By Alex MacDonald and Devon Maylie
LONDON--Lonmin PLC (LMI.LN), the world's third largest platinum
producer, said Thursday its labor cost will rise 14% from Oct. 1
after the settlement of a wage dispute that resulted in nearly 50
deaths and lost production at its Marikana mine in South
Africa.
The higher labor cost will further crimp the company's cashflow,
which is suffering from high input costs, relatively lackluster
platinum prices, and about 60,000 troy ounces of lost production
due to the illegal strikes that led to 46 deaths at Marikana,
Lonmin's largest mine. The company is now discussing with some of
its creditors what can be done to avoid breaching its debt
covenant.
Lonmin management agreed on Tuesday to raise wages by 11% to 22%
from Oct. 1. The wage increase includes an already agreed upon 9%
to 10% increase, also due to come into force next month.
Lonmin said that although over 80% of employees have returned to
work at Marikana, it could still take some time to reach full
production, with blasting set to resume only sometime next
week.
The illegal strikes and violence led other platinum producers
such as Anglo American Platinum Ltd (AMS.JO), the world's largest
platinum producer, and Aquarius Platinum Ltd (AQP.AU), the world's
fourth largest platinum producer, to shut operations at neighboring
mines in the Rustenburg region, about 100 kilometers northwest from
Johannesburg, for fear that the strikes might spread to their
mines.
As of Thursday Aquarius Platinum's Kroondal mine had returned to
normal operation but Anglo American Platinum said Thursday that
four of its mines have yet to resume full production after less
than 20% of their employees returned to work due to what it called
illegal striking.
Anglo American Platinum shut five mines, which account for a
third of Anglo Platinum's production, on Friday due to concerns
over illegal strikes.
Equity analyst Steve Shepherd of JP Morgan Cazenove said that
there was a high likelihood that other platinum producers might
have to make similar wage concessions or face labor unrest. The
higher labor cost "would have cost and margin implications for the
PGM [Platinum Group of Metals] industry as a whole and could lead
to further capacity shutdowns and job losses," he added.
Anglo Platinum said its Rustenburg mining operations are already
under considerable economic pressure and the illegal industrial
action would make its affected operations even less viable than
they are currently. The company is currently reviewing its platinum
operations with a view to possibly shutting down its more costly
mines. The five mines that were shut on Friday are among the
company's least profitable operations.
Write to Alex MacDonald at alex.macdonald@dowjones.com
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