🕐14.06.13 - 09:54 Uhr

INVESTEC: LONMIN PLC - CALM BEFORE THE STORM FOR SOUTH AFRICAN MINERS? - HOLD



Lonmin PLC (Price: 272p | Target: 279p | Rec: Hold) AMCU and LMI are in talks involving the government with strike notice postponed.

Developments may set the scene for the South African mining industry, with most companies due to implement annual wage agreements from 1st July.

Last year, after militant strike action at Marikana led to 44 protestors being killed, negotiations resulted in 11-22% wage increases.

Many other miners then had to adjust previous agreements to follow suit.

Consequently, unions, in particular AMCU, could be focussing on LMI as it may be viewed as the most likely operator to agree to strong demands. * There are two key sticking points holding up progress between LMI and AMCU.

The first is changing the 12m wage deal from 1st October to 1st July this year (this is already agreed from 2015).

A second, more difficult, issue is AMCU’s demand to effectively control negotiations for all unionised members in one forum.

This could be very difficult to agree since it may require breaking previously made agreements with other unions.

NUM has already threatened legal action should this go ahead.

AMCU is reportedly intending to serve notice of a strike if its demands are not met, whilst LMI is seeking a court order to prevent this should it occur. * Should the above two issues be resolved, the next step will be wage increases.

If LMI capitulates to changing its wage period, it will likely set the level for wage demands at other mines, potentially triggering industrial protests if these are resisted.

Without a near term agreement at LMI, then we expect unions to become more vocal as the 1st July approaches.

Agreements will be difficult to reach, making protests almost inevitable, although we hope that the government can contain any potential violence. * Ironically, LMI is perhaps not the weakest link for unions to target following last year’s major refinancing, and it may prove more able to resist worker protests than other miners.

Nonetheless, the company appears to be stuck with its central role in 2013 union negotiations.

We retain our Hold, with our 279p TP based on blended NPV and multiples analysis.
To access the full note please click here Analyst: Marc Elliott
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