Lonmin strikes put South African mining reputation at risk - UPDATE

Shares in FTSE 250 platinum miner Lonmin sank on Friday on news of further deaths at its Marikana project in South Africa, as violent protests over pay prompted the police to intervene, shooting and killing dozens of employees.

The stock dropped by 8.6% to 592.5p in early morning trade, though it recovered to 637p by midday, still down 1.7% on the day. The strikes, which have been going on since last Friday, have wiped around 100p off the share price.

The death toll from the violence, which has "shocked and dismayed" South African President Jacob Zuma, is now thought to have reached around 35. Lonmin reported earlier this week that two policemen were also killed.

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Chairman Roger Phillimore said on Thursday in a statement on the company's website: "We are treating the developments around police operations this afternoon with the utmost seriousness."

Two trade unions have expressed their anger at the company, saying that their negotiations with employees outside of union structures had prompted the protests. However, while Phillimore said that the firm deeply regrets the further loss of life at Marikana, he labelled the trouble as a "public order rather than labour relations associated matter."

So far, Lonmin said that six days of production have been lost, meaning that its original full-year guidance of 750,000 saleable ounces of platinum will not be met.

Panmure Gordon has now reduced its sales estimate to 730,000 ounces for 2012, but analyst Alison Turner warned that if the strikes continue any longer, the impact on full-year numbers would be worse.

South Africa's foreign investment at risk

However, it's not just the short-term production impact that has got markets worried; people are now concerned about the wider reputation of the mining industry in South Africa.

The domestic financial newspaper Business Day quoted Andrew Joannou, the Chief Investment Officer at Afena Capital, as saying on Friday that the issue may discourage foreign investors in the country:

"When it starts getting attention in the international news, it will make offshore investors even more nervous, not just for Lonmin and the platinum industry as a whole, but they will also worry about whether it could spread into the other sectors, like gold."

"We haven't seen it yet, but it could happen. With the rand platinum group metals basket price so low, any additional production cuts or cost increases will have a significant impact."