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The protracted industrial action at Lonmin’s (LSE:LMI) mines in South Africa compounded by low prices of PGM metals and inflation have found their way to the income statement of the world’s number three producer of platinum.
Lonmin’s underground production at its main operations in Marikana, plunged 81 percent to only about 500,000 tonnes during the January to March 2014 period, during which period Lonmin’s workers commenced protected strike actions.
The strike, which started on 23 January by members belonging to the Association of Mineworkers and Construction Union or AMCU, of which 70 percent of Lonmin’s miners belong, is now on its 16th week, and is joined by other members of the AMCU from the two biggest platinum producers, Impala Platinum Holdings and Anglo Platinum.
“The length of the strike has put an industry that is already struggling with the combined pressures of low PGM prices and high cost inflation under enormous pressure and challenges the viability of some of the marginal operating shafts in the industry,” Lonmin stated.
In the six months to 31 March 2014, Lonmin said in a statement, total production was reduced by 43 percent to only about 3.2 million tonnes.
“Production losses directly associated with industrial action are around 2.6 million tonnes, equivalent to 160,475 ounces of saleable Platinum ounces, of which 155,720 ounces were directly related to the strike,” the half-year report revealed.
As a result, operating loss for the first six months of Lonmin’s fiscal year was at US$131 million, compared to a profit of US$90 million for the comparative period last year. Loss before tax was reported at US$278 million, down from the US$54 million profit in 2013.
At the heart of the issue is AMCU’s demand of 12,500 South African Rand basic monthly salary, which according to the management of Lonmin and the other platinum producers are unacceptable.
“This remains completely unaffordable and would have disastrous consequences for our business, people, communities and country if we were to agree to it as it will result in shaft closures and job losses,” The Chief Executive Review stated.
Lonmin alternative proposal was rejected by the AMCU management and the company said it is trying to negotiate individually to its workers.
A similar illegal strike on the same issue on wages also happened in August 2012, which lasted for seven weeks and resulted in a pretax loss of nearly US$700 million for Lonmin.
