Amplats settles with striking workers

Mine workers at Anglo American Platinum (Amplats) are going back to work, putting to rest a series of wildcat strikes that all but crippled the South Africa’s platinum mining industry.

The new deal with miners resolves strikes at its Rustenburg, Union and Amandelbult operations. Amplats, which is controlled by Anglo American (AAL-L) is the world’s largest producer of platinum.

Miners agreed to return to work after the company offered higher pay and agreed to reinstate the 12,000 employees previously fired from Rustenburg.

Market watchers expect that the re-start and the consequential increase in platinum group metals going into the market will result in softer PGM prices.

The precedent set by the deal with workers was also of some concern.

“With Lonmin, Implats and now Anglo Platinum caving in to the strikes, the possibility of further wage demands, strikes and production disruptions remains acute,” BMO Capital Markets analyst Edward Sterck wrote in his research note.

Amplats will now pay workers a monthly allowance of R600 or a monthly salary increase of R400 along with a one time allowance of R4,500 once miners return to work.

The strikes lasted eight weeks and hit 40% of the company’s operations resulting in the loss of roughly 190,000 oz. of platinum production, which would be worth close to US$300 million at today’s spot price of US$1,578 per oz. That will ripple through Amplats financial statements and likely cause a 20% decline in earnings from the year previous the company estimates.

The mines should be up and running within a week as workers will first have to go through training and safety measures.

Amplats acquiescence is in stark contrast to the hard stance the company initially took with striking workers, as it fired 12,000 miners last month. But with other company’s coming to terms with workers, the writing was on the wall for Amplats and a deal was finally struck.

The wave of strikes and ensuing turmoil in South Africa began at Lonmin’s (LMI-L) operations and escalated after police shot 34 miners. The tragedy inspired more strikes with over 100,000 miners walking out of operations at its peak.

Lonmin too had positive news as it said its major shareholder Xstrata (XTA-L) will fully subscribe to its portion of the $817 million rights issue.

Xstrata has a 24.5% stake in Lonmin but its participation in the issue was in doubt because of the growing acrimony between the two companies.

Lonmin first spurned a takeover bid by Xstrata and then when Xstrata said it would only support a rights issue if Lonmin’s management team was replaced with Xstrata personnel, Lonmin rejected that too.

But with Lonmin set to get the 50% approval it needed for the issue, even without Xstrata’s support, the larger company decided it was best to tag along despite its reservations.

“For two years we have sought to address the strategic and operational challenges that Lonmin faces,” Xstrata’s CEO Mick Davis said in a statement. “Given the dire financial position of Lonmin, we concur that a substantial recapitalization of the business is required. However, that recapitalization must be backed by a suitable management team and business plan.”

Xstrata is subscribing in full for its proportional share in the issue means it will subscribe for US$200M.

Xstrata is still pushing for a board and management change at Lonmin, and warned that if Lonmin doesn’t do anything, Xstrata try to force the process.