Rising costs and falling prices may prompt South Africa’s largest platinum mines to stare down a union threat to halt 70 percent of global production over pay demands, pushing the industry toward a prolonged strike.

The Association of Mineworkers and Construction Union, the largest at the platinum mines, has rejected pay offers exceeding South Africa’s 6 percent inflation rate. An AMCU-led strike would halt operations at Anglo American Platinum Ltd., Impala Platinum Holdings Ltd. and Lonmin Plc, which together employ about 150,000 workers and contractors on the world’s richest deposits of the precious metal.

“The health of the industry is already in question,” Tyler Broda, an analyst at Nomura International Plc in London, said by phone. “It is going to be very difficult to give much more. The companies are unfortunately heading toward a path where they will take their chances with a protracted strike.”

The three companies have all in the last year either turned to investors for funds, set plans to shut mines or cut production and scaled back on capital spending to confront a slump in the price of platinum, down 16 percent from its highest level in 2013.

The AMCU is demanding that pay be more than doubled for some miners and has voted for a strike at Impala, operator of the biggest platinum mine, without setting a date. It will next week start last-ditch arbitration talks with Anglo Platinum, the largest producer, the company said yesterday. Negotiations with Lonmin are in deadlock after the union last week rejected a pay offer.

‘Unaffordable Increases’

“If the platinum industry on the whole settles for double digits, it will send a hell of a negative message,” said Sean Ashton, chief investment officer at Anchor Capital in Johannesburg. “They can’t afford those kind of increases.

Entry-level monthly wages average about 8,700 rand ($850) and include benefits such as accommodation allowances and pension fund contributions. The AMCU is demanding basic monthly pay of 12,500 rand, before benefits.

Impala has offered lower-paid workers an increase of 8 percent in the first year of a three-year agreement. Johannesburg-based Anglo Platinum, or Amplats, and Lonmin have offered 7 percent. Production costs at Amplats and Impala climbed by more than 20 percent last year because of higher labor expenses and lost production caused by strikes.

At Lonmin, costs rose by 13 percent in 2012 and the London- traded producer said its wage bill alone would rise by 11 percent in the 2013 fiscal year. Lonmin settled with workers to end a six-week strike last year, during which at least 44 miners died, including 34 killed by police in a single day near the Marikana mine in North West province.

‘Biggest Worry’

At least a further four union members have died on the platinum belt this year as the AMCU usurped the National Union of Mineworkers, a member of the ruling African National Congress’s Cosatu trade union federation, as the biggest labor group on the mines around Rustenburg.

“Our biggest worry is violence and intimidation,” Johan Theron, a spokesman for Impala, said yesterday in an e-mailed response to questions. “Nobody wants to see anyone getting hurt.” Spokesmen for Amplats and Lonmin declined to comment.

The price of platinum, mostly used in jewelry and catalytic converters that reduce harmful emissions from passenger cars, was at $1,451.20 an ounce by 2:34 p.m. in Johannesburg yesterday. Its highest level for the year was $1,736.80, reached Feb. 6.

Closing Mines

Amplats had undrawn debt facilities of 6.6 billion rand at the end of June as it implemented plans to consolidate five mines into three at its Rustenburg complex. Impala issued two fixed-rate bonds in February, one for $200 million and another for 2.6 billion rand, while Lonmin concluded a $817 million rights issue in December last year.

A strike at the three biggest producers wouldn’t immediately support platinum prices, according to Standard Bank Group Ltd., Africa’s largest lender. “Platinum miners have stockpiles in anticipation of potential stoppages,” the bank said in a note on Oct. 31. Most mines will be able to supply key customers for at least six weeks, Impala’s Theron said.

Inventories of the metal held at factories or in exchange- traded products are equal to about 1,000 days of usage, Standard Bank said. Miners anticipating shortages may have about one month’s worth of stockpiles, the bank said.

December Holidays

It’s possible that a strike may not take place at all this year, according to New York-based consultants Eurasia Group. Wage disputes with the companies are at different stages and “AMCU leaders are concerned about worker discipline ahead of the December holidays,” Mark Rosenberg, a Eurasia analyst, said in a note.

National Union of Mineworkers members started a strike over pay at Northam Platinum Ltd., a smaller producer, on Nov. 3. The union said yesterday it had received a revised pay offer from Northam, which it would put to its members tomorrow.

Platinum companies face the added risk that workers could abandon the AMCU should the union achieve a lower-than-expected pay deal, leading to further labor disruptions, Kobus Nell, an analyst at Stanlib Asset Management, which manages about $50 billion in assets in Johannesburg.

“The dynamics are very complicated,” Nell said by phone yesterday. “Both sides have a lot to win and lose.”

The balance sheets of the three companies are strong enough to withstand a strike, said Albert Minassian, an analyst at Investec Ltd.

“Companies are prepared to do a lot more than previously to hold out in a strike,” Investec’s Minassian said by phone from Cape Town. “I think they’re determined to reclaim control over the assets.”

–With assistance from Nicholas Larkin in London and Paul Burkhardt in Johannesburg. Editors: John Viljoen, Todd White