The Association of Mineworkers and Construction Union, or AMCU, said it has been frustrated by the attitude of large platinum producers who are resisting wage increases despite reporting a rise in profits.
Speaking to S&P Global Market Intelligence amid a third round of talks with platinum sector unions, AMCU President Joseph Mathunjwa said that mining companies including Impala Platinum Holdings Ltd. had shown themselves unwilling as of Aug. 1 to consider worker demands the union has linked to inflation. Mathunjwa was expected to meet with Anglo American Platinum Ltd., or Amplats, this week for another round of discussions.
"We have already concluded deals with some of the smaller producers so we are disappointed that the companies made big profits and gave shareholders large amounts of money, but when they need to pay their workers they are dragging their feet," he said.
Mathunjwa said the union had done a lot to help to turn Lonmin Platinum around after years of losses. "We worked hard at improving production and safety, I was at Lonmin at 3 a.m. in winter talking to staff in the shafts about those things. They did not improve Lonmin's performance alone," he said. Lonmin Platinum became part of Sibanye Gold Ltd. earlier this year.
The AMCU is asking for a basic monthly salary of 17,000 South African rand for workers, up from the basic salary of 11,500 rand per month awarded in 2014 and the 12,500 rand per month sought by the union previously. The final package including benefits would be about 30,000 rand.
In the weeks leading up to the wage negotiations, mining companies Sibanye and Amplats said they would not be able to justify what they saw as considerable increases, despite improved results on the back of higher palladium and rhodium prices and a weaker rand.
During Amplats' earnings presentation last month, CEO Chris Griffith said that while prices went up they also went down, warning companies to be cautious about embedding unsustainable costs, a reference to weaker platinum prices seen over the last few years. The miner booked a 120% year-on-year increase in headline earnings for the first half of 2019.
Amplats spokesperson Jana Marais said Aug. 2 that the company was committed to reaching a mutually beneficial settlement as soon as possible but that any wage discussions would need to ensure "the company remains viable through future [platinum group metals] commodity price cycles."
Sibanye spokesperson James Wellsted also said the talks had some way to go, adding that "AMCU's initial demands are unaffordable and will impact on the sustainability of the operations."
Liberum Capital analyst Ben Davis told Bloomberg News in early July that Amplats was better equipped to handle a strike should negotiations fail, citing a strong balance sheet and the mechanization of the company's key operation, while Sibanye and Impala Platinum were "more exposed" and less able to absorb large wage increases.
Greg Rodwell, a senior research metals and mining analyst with S&P Global Market Intelligence, said if a strike does occur, end users, traders and refiners have sufficient platinum stocks to withstand a strike similar to the last platinum sector strike in 2014, when AMCU members brought the mining sector to a standstill for five months.
"The downstream PGM supply chain has built up inventory of platinum and palladium mainly due to stock building in light of the unstable nature of the South African platinum industry, but if there was a shortage of stock there is still 3 million ounces of platinum sitting in [exchange-traded funds] which would be freed up on a higher price and would come into the market," he said.
Strong rhodium and palladium prices and a weaker rand, together with optimization programs which have resulted in the closure of high-cost producing mines or shafts, indicates the sector is flush with cash, but platinum producers are understandably cautious about generous increases.
Metals Focus Ltd. released its Platinum and Palladium Focus report in May, forecasting a year-on-year decrease in the platinum price in 2019 to US$875/oz from US$880/oz, despite increased investor confidence.