The spillover effect of industrial action on the profitability of platinum mining companies

Abstract

This study was aimed at determining the effects of industrial action on profitability in the South African platinum mining sector. We compared companies where employees engaged in industrial action (affected companies) to strike-free companies (competing companies). Industrial action refers to strikes by rock-drillers, as these strikes typically result in the shutdown of production at the mines affected. A t-statistics analysis of significant differences in revenue and earnings of affected and non-affected platinum companies was conducted using data from platinum mining companies listed on the Johannesburg Stock Exchange from 2011 to 2015. Contrary to international studies, which suggest that the spillover effects of industrial action positively affect competing companies, our findings show that profits in the platinum sector decrease significantly during strike periods for both affected and competing companies. The results indicate industrial action is a threat to the profitability of all companies, and that employee demands should be prioritized and negotiated before they result in industrial action. Improved dialogue between management, labour unions, and employees in the platinum mining industry is recommended. The study contributes to the scanty literature on the effect of industrial action on the profitability of mining companies in a developing economy.