Amplats paints grim outlook for platinum mining

Brendan Ryan | Mon, 13 Feb 2012 13:45

[miningmx.com] -- ANGLO American Platinum (Amplats) CEO Neville Nicolau has painted a grim picture for the platinum business over the next year, following the group’s 29% drop in headline earnings for the year to end-December.

Nicolau said Amplats had dropped its platinum sales forecast for the 2012 financial year to between 2.5 million ounces (Moz) and 2.6 Moz from the original estimate of 2.7 Moz – a reduction of up to 200,000 oz.

He added the group would cut its capital budget for 2012 by R1bn, to R8bn, but declined to provide details as to which projects would be affected.

Nicolau also cited the increased incidence of Section 54 work stoppages imposed by the Department of Mineral Resources (DMR), as well as the warnings by Eskom over possible power supply interruptions during 2012 and 2013, as major risk factors to the platinum business.

“We will announce the plan at the end of the first quarter after completing a study of our projects,” Nicolau said on Monday at a presentation to shareholders. “There is no capital that we plan to stop permanently.”

Nicolau said, “Management focus and effectiveness with regard to labour and organisation structure will increase. The ongoing reduction of redundant labour – preferably through mechanisms that avoid retrenchment – will continue”.

“All recruitment, particularly in non-production jobs, will be frozen and no new contractors appointed. Any drop in metal prices during the year will result in more intense efforts in all of these cost-management areas.”

Nicolau said Amplats could still justify investing R8bn in capex under these conditions, because they have “opportunities that the others in the industry do not”.

But he warned that “If today’s platinum price continues in real terms into the future, you will see disinvestment from South Africa because the price is too low to support major capital investments in the [platinum] industry”.

Turning to Section 54 stoppages, Nicolau said Amplats had 81 safety stoppages at its own operations during 2011, compared with 36 in 2010.

As a result, Amplats lost 138,215 oz of platinum production last year compared with 51,474 oz in 2010.

“While we agree with the need for the regulator to stop operations for non- compliance, the key issue is the nature of the stoppages and their effectiveness in addressing real risks.

“The regulator moved from localised stoppages to shutting down entire shafts or mines.”

Nicolau said he was hopeful the Section 54 situation had now “normalised” after Amplats had carried out extensive lobbying with both the DMR and organised labour.

“We are now seeing a more practical approach being taken, but what happens may well depend on the overall performance by the platinum industry over the next few months to see if the DMR backs off,” he said.

Amplats slashed its final dividend to 200c (previous final: 683c), but the overall dividend was slightly higher at 700c (683c).

Nicolau stressed the group remained in a strong financial position with net debt reduced by 11% to R3.7bn at end-December.