Lonmin has now settled the long and bloody dispute at its Marikana platinum mine near Rustenburg in South Africa in which 45 people have died. Trade unions and other workers' representatives have accepted an offer of a signing bonus for all employees plus pay rises of 11%-22%. Yet wariness – as reflected in Lonmin's flat share price after an initial 9% rise – is the correct response on the part of investors.
First, the agreement has to hold and it's impossible to tell from outside to what extent workers and competing trade unions feel their grievances have been permanently addressed. Second, Lonmin's balance sheet is weak at a time of low platinum prices and, as Nomura's analyst puts it, "the wage settlement only exacerbates the barely viable operations at Marikana". Third, the South African mining industry is now at the centre of South African politics and a recasting of the rules of engagement, as embodied in the mining charter, seems inevitable.
This is an unstable position from which to pursue a rights issue, which would seem to be Lonmin's next challenge after debt covenants are tested at the end of this month. The banks are said to be supportive. But, when companies require fresh funds, it's rarely a good idea to delay.
