In what seems like an annual event, platinum mining companies in South Africa are bracing for what could be another year of labour unrest.

The firms that mine the precious metal and the labour unions that represent their workers are in talks next week, trying to hammer out a deal that could avert a strike of similar magnitude to 2014.
That year, a strike led by the Association of Mineworkers and Construction Union (AMCU) forced major producers Amplats (LSE:AAL), Implats (OTCMKTS:IMPUY) and Lonmin (LSE:LMI) to shed over 70,000 jobs. The strike lasted 21 weeks, cost the industry R24 billion, and resulted in 1.3 million ounces of lost production – about a third of global output. South Africa and Russia combined account for close to 80% of global supply of palladium and 70% of platinum output which are mainly used to clean emissions in automobiles.

BDLive, via Reuters, reports the AMCU is demanding a pay rise of 56%, in line with a "living wage", while the National Union of Mineworkers is asking for a 20% wage hike – well over the 6.1% rate of inflation. The mining companies say they can't afford the pay increases, arguing that last year they were forced to tap shareholders to raise cash, and that the unions' demands are unrealistic:

Eoin Treacy's view

Labour unrest in South Africa’s mining sector is, as the above article highlights, an almost annual occurrence. Negotiations with unions, for what can only be described as inflated pay demands, must be irksome for management but the reality is mining companies are in better positions this year than last. 

With platinum continuing to form a first step above the Type-2 base formation, the prospects for miners to return to a profitable position looks more likely than not even with labour disputes. A more worrying development would be if Eskom, South Africa’s troubled power utility, were to have another outage similar to what occurred in 2008. 

Over the year the FTSE/JSE Johannesburg Platinum Miners Index has performed in a similar manner to the platinum price and is now testing its recovery high. A sustained move below the trend mean would be required to question medium-term scope for additional upside. 

UK listed Lonmin is leading the sector higher and broke out of a four-month range at the beginning of the month. A sustained move below 200p would be required to question medium-term recovery potential.