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Platinum Blues

Published 5 years ago
By Forbes Africa

Africa’s biggest platinum industry faces one of the most bruising years in its history. Unions and management have drawn battle lines for pay talks and a cloud of question marks hangs over the mining laws – dual uncertainty that could deter foreign investors from putting money in a country that produces 70% of the world’s platinum.

In July, pay talks for a new one-year deal began. Unions for 130,000 workers in South African platinum mines, sat down with the big three: AngloPlats, Implats and Lonmin. They are likely to prove tricky and drag on for weeks. The majority union, the Association of Mineworkers and Construction Union (Amcu), wants a 15% pay rise; the second largest, the National Union of Mineworkers (NUM), wants 20% across the board. Both unions are eyeing the recovering platinum price nosing above $1,000 an ounce for the first time in years. In August 2011, it was over $1,900.

Peter Leon

Demand for platinum, thanks to jewellery and automotive manufacturers, rose 10% in the first quarter of this year, according to the World Platinum Investment Council, while supply dropped 11%. It promises profit for South African mines if they can keep costs down; wages make up almost half of costs.

Amcu has 61% of the membership at AngloPlats, 62% at Implats and 82% at Lonmin. It holds the aces and will play a mean game for a minimum wage of R12,500 (around $860) a month. This wage has been the rallying call from Amcu ever since the bitter Marikana strike of August 2012. At the announcement of its demands in July, FORBES AFRICA questioned R12,500, saying it should be more like R20,000, taking into account four years of inflation.

“If we say R20,000 for the lowest paid, the employers are going to run away so we will go for R12,500 and work up from there,” says, the president of Amcu and part-time preacher, who appeared bullish and ready for action.

“We are applying for a pay rise here, not a strike. If the employers apply for a strike we will give it to them.”

The platinum employers are likely to be a tough nut to crack; inflation, at around 6%, is on their side. They are also struggling against years of falling commodity prices and productivity. On the Johannesburg Stock Exchange, AngloPlats shares lost two thirds of their value last year and Lonmin, kept afloat by a shareholders’ bailout in 2015, lost 99%.

Aside from the industrial problems, South Africa faces many more months of uncertainty over the country’s mining laws. Amendments to the Minerals and Petroleum Resources Development Act – which governs mining – have spent four years going back and forth through Parliament; questions have been raised over the constitutionality of the amendments. Investors take a dim view of plans to make resources – like iron and coal for the steel industry – designated minerals under the law. That would mean miners accepting government prices and maybe having to ask permission to export. This could lead to a trade law complaint at the World Trade Organization (WTO). China suffered a WTO ruling against it recently in a similar case concerning rare earth.

Then there are concerns about the discretion the law hands to the minister, giving him the power to cancel mining licences and prosecute.

“It is open to discretion, with unclear rules, which makes it very difficult to invest with that level of uncertainty and that is the long and short of it,” says Peter Leon, a mining lawyer with Herbert Smith Freehills, at a briefing in Johannesburg in June.

“We are going to a third rewrite without solving the problems of the first two.”

The bill is on its way back through the legislature and a number of bodies, including the Congress of Traditional Leaders of South Africa. Leon and his colleagues say the chiefs came up with one of the best ideas yet – an independent body to allocate the state-owned mineral rights.

With Parliament adjourned for the August 3 municipal elections, mining experts fear it could be well into next year before South Africa’s mining code is fixed. Investors seek stability and regulatory certainty; with every passing month there is a risk more of them will turn away.

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Related Topics: #Angloplats, #August 2016, #Industry, #Investors, #laws, #Lonmin, #Mining, #Platinum, #Unions.