The massacre at Lonmin's Marikana platinum mine has huge implications for the country's struggling platinum mining sector. Could it spread to the gold mines too?
Nearly 50 years ago when I worked there on the mines, Rustenburg in South Africa used to be a relatively sleepy small town some 160 km from Johannesburg where big city dwellers would repair for a quiet weekend at tourist resort Retief's Kloof and farmers grew oranges, despite it being the site of Rustenburg Platinum Mines (then run by JCI) then and now still the world's largest platinum mine. Nowadays, with the expansion of the platinum sector, first with Impala and then with Lonrho (now Lonmin), Aquarius and others, the sleepy town has changed out of all recognition as the platinum mining industry expanded, and expanded. Anglo American, which was a major shareholder in JCI, effectively decimated the latter company and absorbed Rustenburg Platinum into Anglo American Platinum (Amplats) and the town became even more the centre of the world for platinum mining and for exploration on the Bushveld Complex Western limb, which accounts for most of South Africa's platinum output.
Nowadays the orange groves have virtually all disappeared and it is doubtful if many tourists from Jo'burg would consider the relatively short drive to the Rustenburg town for a weekend's relaxation - at least not in the town itself - although the surrounding area - particularly the Magaliesburg and the Bushveld - remains a most attractive destination. But from now Rustenburg may also go down in history as the general location for the Marikana platinum mine (some 20 km away) massacre where an edgy police contingent opened fire on threatening, and armed, striking miners. Looking at this from 9,000 km away it seems that the miners themselves have been caught in a turf war between rival Unions with the new kid on the block agitating for enormous wage increases which the currently struggling platinum mines could not even contemplate.
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.
So what does this all mean for the platinum miners and platinum prices? South Africa produces some 70% of the global platinum supply. Prices are weak because platinum is in surplus, but any major disruption spreading to the big Amplats and Impala mines around Rustenburg, and beyond, could very rapidly turn a surplus into a deficit - and also lead to major shutdowns in some of the more marginal operations - at least until prices pick up to the extent that they become worthwhile to reopen again. Lonmin's Marikana mine has already effectively been shut down by the violence. Prices are already beginning to rise with platinum up over 1.5% in early trading in Europe today before settling back a little and up 5% over the past three days. Should the threat of escalation develop then consumers will start to move into the market to secure supplies and the gap between the platinum and gold price could well narrow again.
But, the issues which have led to the platinum mining violence are potentially mirrored in South Africa's gold mines - an even bigger sector (just) - and the government will be hugely worried about the potential spread of mine unrest given the potentially huge impact on the South African economy of a mining meltdown. South Africa may no longer be the world's largest gold producer - a position it held for nigh on a century, but it still remains one of the world's biggest and disruption here could have a very negative impact on global mine supply - and again lead to the permanent closure of some of the more marginal operations, which are struggling to stay afloat even at current gold prices.