PLATINUM GROUP METALS
Unpacking the cost of the Lonmin wage deal
NUM and labour analysts set out the broader ramifications of the agreement signed last night between, workers and the platinum miner.
Posted: Wednesday , 19 Sep 2012
Christy Filen -
Lonmin spokesperson, Abey Kgotle, has confirmed that the wage deal signed last night will cost the company an extra R192m per year on top of its current wage bill as the increases will apply to 24 000 of its 28 000 strong workforce.
At an exchange rate of R8.21 to the dollar this equates to approximately $23m.
Simplified, if one assumes that the miner's pre-strike operating profit reported for the six month period ended 31 March 2012 of $14m is doubled to represent an estimated normalised profit of $28m this will result in a marginal operating profit of $5m.
This would be before taking into account annual escalations of other operating costs including contractor costs which will in all likelihood have to follow suit.
The six months results were achieved on the back of a platinum price of $1568 per ounce.
As far as relying on the current metal price to recoup this cost increase goes, since Friday the platinum price of $1713 per ounce has lost ground declining $82 per ounce or 4.8% to trade at $1631 per ounce today.
The spot price of the metal on the day the strikes began, 10 August, was $1414 per ounce.
The National Union of Mineworkers general secretary, Frans Baleni, said that the union would now have to deal with the consequences of a wage agreement that had compromised existing bargaining structures and sent out the message that anarchy would be rewarded.
Alec Hogg spoke to labour analyst Andrew Levy last night who confirmed that a 22% increase is virtually unprecedented in the country's wage history.
"We haven't seen increases of a double-figure magnitude like that consistently since the early '80s. And of course the real risk now is the knock-on effect, the ‘I-want-some-too'. And I think that the probability that that is going to happen is very high" said Levy.
Even if the amount settled on of just over R11000 brings Lonmin's salary offering to rock drill operators in line with other miners the way that the increase was achieved sets a dangerous precedent.
"The strike itself and the fact that it was seen to be successful will give a lift, an upward buoyancy to the strike line...so we are certainly not out of the Lonmin wood by a long way yet, let alone all the much, much broader ramifications" said Levy.
Levy felt that Lonmin had capitulated and pointed out the disconnect between rising wages and declining productivity levels that are negatively impacting on the country's competitiveness.
All that said, even if the precedent setting wage agreement doesn't result in an increase in illegal strikes it has in any event lit a fire under the NUM who have announced their intention to open existing two year wage agreements at the Chamber of Mines. This will impact, in particular, the gold producers.
However, the settlement reached could have been far worse. Kgotle defended the deal saying that the average increase of between 11% and 22% agreed upon across the categories included a pre-existing annual wage increase of between 9 and 10% that would have been implemented in October in any case.
Lonmin's share price reflected the initial exuberance on a settlement on the opening of the Johannesburg stock exchange catapulting from R86.51 per share to R95.16.
The fizz however soon retreated as the share sank back down to R88.88 just after 1pm.
iPad Version: Picture: Striking miners dance and cheer after they were informed of a wage increase offer outside Lonmin's Marikana mine: REUTERS/SIPHIWE SIBEKO