The last few years were not very good for most precious and base metals since prices fell due to weak demand. Additionally, there was an excess supply of most metals globally. Among the precious metals space, platinum too recorded a decline with its prices dipping from the highs of $1700 in 2010 to the lows of $1000 during 2016. A decline in end product price dragged the margins of major producers internationally. Apart from dealing with the drop-in prices, the platinum industry dealt with another major issue of labour unrest predominantly in South Africa. The country is the largest producer of platinum and other platinum group metals (palladium, rhodium and iridium among others) also known as PGM’s. South Africa contribute close to 70-75% of the total global output of PGM’s with Russia a distant second, contributing 12-15% of the production.
The South African miners were plagued with the labour unrest and strikes since 2012, which adversely impacted their operations and the global supplies. The primary reason for the labour unrest was a dispute over wages and working conditions. The first major strike surfaced in February-2012 with a 6-week shutdown of operations in the Impala Platinum Mining. This triggered a series of events which further deteriorated the relations between mining companies and labour unions. In September 2012, a strike at the operations of Anglo American Limited resulted in the firing of 12,000 striking workers. These incidents took an ugly turn when a protest at a Lonmin-owned mine resulted in the killing of 34 workers by police shooting. The protests soon spread to other miners across the country, with close to 15,000 workers fired by the end of 2012. While negotiations between company representatives and different mining unions continued, it could not reach a permanent and amicable solution. The issue persisted while this turned into a much bigger agitation in 2014, followed by another round of strike by major labour unions.
The strike in 2014 was called by AMCU (Association of Mineworkers and Construction Union) with industry reports claiming a coordinated strike of close to 70000-75000 workers. The AMCU represents a majority of workers’ union for Lonmin PLC, Anglo American Platinum (Amplats) and Impala Platinum (Implats), the three largest miners for PGM products in South Africa and the world. The strike which began in late January 2014, finally ended in June 2014 with the 3-year agreement on a wage hike between the companies and the labour union.
The five-month strike heavily costed the companies with production going down. The three companies recorded ~23% drop in production (PGM) during 2014, while Lonmin suffered the biggest hit and witnessed a near ~35% fall in output. In addition, operations were impacted negatively as on one side, output dropped, while on the other side, fixed costs continued to affect the business and indirectly weighed the margins.
On the cost side, while employee cost per employee has been increasing for the companies during the last few years, this spiked up sharply post the agreement over wage hike for the firms. The cost per employee surged by ~42%, ~31% and ~53% for Implats, Amplats and Lonmin in 2015 as compared to 2014. From 2010 to 2016, the CAGR increase in costs stood at 13.4%, 14.3% and 10.9% for the companies. These enterprises also took a harsh step to rationalize operations by cutting down on staff numbers, as a whole. Though the effect of increased wages over the past few years have been much higher than the fall in headcount, thus this led to a huge increase in the expenses.
The total number of employees for the three dropped by 6%-6.5% in 2015 and 2016. On a similar ground, a gradual shift towards more permanent employees over contractual employees continued in the last couple of years. Furthermore, as per the latest data of 2016, Implats had 74.3% permanent employees, Amplats had 94.2% and Lonmin had 79%, while the rest were on contracts. Notably, one positive effect on all the companies was the production per employee data, which saw a good rise during the last few years. The production per employee stood the highest as per the 2016 numbers for all the three as compared to the data since 2010.
Therefore, to sum up, the aforementioned factors divulges that global platinum and other group metals have continued to underperform due to extended decline in prices during the past few years. Additionally, companies operating in South Africa were inflicted by labour issues, mainly between the year 2012 to 2014. Mining and refined output were affected due to labour strikes while adding more pressure on profitability. In the current scenario, producers have managed to stabilise or even increase production to counter the falling realizations. Thus, with the longstanding labour problems, which have presently subsided, Televisory believe that miners operating in South Africa are better placed to handle low platinum prices.