SA platinum miners sweat

Brendan Ryan | Thu, 05 Nov 2009 12:20
[miningmx.com] -- THE EXTENT TO WHICH South Africa’s platinum producers are under pressure due to operating problems – compounded by the impact of the strong rand on US dollar revenues – has been made crystal clear.

In a rapid-fire string of events, Impala Platinum (Implats) chairman Fred Roux was dismissed, while Lonmin announced it was moving its head office from London to Johannesburg and Anglo Platinum (Angloplat) closed another two high-cost shafts.

The removal of Roux from office was the most dramatic development and the air is thick with recriminations between Roux, Implats acting chairman Michael McMahon and Royal Bafokeng Holdings CEO Niall Carroll.

Roux is now considering legal action over what he terms his “unfair dismissal”. However, the fundamental situation underlying all this is that Implats has been performing poorly for some time. That must be rectified.

But it seems there’s considerable disagreement at the Implats board level over how and also a poor relationship between its executive and non-executive members. Roux spelt out the situation succinctly in his recent chairman’s statement when he blamed management for an “underwhelming production performance”.

McMahon is doing his best to play it all down, blaming Roux for carrying out what he described to Bloomberg as “an assisted suicide”.

Lonmin’s decision to shift its head office to Johannesburg from London addresses a long-standing criticism of the group: that top management is too remote from the day-to-day running of its mines. That criticism rose to crescendo under the leadership of former CEO Brad Mills, who quit abruptly at year-end 2008.

But new CEO Ian Farmer’s decision to relocate to SA has been widely welcomed.

JPMorgan analysts Steve Shepherd and Allan Cooke commented in a recent report: “We’ve been baying for this move for years and we respect the personal sacrifice Farmer is making.”

While Farmer is making the right moves – and that’s starting to show in the operating numbers Lonmin is reporting – the JPMorgan analysts caution the recovery will be a long and slow process.

They say: “Farmer inherited a mining setup we believe was poorly conceived, planned, controlled and executed. Development rates had – absurdly, in our view – been slashed and available ore reserves were well below a critical level. We believe it’s simply not possible to find a shortcut to rectifying that.”

Royal Bank of Canada analyst Leon Esterhuizen has revised his share price estimate on Angloplat to R560 from R540, after the group published third quarter production results – but that’s still about 17% below what the share is currently trading at on the JSE. Says Esterhuizen: “Too much good news is already priced into the shares.”

He adds that Angloplat may need to raise capital within the next year.

Shepherd and Cooke are more positive about Angloplat’s prospects, stating it’s their “preferred major platinum exposure”. They comment: “We note it’s now the only major platinum mining company that’s led by a CEO with a mining engineering background.”

They add: “The group is embarked on a process of radical restructuring and some significant progress is evident to us. Under the leadership of CEO Neville Nicolau there’s been a radical shift in the group’s approach. He’s drawn a line under the relentless expansion of what we could only have described as the group’s gratuitous costs structure.

“Well ahead of the group’s stated plan to reduce headcount by 10 000 employees and contractors by end-2009, some 11 715 jobs have been eliminated, including 724 positions at the group’s previously bloated centre.”

* Ryan holds shares in Impala Platinum