AngloPlat turns the corner

Brendan Ryan | Mon, 08 Feb 2010 17:07
[miningmx.com] -- ANGLO Platinum (AngloPlat) shares jumped on the JSE today as the market responded favourably to the operational turnaround and took the poor financial results and the huge R12.5bn rights offer in its stride.

Credit Suisse Standard Securities analyst David Davis commented, “the figures show that AngloPlat management has done a significant amount of work.”

According to CEO Neville Nicolau the improved performance is sustainable.

He put his neck on the block forecasting the group will be able to hold unit working costs unchanged in nominal terms for the next two years at around R11,000 per equivalent refined platinum ounce.

If he delivers on that then AngloPlat will have held nominal costs unchanged at around R11,000 for three years because the 2009 figure was R11,236/oz against R11,096/oz for 2008.

That implies a significant drop in “real” working costs over this period.

That - as Macquarie First South analyst David Pleming pointed out at question time - is a “very aggressive” target given annual wage increase expectations as well as Eskom’s proposed 35% annual power charge hike for the next three years.

Yet Cadiz Securities analyst Nic Dinham told Nicolau at question time he reckoned there was plenty of scope for AngloPlat to get costs even lower than R11,000/oz.

Reason was the group’s overall cost base was so much higher than other operators in the platinum sector.

Interviewed after the presentation Nicolau commented, “Nic Dinham has a point.

“ We have not yet fixed our operating base and to claim we had done so would be arrogant. There are still significant improvements that can be achieved in the business.”

Nicolau said the 2009 cost performance had been based mainly on productivity improvements resulting from the downsizing of the group which had removed 18,786 employees from its workforce since October 2008 including 1,150 management positions in corporate and regional offices.

He added cost management was being “institutionalised” throughout the group and one of his greatest concerns was to ensure this efficiency drive continued when market conditions improved.

But the burning question has to be this - how has Nicolau succeeded in getting a grip on costs to this extent where his predecessors - Ralph Havenstein and Barry Davison – failed despite years of effort?

Nicolau said the answer lay in a combination of factors including the crunch in the platinum market and the management restructuring of AngloPlat – in particular the decision to split up the huge Rustenburg division.

He told Miningmx, “It’s easier to bring in cost management changes when there’s an economic crisis. It’s much harder to get people to believe they must change their attitudes when the business is still showing a 50% profit margin.

“Next was the strategic decision taken to change AngloPlat’s growth plan. We dropped the previously stated aim of growing the business to 3.5m oz of annual platinum production within five years.

“Instead, we adjusted our production profile to the needs of the market. Once we did that and established there was a flat production outlook then you could right size the cost base.

“AngloPlat was overstaffed because it had taken on personnel in anticipation of the growth which never came.”

Nicolau said the former Rustenburg division employing some 30,000 people was too large an operation for effective management.

“Everything was hidden in the averages. We split it into five sections and appointed new era general managers – people who could take the mines forward.

“The restructuring of reporting lines within the group also meant that now there is one version of the truth. There’s nowhere to hide.”

Nicolau added his experience with AngloGold Ashanti also helped and was one of the reasons he was prepared to take on the “hot seat” at AngloPlat in the first place.

He pointed out the gold mines had been through far tougher times in recent years than the platinum mines and there were a number of lessons learnt in the gold sector that had not yet been applied to the platinum business.

“I saw a huge opportunity to do the right thing at AngloPlat and believed I had the experience and skills to make a difference.”

Nicolau denied market speculation that AngloPlat was considering the sale of certain assets – in particular the former Bleskop, Brakspruit and Boschfontein shafts - which were put on care and maintenance last year.

“We are still finalising the future options for those shafts but there is no “for sale” sign hanging on them.

“Two of those shafts have 20 year economic lives given the right market conditions and it is from those mines that we could rapidly increase group output should we need to under more favourable market conditions.”