288997
Market cap 107.52bn

Last Updated: 19/09/2014 at 04:26. Prices are delayed by 15 minutes. Source: McGregor BFA

Lonmin plc [JSE:LON]

Last traded 37.17
Change 0.37
% Change 0.01
Cumulative volume 525574
Market cap 21.21bn

Last Updated: 19/09/2014 at 04:26. Prices are delayed by 15 minutes. Source: McGregor BFA

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THE question of which approach was right - the capitulation of Lonmin [JSE:LON] or the bravura of Anglo Platinum [JSE:AMS] (Amplats) - is being asked by the nation’s business folk.

It so happens that this is the wrong question.

An interesting pattern developed in the equity markets recently; every time labour erupts at a mine the share price drops 5%, and when a wage agreement is reached it pops 5%.

Equity analysts have been slipping all over the big pot of butter which their bums landed in; all one needs to do is watch the news and short every share when a strike erupts, and buy it again the next week - a bull-bear whiplash punt if ever there was one.

Except it isn’t so; a quick glance at how the market evaluated the Lonmin and Amplats strategies reveals much about the right question to be asking.

Lonmin saw its share price drop over 15% throughout the chaos to R71, with the market frothing as the dispute waned, pushing prices up 32% to a giddy R95 per share the day after the wage deal ended the strike.

So this all seems quite rational. Markets work, the Chicago School die-hards breathed a sigh of relief and calm was restored - except that the next day, the share price plummeted 13% from its previous day high, the market woke up hungover and 'twas a pyrrhic victory.

All that anticipated profit was to be vapourised by higher labour costs.

Obviously we can't blame Lonmin for their actions; they made rational albeit unlucky decisions with the information available to them in the face of police bungling, union mumbling and government fumbling.

And the market acknowledged this pickle with the share price still 23% down five weeks hence.

Let’s now turn to Amplats. Strike begins, market stable, strike escalates, market mildly jittery, Amplats pushes the flashing red button firing 12 000 miners, market nods with a 1.7% gain - what's going on over here?

Didn't we just see roller coaster-like volatility in a parallel situation in the same region in the same commodity with the same stakeholders?

Indeed we did see the same game, except this time Amplats knew which game they were playing: not an economic game but a political one, and in order to win a political game one needs to understand the completely different incentives.

Unions want chaos, their objective is to prevent a settlement being reached, unions make unreasonable demands, chaos continues, mines crack open their piggy banks, unions stonewall them, mines are helpless, unions win this round hands down maintaining leverage throughout: this was Lonmin playing the economics game.

Amplats isn't playing that game.

Mines enter this fight with a solid right hook to unions' jaw: “you're all fired”, mines have forced a settlement, unions' power is decoupled, unions become desperate, striking workers are asking uncomfortable questions, unions up the ante with violence, but the wind is no longer in unions' sails.

Amplats wins this round by playing the political game.

But underestimate the unions' strategy at your peril. See how fast they adapt, what are the latest demands, not R12 500 now - they're demanding over R16 000 after tax, a junior engineer’s salary!

But to laugh is to misunderstand the noise from the signal.

The unions ironically underestimated themselves with Lonmin by asking for a raise that was within reach, and when Lonmin gave it to them they were helpless - they could no longer cause chaos, they were a liberated freedom fighter.

Unions will not make this mistake again. They have recalibrated, and it is for this reason that the demands now being made are flippantly ridiculous for it is their aspiration rather than their attainment which is their true goal.

Now we are in a position to ask the right question. The question is not whether Lonmin's or Amplats' strategy is superior; rather the question to be asked is what game are we playing?

 - Fin24

*Fin24 user Jarred Myers doubles as guest columnist.
 
amplats  |  lonmin  |  mining unrest  |  platinum
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