[miningmx.com] – ANGLO American Platinum (Amplats) is to cut output 400,000 ounces a year as part of its widely anticipated restructuring in which it also unveiled plans to slash capital expenditure by a quarter and sell its Union mine.
The aim is to achieve annual benefits of R3.8bn by 2015 through a combination of cost reduction and efficiency improvements, but these benefits could come at a price with some 14,000 jobs potentially vulnerable - equal to 31% of total directly employed staff - principally at its Rustenburg operations.
A total of R390m in savings would be achieved through the redesign of the company's overhead and labour structure, Amplats said - a pronouncement that will have unions bristling and risk stoking emotions among the company's combustible labour factions.
Already, South Africa's mines minister, Susan Shabangu, has called a press conference scheduled to take place at midday.
"We must evolve to align the business with our expectations of the platinum market’s long-term dynamics and address the structural changes that have eroded profitability over time," said Chris Griffith, CEO of Amplats.
He acknowledged, however, that news of impending restructuring could trigger more strike action. "There is a possibility of further strikes but we are urging unions to take up consultation. We are keen to show that this is not a reprisal [for two months of strike action]," he said.
In justifying its decision to reconfigure the R132bn business, Amplats painted a picture of a market in profound structural crisis which included the increasing capital intensity of new projects, deeper mines, and falling ore grades.
Higher-than-inflation unit cost increases, jewellery demand elasticity and increasing secondary supply of platinum, or scrap that is fed back into supply, had also worn away at margins.
Two months of strike action last year contributed to the financial difficulties - the extent of which Amplats announced on Monday saying it had lost 304,000 oz of production and would report a loss of as much as 628c/share for its 2012 financial year - but the fact of the matter is that Anglo American, Amplats' 78% shareholder, had already called for a review of the company's mines.
"The continued operation of unprofitable shafts within the current configuration, and in light of the company’s revised demand and cost expectations, is not sustainable," Amplats said in a statement.
Some 13,000 of the job losses will affect Amplats' Rustenburg mines which will be 'reconfigured' into a 320,000 oz to 350,000 oz platinum producer operating three mines, Amplats said.
Four unsustainable, high-cost shafts - Khuseleka 1 and 2 and Khomanani 1 and 2 - will be put on long-term care and maintenance.
The outcome would be annual group production of between 2.1 million to 2.3 million oz (including production from its processing facilities on behalf of other producers), a 400,000 oz reduction which is perhaps slightly larger than analysts were forecasting.
Amplats' own production would fall to 1.5 million oz from a target of 2.1 million oz previously.
Expectations of Amplats' restructuring sent the platinum price to a three month high yesterday (January 14).
"The Rustenburg processing operations will also be reconfigured to align with the revised mining footprint, which may include closing the Waterval UG2 Concentrator and No. 2 Smelting Furnace," the group said.
The financial effects would include a write-down of some R4.1bn which follows an announcement on Monday that some R6.6bn in projects and assets not in use would also be written down.
The total cost of the restructuring was R3.2bn which included R2.5bn relating to the restructuring of the assets (of which R1.2bn was set aside for retrenchments of miners) and some R700m for head office and other overhead restructuring costs of which R600m was for retrenchments.
The 254,000 oz a year Union mine would have greater value under different ownership, Amplats said. As a result, it was proposed the mine be sold "at the right time". The mine employs about 7,500 people.
In the interim, Amplats proposed that Union would be reconfigured. Mining at its North Declines would be stopped while combining Union North and South Shafts into a single operation. The Mortimer Merensky concentrator would also be put on long-term care and maintenance, Amplats said.
Interestingly, Amplats said it was also considering rationalising farm boundaries in an effort to "... optimise life-of-mine extensions and other commercial considerations". It gave no more details of what looks like an interest in consolidating the sector.
The proposed restructuring would also allow for more effective allocation of capital, said Amplats. Consequently, the company has proposed reducing its planned capital expansion expenditure over the next 10 years by 25% to R100bn. Future capital allocations would focus on low-cost, high-margin projects, it said.
As a consequence of the sweeping reduction in jobs, the company said it would seek to create 14,000 new jobs through initiatives that would include housing, infrastructure and small business development in Rustenburg as well as in the labour-sending areas.
“We have designed a comprehensive social plan to ensure that we can compensate for any necessary labour restructuring and make a positive difference through job creation," said Griffiths.