Precious Metals

Clashing South African Unions Drive Amplats Strikes

Precious Metals

Conflict between the NUM and AMCU, two South African unions, is largely behind the strikes at Anglo American Platinum’s operations.

Editor’s note: The striking Amplats workers returned to work July 9.

In his May presentation of Thomson Reuters GFMS’ Platinum & Palladium Survey 2013, William Tankard, the firm’s mining research director, ominously commented, “[t]he pieces are in place for further labour unrest as we move into the wage negotiation period in South Africa.” Two months and thousands of striking workers later, those pieces have undoubtedly come together.

In a statement released Monday, Anglo American Platinum (OTC Pink:AGPPY) confirmed that 5,600 workers at its Thembelani and Khuseleka platinum mines, both located in Rustenburg, began a wildcat strike on Sunday night, according to Bloomberg. The workers are demanding that 19 officials from the Association of Mineworkers and Construction Union (AMCU) be reinstated and intend to continue the strike until they are rehired, The Wall Street Journal reported. They also want Amplats to suspend its planned job cuts and guarantee that it will shut the National Union of Mineworkers (NUM) out of its operations.

The build up

At the heart of the strike is what Reuters describes as a “violent turf war” between the AMCU and NUM, both of which are South African unions. The more radical AMCU quickly became the dominant union in the country’s platinum sector last year following violent unrest, as per the Financial Times, and currently the NUM, which has been accused of not advocating for ordinary miners, is attempting to win back the thousands of members it has lost to its rival in that time.

The tension between the two groups erupted last month, when miners at Thembelani, led by the 19 officials mentioned above, prevented 2,400 of their colleagues from returning from underground, and continued last week after the leaders of the AMCU refused to sign an agreement aimed at bringing stability to the nation’s mining industry in time for wage negotiations.

The AMCU’s objections to signing stem from the fact that its members have lost jobs at Glencore Xstrata’s (LSE:GLEN) South African chrome mines and at AngloGold Ashanti’s (NYSE:AU) Vaal River operations; it has also spoken out “against the NUM’s Labour Court application on the validity of membership forms at Lonmin,” said Bloomberg. Further, the union wants Amplats to “more than double the monthly pay of entry-level underground workers to 12,500 rand ($1,200).” Amplats’ basic wage for miners is currently the lowest in the sector, likely between 4,000 and 4,500 rand per month, a NUM spokesperson told Reuters.

Unfortunately, with platinum prices down nearly 13 percent since the beginning of the year — the metal fell to $1,329.10 per troy ounce, its lowest level since October 2009, on June 24 — and Amplats shares down 35 percent, the company can “ill afford” to meet that demand, Reuters said.

While at the time the AMCU’s leaders simply asked for the chance to consult other members, with Susan Shabangu, South Africa’s mineral resources minister, optimistically commenting, “[t]he tone, the language today, and their commitment to the actual document shows they will be coming back to sign,” instead the Amplats strikes have followed.

Price impact

The silver lining of the strike is that it has given spot platinum prices a slight boost, pushing them up 2.2 percent, to $1,352.20 per troy ounce, from Friday’s price. Robin Bhar, Societe Generale’s head of metals research, believes prices may rise further. He told CNBC, “[t]he ongoing industrial unrest across South Africa is already having an impact on platinum prices – and the situation is not going to get better soon,” also commenting, “[i]f this strike results in a significant loss of production, it’s going to help support the price.”

Matthew Turner, a precious metals analyst at Macquarie, concurred, telling the publication that a “serious strike” could drive platinum prices up. However, lest investors get too hasty, he also emphasized that demand is “relatively low” and thus there might not be a huge impact.

For now, investors would do well to keep an eye on what happens during upcoming wage negotiations. Talks are set to start on July 11, according to Miningmx.

 

Securities Disclosure: I, Charlotte McLeod, hold no direct investment interest in any company mentioned in this article.

Related reading: 

2013 Platinum Price Contingent on South African Supply

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