Amplats battles on costs and safety

[miningmx.com] — ANGLO American Platinum (Amplats) increased earnings 26% to R3.2bn in the six months to June, but the group failed to meet stated cost and safety targets.

The overview from CEO Neville Nicolau spelled out in detail the difficult operating conditions faced by the world’s largest platinum producer, which were also seriously affecting the rest of SA’s platinum sector.

These included the effect of the increasing number of safety stoppages on production along with the numerous public holidays in the first half of the calendar year.

The loss of revenue from lower production has been compounded by the continuing strength of the rand, which averaged R6.90 to the dollar in the six months to end-June (previous comparable period was R7.54/$).

That cost Amplats R1.6bn in foregone earnings as the “basket price’ it received on metal sales rose by 5% but, according to Nicolau, was still “inadequate to incentivise sustainable investment to secure future supply.’

Amplats’ production of equivalent refined platinum dropped 3% to 1.16 million ounces (1.19 moz in 2010) and cash operating costs rose 13% to R12,991/oz (R11,493/oz), despite Nicolau’s pledge in February that Amplats would keep costs “at around 2010 levels” this year.

However, Nicolau is sticking to his forecast production target for the year of 2.6 moz because he expects a stronger performance in the second half.

That implies the group has to produce 1.4m oz of platinum in the remaining six months.

While Nicolau also expects some improvement in cost performance during the second half he has been forced to revise Amplats’ unit cost target for the full year to between R12,400 and R12,600 per equivalent refined platinum ounce.

He has also dropped the group’s capital expenditure budget for 2011 to R73bn, from the original estimate of R80bn on the grounds that “our project ranking and prioritisation has identified less capital intensive projects in the near term and is expected to improve the efficiency of capital allocation and investment decisions”.

Nicolau attributed the worse-than-expected cost performance as being “primarily due to the increases in the cost of electricity, diesel, explosives, steel and labour which materially exceeded the escalation in the consumer price index”.

He commented: “It has been a very difficult start to the year. There have been more safety stoppages in the first quarter than the whole of the last year and we have had many breaks due to public holidays and long weekends resulting in disruption to the operating environment.”

Nicolau pointed out labour productivity at Amplats underground mines dropped to an average of 5.88 square metres per operating employee per month, from 7.15 square metres in the first half of 2010.

“We expect productivity to return to the levels originally planned for 2011 during the course of the second half. We expect the average labour productivity for 2011 to be 6.6 square metres.”

Eight Amplats workers were killed during the first half of 2011 compared with four in the first half of 2010.

This is despite the huge emphasis placed on safety at Amplats since Anglo American CEO Cynthia Carroll forced out Nicolau’s predecessor – Ralph Havenstein – in 2007 over the issue of worker fatalities.

Carroll was adamant that AngloPlat should be able to operate without killing any employees despite the dangers inherent in deep-level, hard rock mining.

According to Nicolau, “while the first half has been a step backward, the overall trend remains positive as our safety performance during the period is still the second best half-year we have had.

“We have worked relentlessly with our partners in government and labour and we believe we have our journey to zero harm back on track.

“In the light of our performance we have reviewed our safety strategy using internal and external experts. While the overall program is still sound, we have adjusted our priorities within the program based on the current risk.”

Turning to the platinum market, Nicolau said he maintained his view that it would remain in balance this year.

“The continued recovery in the autocatalyst and industrial segments and the sustained strength of the jewellery segment, particularly in China, is expected to be met by increases in production.

“The average US dollar price achieved for platinum in the first six months is robust given the unexpected negative effect the Japanese earthquake and tsunami had on the market and the substantial reduction in the net long positions of platinum.’