Date: Mon Aug 08 2005 10:41
trotsky (@strike, more) ID#248269:
Copyright © 2002 trotsky/Kitco Inc. All rights reserved
it remains to be said that a strike is always a very poor reason to sell shares - even a long-lasting, damaging strike. per experience, strike action often puts in lows in share prices. an example would be the infamous 1984 strike of Germany's IG Metall ( the metalworkers union ) . it was an excellent opportunity to pick up shares in BMW , VW and Daimler - although the strike at the time was viewed as one of the costliest, and toughest industrial struggles of the post WW2 period. well, the share prices of the German car makers that obtained at the time HAVE NEVER BEEN SEEN AGAIN. anyone who sold on the strike news was forced to buy back the shares at a higher price later.
in the case of gold mines there is even less reason to sell, since the gold simply remains in the ground ( and probably gains value, as the supply disrption supports the gold price ) . this is not to say that the companies subject to the strike won't lose money - they will - but the market tends to look beyond such things. often it is better to suffer through a brief strike than to simply give in to the demands that triggered it. it may well be the better commercial decision.
all that said, if the strike for some reason turns into an extended dispute ( unlikely, but not impossible ) , the shares will probably come under pressure in the short term.
Date: Mon Aug 08 2005 10:29
trotsky (strike in SA) ID#248269:
Copyright © 2002 trotsky/Kitco Inc. All rights reserved
when the NUM embarked on its most damaging strike ever in 1987 under the leadership of Cyril Ramaphosa, it did so mainly for political reasons - the strike was meant not only to press for higher wages, but also intended to weaken the dying apartheid regime of Pieter-Willem Botha ( a.k.a. 'the crocodile' ) .
the strike seemed to be a success in immediate hindsight, as employers did grant higher wages than originally offered and Botha's regime did end up weakened. however, over the longer term it proved to be a disastrous decision from the NUM's PoV, as the 5 years following the strike saw its membership cut in half by relentless cost-cutting on the part of the gold mines ( it has since declined even further ) . since labor is their largest cost component, that's also where the cost cutting was concentrated.
this latest strike is however purely driven by wage demands - it is not a political strike, which takes away a great deal of motivation on the part of the strikers. both labor AND capital in SA know how to play hardball. it seems unlikely that the NUM will let this get out of hand, not least because a strike puts its members under considerable financial strain ( workers don't get paid while they're on strike ) . also, it is probably aware that its demands are unrealistic. what's left of SA's once mighty gold industry can hardly afford large cost increases at this stage. a rule of thumb is that if the mines grant e.g. a 5% raise in overall labor-related expenses ( i.e., wage hikes plus higher allowances ) , costs per ounce will rise by roughly half of that, i.e. 2.5% in this example.
it seems likely that eventually a compromise will be struck in which wage hikes are in some form tied to the Rand gold price, as well as specific productivity goals ( SA's work force is notoriously lacking in productivity ) .
an interesting aside: on some of the biggest mines, over half of the work force is not even comprised of indigenous South Africans. SA has always imported mine workers from neighboring countries, chiefly from Mocambique, but also Zimbabwe and Lesotho ( the land-locked mountain kingdom in Eastern SA ) .
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