Hard choices ahead as platinum prices fail to brighten

 
Marc Sidwell
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THE strike that hit Lonmin’s Marikana platinum mine in South Africa last summer is the one that sticks most tragically in the memory, thanks to the appalling violence which broke out, ending with 34 strikers dead at the hands of the police on a single day – the bloodiest security incident in the troubled nation since the end of apartheid.

Yet Lonmin was not the only firm affected. Platinum miner Amplats, part of the FTSE 100 mining and natural resources group Anglo American, endured problems on an enormous scale as the year wore on, at one point sacking 12,000 miners at a swoop.

It is hardly surprising that these damaging disputes, costly in human life and to corporate bottom lines, were reflected in the disappointing numbers reported by Anglo and Amplats yesterday.

Amplats, which is the world’s biggest platinum producer, saw a headline loss of $170m (£108m) over the 2012 calendar year, down from a profit of $527m the year before. For Anglo American, this translated into a $225m loss to underlying earnings, down from a $410m contribution to the same measure of earnings in 2011. Shares fell 1.51 per cent on the news.

Such shocking losses are in line with the shocking scale of the problem. Of more concern for investors today is how intractable the situation in South Africa still appears. Amplats has already announced this year a fresh round of job cuts, with 14,000 intended to be axed, as it mothballs some mines in order to reduce platinum output – a plan that was predicted to reduce the world’s total platinum production by seven per cent.

However, these plans met with an unsurprisingly frosty reception and the threat of further strikes. Amplats has subsequently delayed implementing the radical scheme while it negotiates further with the unions.

Part of the problem is the generosity of Lonmin, which buckled in the face of the dreadful escalation at Marikana and offered its workers a 22 per cent wage hike. As a result, other platinum miners find themselves faced with the option of following suit or being threatened with more labour disruption until they offer similar concessions. It is hardly surprising that laying off 14,000 miners looks unacceptable by comparison.

And yet both Anglo and Lonmin are in their different ways trying to adjust to some tough new market realities. The price of platinum fell off a cliff in 2008 and is still trading below its pre-crisis trend price.

Platinum suffers from being a useful metal. Important for catalystic converters in cars, the slowdown in Europe’s automobile market has hit demand very hard and prices have been depressed as a result. The stoppages last year, with all the uncertainty they brought and their constraining effect on production, failed to make prices for the white metal spike up even to match the recent highs of early 2011. Anglo’s 2012 losses are bad but worse still is the reality that there is no imminent gleam at the end of this tunnel except the lamp of an angry miner.