Industry Trend Analysis - Job Cuts To Fuel Unrest - JUNE 2015

BMI View: L abour unrest and strikes will become more frequent in South Africa's mining sector as miners seek to reduce costs through retrenchment.

South Africa's mining sector will face major retrenchment as mineral price weakness will decrease miners' profit margins and force firms to cut costs (see: 'Retrenchment To Fuel Unrest' February 2). For instance, Lonmin, a major platinum group metals (PGM) producer, will focus on reducing its South African labour force as wage costs account for 60.0% of the firm's total operational costs. On May 8 2015, Lonmin announced its intention to reduce the firm's labour force by 10.0%, accounting for 3,500 jobs. The firm's decision builds forth on Lonmin's struggle to cope with rising costs that decrease profit margins at its South African based platinum operations. The company derives more than 64.0% of its revenue from platinum and will continue to suffer from subdued platinum prices in 2015. Platinum prices decreased by 21.5% over 2014 to May 2015, falling from USD1,475/oz in January 1 2014 to USD1,137/oz in May 8 2015. The firm's revenue collapsed by 141.3% in 2014, recording a net loss of USD188 million (mn), down from a USD166mn profit in 2013.

Higher Wages To Form Major Obstacle
South Africa: Mining Sector Average Monthly Earnings At Current Prices, ZAR, (LHS) & Mining Sector Employees, thousands, (RHS)

Strikes To Become More Frequent

Strikes will remain frequent as the key reasoning factor behind strikes, amounting to 95.0% of all complaints, is disputes surrounding wages. Furthermore, miners, including Lonmin will face increasing pressure from South Africa's mining unions to limit retrenchment operations ( see: 'South Africa Mining Unrest Crib Sheet' January 26). We believe strikes will take place over a prolonged period, as miners and labour unions will become increasingly at odds over pay policies. South Africa's average monthly mining wages increased by more than 34.0% over 2012-2014, increasing from ZAR14,175 in 2012 to ZAR18,990 in 2014.

Strikes To Remain Frequent
South Africa - Significant Mining Strikes By Company Since 2012