MOODY’S ratings agency has warned that more aggressive wage negotiations in South Africa in the wake of the Lonmin agreement could have "negative impacts" on rated mining companies in the sector.
Lonmin’s deal with workers at its platinum mine in Marikana following a violent strike that resulted in wage hikes of up to 22%, effective on October 1, and a signing bonus of R2,000.
"If the agreement were to spur calls for similar wage hikes at other mines, it would be credit-negative for rated miners with exposure to South Africa, that are facing other event risks, including potential increased taxes as an alternative political response to calls for nationalisation and ongoing exposure to lawsuits arising from medical claims," Moody’s said.
It was the first time a rating agency has warned of the potential impact on the credit ratings of South Africa’s mining sector of the Lonmin wage agreement and spreading unrest in the sector. A credit rating downgrade would increase the cost of borrowing for those companies.
Mining companies in South Africa were "particularly vulnerable" to wage increases because wage costs represented more than 50% of their total costs in domestic operations, Moody’s noted.
"Furthermore, prolonged strikes due to labour disputes, if they were to occur, could lead to reduced production and lower cash generation, which, without equivalent reductions in costs, would exert pressure on the operating margins and other credit metrics of rated mining companies with the greatest exposure to South Africa," Moody’s said.
The miners with the biggest exposure to South Africa in terms of revenue and operating profits included Anglo American, Gold Fields and AngloGold Ashanti, it said.
"Moody’s will continue to closely monitor the situation in the mining industry in South Africa, especially with reference to labour unrest and any potential contagion to other sectors to assess any possible material impact on rated issuers," the agency said.
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