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Potential South African Labor Strikes Will Affect Platinum More Than Gold – Thomson Reuters GFMS
By Alex Létourneau of Kitco NewsMonday January 20, 2014 12:54 PM
(Kitco News) - As South African mining companies and mineworkers move towards another labor strike in the coming days, William Tankard, research director of precious metals mining Thomson Reuters GFMS said investors should keep an eye on platinum.
The Association of Mineworkers and Construction Union (AMCU) served notice Monday to platinum and gold mining companies in South Africa that a strike would take place Thursday if wage demands were not met.
Tankard said it is unlikely that an agreement will be reached in the coming days.
“I think it’s almost inevitable that we will see disruption on the platinum side,” Tankard said.
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If the strikes begin, Tankard said that platinum will be the metal that will be most affected.
“The influence of AMCU within the South African mining sector is more extensive within the platinum industry than is the case with gold,” he said. “This potential disruption is greatly more pertinent to the PGM space than it is to gold.”
“The geographic concentration of PGMs, platinum specifically, South Africa accounts for three quarters of global mine output whereas for gold it accounts for less than 6% of global mine production,” Tankard said. “The extent to which AMCU can disrupt global supply is a great deal less emphasized for gold than is the case with PGMs.”
Labor disputes are not a new phenomena in South Africa. Mid-2012 saw 44 people die in the Marikana miner’s strike, most of whom were striking mineworkers.
While Tankard noted that South Africa is not the only country in the world that deals with labor disputes over wage demands, he does see it as a hindrance for a mining jurisdiction that has had tough times in recent years.
“When you have an environment where wages constitute a large proportion of overall mining costs, and they’re increasing at rates well above inflation, it does take away from that area’s cost competitiveness,” Tankard said. “South African mining companies have really suffered from this in a trend that’s been in place for a protracted period and this is absolutely having an impact on the mines' competitiveness.
“We’ve had a situation of relative oversupply in the industry over the course of the last three to five years, so a little bit less PGM supply from South Africa is no bad thing, but it’s a case of finding balance and I don’t think we’ve found that balance just yet,” he said.
Tankard also pointed that the country has other issues that are not as prevalent as headline grabbing labor spats and mine shut downs.
“The country is incredibly tight with regards to power supply concerns. Even if you have a project that is looking promising from an economic perspective, it’s not a given that one can actually secure power for it right now owing to the tightness of the situation following a protracted period of under investment by Eskom,” he said. “So, that’s another issue that’s not so much centered around economics, but it does pose another barrier to entry.”
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By Alex Létourneau of Kitco News aletourneau@kitco.com
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