Potential impact of SA mine violence on platinum and perhaps on gold too
At the heart of the problem appears to have been the Association of Mineworkers and Construction Union (AMCU) which has been targeting the platinum mines to extend its membership at the expense of the established mining unions, the NUM and Solidarity which are nowadays seen by some as part of the mining establishment. As part of the turf war, the AMCU appears to have targeted the mine rock drill operators (RDOs) - a key part of the workforce, which reckons to have a specific grievance, and who are reported to be demanding a more than doubling of their wages. The RDOs could be considered the elite of the mining workforce as without them there can be no production. The platinum mines, particularly those operating on the very narrow Merensky reef, are notoriously difficult to mechanise and thus employ large numbers of RDOs. There can be tribal influences at play here also, with the RDOs often drawn from specific tribal groups which can be played upon in the mine environment.
And the platinum mining sector really is struggling nowadays. As the mines have gone deeper and got hotter and hotter (there is an extremely high temperature gradient in the geologically young Bushveld Volcanic Complex rocks) and costs have risen dramatically, most of the operations are increasingly becoming marginal at current platinum prices. The accident rates have risen and there has been seemingly an ever-rising degree of unrest amongst the workforces at some of the operations stimulated by the inter-union rivalries.
What now has to be particularly worrying for platinum miners and investors is whether these union turf wars, and the associated internecine violence which had already led to a number of worker injuries and deaths in the union vs union disputes - and now the Marikana massacre where the latest death count is reported to have reached 40 - is likely to spread to the other mines in the area. Indeed it has already done so with the initial troubles having surfaced at Impala's operations. These may have died down but could easily flare up again. South African mine workforces can be very volatile and there is a growing suspicion here that there is also an underlying political agenda behind some of the union activities stirred up by dissident factions in the dominant ruling African National Congress political party.
David Fuller's view Although Eoin and I have been commenting on this union dispute since the story first broke, yesterday's killings are shocking and certainly not something that any of us would want to see as a catalyst for platinum's recovery. While a tragedy for South Africa and already far more serious than just another strike for higher pay, not least because of the political and tribal implications leading to many deaths recently, platinum was already due for a recovery as we have pointed out.
Platinum had fallen to its lowest price relative to gold since at least the 1980s, as you can see from the Platinum / Gold Ratio. Platinum is a rare metal and over 70 percent of newly mined supplies come from South Africa's now frighteningly deep mines, as detailed above. The mining infrastructure is old, as is the power grid and energy demands are high.
Despite all this, some hedge funds have been short platinum and promoting the trade as a means of betting against the Eurozone (sic). This technical situation and now the power struggle between two competing mining unions have created a potentially explosive environment for platinum prices (weekly & daily). A temporary surplus could easily turn into a shortage due to stockpiling by automobile / truck manufacturers and jewellers, plus renewed investment demand for platinum bullion funds, some of which were listed in my item on 9th August, linked just above.