SPECULATION Sibanye Gold may buy platinum shafts or sections in Rustenburg
owned by Anglo American Platinum (Amplats) not only represents a potential new
chapter in the rise of the gold counter, but gives credence to the proposed
turnaround of Amplats parent, Anglo American.
Anglo CEO, Mark Cutifani, is this month some 12 months into a job in which the
improvement of the UK group was his ticket to election. By his own reckoning,
Anglo ought to be achieving a minimum 15% return on capital employed (ROCE) by
the firm’s 2016 financial year. It achieved 8% ROCE in the 2013 financial year.
This was to be achieved through cost savings of $1.3bn, operational improvements,
and selling strategically unsuitable, low margin, and unprofitable assets.
On Thursday, Anglo released better-than-expected production figures for the first
quarter, indicating Cutifani is delivering on his early promises to improve copper
and iron ore production and ramp-up nickel production at Barro Alto.
Output of all commodities rose with the exception of platinum. Copper production
beat analysts’ expectations, with output climbing 18% to 202,000 tons thanks to
improved performance from Los Bronces and Collahuasi. Nickel output jumped 48%
to 9,200 tons, driven by improved operational stability at Barro Alto.
However, production of platinum declined by 39% to 357,000 ounces as a result of
a three-month long strike at Amplats’ Rustenburg mines, leading the company to
downgrade its output forecast for the year by 300,000 ounces to about 2.1 million
ounces.
The strike has clearly accelerated Cutifani’s thoughts about the sustainability of the
group’s platinum mines. Last year’s restructuring of the Rustenburg mines, in which
some 7,500 jobs were affected, bought the assets some time, but the Association of
Mineworkers and Construction Union’s (AMCU) strike has eaten into that period of
grace.
Speaking at Financial Times Commodities conference earlier this month, Cutifani
said that whilst the company liked platinum “… every asset has to deliver return’.
He added that if “… the business can’t deliver returns then we’ll look at all options’.
And so it is that the Rustenburg mines look like sale candidates, although analysts
question how easy it would be for such difficult-to-manage assets to be passed to
another owner. “We continue to believe that any transfer of assets will be
complicated,’ said Goldman Sachs analyst, Eugene King, in a recent note.
He added that the seller may be required to transfer working capital with the
transaction. There’s also the question as to whether the Rustenburg mines will have
their own refining operations, or whether separate transactions will have to be
entered into.
James Wellsted, head of corporate affairs for Sibanye comments: “The industry
over-invested in refining capacity in anticipation of growth and they have significant
capacity.
“I suspect the different players may be very keen to get access to ounces to justify
their processing divisions, so the smaller players may not be pressurised to accept
bad offtake agreements like they were in the past,” he said.
For Cutifani, the AMCU strike is an opportunity to stamp his authority on the group’s
restructuring process (although interestingly, it has been Cutifani and not Amplats
CEO, Chris Griffith, who has been doing the talking around the prospects of selling
the mines).
Certainly, talk of selling the Rustenburg assets, after several years of trying to
finesse a profit out of them, would “… continue to support sentiment around Anglo
American and its turnaround story,’ said King.
Macquarie Research, which recently hosted investor meetings with the Anglo boss,
said: “We noted this week that Cutifani’s tone, body language and energy all
suggest that, having got his feet fully under the table, he is very comfortable with
his early targets’.
In addition to solving the lossmaking at the Rustenburg shafts, fixing the group’s
copper and iron ore production and ramping up Barro-Alto, a nickel project in Brazil,
Cutifani promised to commission the Brazilian iron ore project, Minas Rio, on time.
Cutifani said recently Minas Rio was on stream for year-end production while the
group’s CEO for copper, Hennie Faul, told Bloomberg News that the operations were
running “exceptionally well’.
That’s why Paul Gait, an analyst for Sanford C. Bernstein was able to write earlier
this month that Anglo was in the process of “self help’, correcting five years of “self-
harm’ under previous management. The company is “presenting the most
compelling restructuring story in the mining space for a long-term value investor,’
Gait said.
