There are going to be a lower number of workers walking around the mine 12 months from now, if not by layoffs and retrenchments.
But how will the most financially stretched of the major platinum mines afford the pay increase and what will the long-term cost be for this quick fix?
Although short of the R12500 demanded by the striking Lonmin workers, an agreement was signed on Tuesday for an increase of between 11% and 22% on basic wages for all workers as well as a R2 000 once-off bonus for those who return to work on Thursday.
But "the current economic reality means that any wage increases will be a trade-off against jobs," Lonmin spokesperson James Dray told the Mail & Guardian two weeks ago.
And, on Monday, Lonmin announced the termination of a Murray & Roberts contract worth R65-million, which affects 1200 contracted workers. The move will free up some space on the balance sheet to accommodate the increases, said Peter Major, a platinum analyst at Cadiz corporate solutions.
Another analyst, who asked not to be named, said that it was important to consider that an increase of about 11% had already been agreed for October, so the real extra cost to the company was closer to 11%, not 22%.
But Major said it would be naive to think that double or triple inflation increases could be made without losing numbers somewhere else.
"There are going to be a lower number of workers walking around the mine 12 months from now, if not by layoffs and retrenchments, then by not replacing or reducing the replacement of workers who leave through natural attrition. Obviously, the mine will have to be professional about how it handles this."
Debt commitments
The wage increase will come into effect in October and it is good timing, given that it will not be reflected on the balance sheet on September 30, the test date for Lonmin's debt commitments totalling close to $1-billion.
Peter Attard Montalto, a contributing strategist at Nomura International, said the wage settlement only exacerbated the "barely viable operations" at Marikana. "These debt covenants and the need to have cash and output before the end of the month was likely a key part in the company making such an offer to workers," Montalto said.
But it could take up to eight weeks before cash begins to flow back into Lonmin.
The company is talking to banks to waive the test, the anonymous analyst said, thereby buying Lonmin a further six months.
"The banks are as scared as anybody. They would much rather lose some interest on the capital than some percentage of the capital they have extended to Lonmin. If the banks decide to call in the loans, they will have to stand in line with a lot of other lenders and creditors," Major said. Analysts agree that higher productivity is key to absorbing the blow to the balance sheet, although it was not clear at the time of going to print whether productivity targets had been linked to the wage increases.
Although the industry is concerned that the abnormal agreement has set a precedent that could result in further aggressive wildcat strikes flaring up across South African mines, investors appear relieved.
News of the wage deal brought the JSE all-share index to a record high on Wednesday morning and Lonmin's share price climbed back to levels last seen at the beginning of August. The development also had a positive impact on the shares of Anglo Platinum and Impala Platinum, despite both still grappling with employee wage demands.