[miningmx.com] – MINING companies are forced to reinvent themselves continually owing to the unavoidable fact that resources are continuously being depleted. Yet not even the change-ready nature of South Africa’s precious metals industry could prepare it for 2014.
This was the year when restructuring became patently obvious. In the case of platinum, it was the decline in the dollar value of the metal and the fact that ending the five-and-a-half month strike by the Association of Mineworkers & Construction Union (AMCU) required a wage increase that producers could barely afford.
Although the gold sector didn’t suffer industrial action on the scale of the platinum firms, it too was faced with above average mining inflation as well as the steep $500/oz decline in the dollar gold price.
“This is how fast we need to run just to stay still on the escalator,’ said AngloGold Ashanti CEO, Srinivasan Venkatakrishan in November regarding the 8% mining-related inflation that had informed a second round of restructuring of its South African operations.
The group had a month earlier suffered a bitter blow when shareholders widely rejected plans to demerge its South African assets, a strategy that was presaged by an enormous $2bn rights offer. Shareholders baulked at the cost of taming AngloGold’s balance sheet where net debt was more than $3bn. The firm, they argued, would have to lower debt itself.
Shareholder pressure on South Africa’s precious metals companies to start providing returns was everywhere to see. Goldman Sachs in October complained that Harmony Gold had “… multiple mines which are burning cash at our gold price forecasts’ but had “… no plans … to restructure, divest or close’.
A battler and an optimist, Graham Briggs, CEO of Harmony, eventually relented. On August 8, Harmony discontinued the development of its Phakisa decline project and said it would impair the asset for R1.4bn.
Eleven days later, it put its Target 3 shaft on care and maintenance. In November, plans were set down to reduce the workforce at Kusasalethu near Carletonville possibly by a quarter.
According to Neal Froneman, CEO of Sibanye Gold, this was mere fiddling at the edges especially as gold producers were incurring R1bn a year in operating costs alone. What was really required in the South African gold sector was big bang restructuring, he said.
“We need a quantum shift … We could save 60% to 80% through consolidation. I don’t think my counterparts are on a completely different page,’ he said.
That is typical Froneman talk. As much as he’s turned Sibanye Gold into a cash machine, he’s also an empire-builder hence his interest in the platinum restructuring that Anglo American Platinum (Amplats) unveiled only weeks after the conclusion of the AMCU strike.
“We don’t have to rush out there. It’s not a fire sale,’ said Amplats CEO, Chris Griffith, of the Anglo American subsidiary’s plans to sell its Rustenburg shafts, Union section as well as its stake in the Pandora joint venture held with Lonmin and its 49% stake in Atlatsa Resources.
In the teeth of the strike, Amplats (as well as Impala Platinum and Lonmin) spoke of how the downtime would accelerate the need for restructuring, but Griffith’s sanguine approach to asset sales was clearly a calculated early warning shot across the bows of bargain-hunters. The horse-trading in the platinum sector had begun.
Lonmin’s response the strike was slightly more surprising. It stayed the axe over thousands of jobs preferring to harvest shafts with limited lives and then putting the cash earned from them into developing longer life ones.
Whether the strategy will work out remains a question for 2015 as does the state of labour relations in the sector.
Ben Magara, Lonmin CEO, acknowledged a reluctance to stir the bees’ hive of AMCU was behind the decision to trade out of its operational troubles rather than immediately cut jobs.
The feeling from analysts is that restructuring is coming to the sector with Implats set to unveil the findings of its strategic asset review in February.
