Lonmin profit hurt by platinum strike, two workers reportedly killed

South African miner Lonmin (LON:LMI), the world’s third-largest platinum producer, warned Monday that the 16-week wage strike is taking a heavy toll on the company’s profits, adding that substantial job cuts and restructuring seem inevitable.

The company, which posted an almost two-thirds profit drop for the first-half operating earnings, had hoped to end the strike by Wednesday this week but further violence led to the death of at least two employees on Monday, which threatens to hinder the process.

The ongoing industrial action is South Africa’s platinum belt is the longest and costliest in the industry’s history, cutting global production by about 40% so far and hitting hard not only Lonmin, but also the other two major miners of the precious metal: Anglo American Platinum (Amplats) and Impala (JSE:IMP).

Lonmin CEO Ben Magara said in a separate statement the strike had put “enormous” pressure the already struggling industry, which is why the business “will have to be restructured, with consequences on job losses.”

“The depth of this will depend squarely on the return-to-work date and how we ramp up [production],” he said.

The firm’s underlying operating profits fell to $34m for the six months to March, down from $93m a year earlier, reporting a pre-tax loss of $278m for the period, down from a profit of $54m a year earlier.

End in sight

Workers walked out of South Africa’s platinum mines in late January when pay negotiations broke down between management and the National Union of Mineworkers (NUM).

There have been a few attempts to solve the dispute, with miners insisting on seeing their pay doubled, and mining companies warning they cannot afford to meet the workers’ demands.

In March, Lonmin was forced to scrap its annual sales guidance and told staff to take unpaid leave because of the industrial action.

Magara said there was “overwhelming” and growing support from workers for an end to the strike and a return to work on May 14, and the company hoped to ramp up production in June as it seeks to persuade staff back to work despite the efforts of the militant Association of Mineworkers and Construction Union (AMCU), which is leading the strike.

Mining companies are not the only victims of the long-dragged labour action. Communities have also been affected, with local businesses closing and large numbers of migrant workers returning home.

South Africa, Africa’s largest economy, holds about 80% of the world’s known platinum reserves, accounting for about 70% of global output, used for jewellery, catalytic converters in vehicles, and as a key source of hard currency for the country, among other applications.