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TABLE OF CONTENTS Nov 26 - Dec 2, 2012 Volume 98 Number 41 - 0 comments

Amplats settles with striking workers

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By: Anthony Vaccaro

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

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

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

Market watchers expect that the restart and increase in platinum group metals going into the market would result in softer PGM prices.

The precedent set by the deal with workers was also of some concern among analysts. “With Lonmin, Implats and now Anglo Platinum caving into the strikes, the possibility of further wage demands, strikes and production disruptions remains acute,” BMO Capital Markets analyst Edward Sterck writes in a research note.

Amplats will 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 a 190,000 oz. loss in platinum production, which would be worth close to US$300 million at today’s spot price of US$1,578 per oz. This will ripple through Amplats’ financial statements and likely cause a 20% decline in earnings from the year before, the company estimates.

The mines should be up and running within a week, after workers undergo training and safety measures.

Amplats’ acquiescence contrasts with the hard stance the company initially took, firing 12,000 miners last month. But with other companies coming to terms with striking workers, 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.

But Lonmin also had positive news, saying its major shareholder Xstrata (XTA-L) would fully subscribe to its portion of a US$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 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 for 50% approval, even without Xstrata’s support, the larger company opted 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 CEO Mick Davis states. “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 US$200-million proportional share in the issue.

It’s also pushing for a board and management change at Lonmin, and warns that if Lonmin doesn’t do anything, it will force the process.

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