[miningmx.com] – ANGLO American CEO, Cynthia Carroll, struck a
positive note at the group’s annual earnings announcement earlier this month.
Earnings were at a record high, and although Anglo felt it couldn’t pay a special
dividend owing to capital commitments, it expressed huge confidence in demand in
the commodity markets.
Anglo has nearly $100bn worth of projects across a host of metals – some in concept,
others nearing commissioning – and said Chinese industrial growth would support
them. “The inland provinces [in China] continue to grow and will drive markets for the
next decade,’ Carroll said.
This echoed comments made by Anglo American SA Executive Director, Godfrey
Gomwe, at the Indaba Mining conference last month.
“The proportion of the Chinese population living in cities has only just reached the
level attained by the UK in 1850 and the US in the 1920s. And this is despite the fact
that 21 million people – a number equivalent to the population of Australia – moved
to China’s cities last year alone,’ he said.
In platinum, however, Anglo has an exception. According to a poll of 29 analysts by
Reuters, platinum will average $1,610/oz this year down from its median of $1,900/oz
forecast in July 2011. The price would recover in 2013, but it’s worth remembering
that platinum is closely matched to industrial demand in the US and Europe,
especially its use in autocatalysts. A lack of spending money in the US and Europe
means the demand for platinum dries up, even though it has alternative markets in
jewellery and as an investment.
This is all very bad news for Anglo American Platinum (Amplats), the Anglo American
subsidiary. Amplats CEO, Neville Nicolau, recently said the company would drop
capital allocations for projects R1bn this year, but little did we know why this might
be the case. It all came to pass when Carroll took the podium a week after Amplats’s
results.
Amplats had “come a long way’ in its efforts to cut on-mine inflation and improve
productivity, but it hasn’t improved enough. Capital projects had been cut because
Anglo American is considering taking the scalpel to the business. Carroll said “the
shape and size of the platinum portfolio’ require a reconfiguration. One can’t imagine
a reconfiguration can be anything other than mothballing and restructuring.
In any event, a reconfiguration in any other way – such as working smarter and
boosting efficiencies – has already been a well-trodden road for Nicolau, who is
largely credited with having fixed Amplats insofar as he was able. No, this is
something more serious.
Asked if Anglo American would consider reviewing its continued investment in Anglo
Platinum, Carroll declined to comment. “We remain supportive of the business,’ she
said. Personally, one can’t imagine Anglo releasing Amplats as it’s such a
differentiator for Anglo vis-a-vis its peer group.
Carroll has since told Dow Jones that Anglo will remain a shareholder, and won’t
demerge Amplats. However, it will look at the entire platinum chain, including
processing facilities on the upstream and downstream side.
Certain shafts are making more money than others, said Carroll – a way of saying
that parts of the business don’t meet return criteria. The goal was getting Amplats
back to its pre-2008 levels. There were few other clues. Unki, the platinum project in
Zimbabwe where regulatory and political problems continue to assail platinum
producers, would be considered, Carroll said.
There is one positive, however. According to Johnson Matthey (JM), the platinum
semi-fabricator and marketing company, the platinum market would be flat in 2012
following a surplus of some 195,000 oz in 2011. That was in November when JM
presented its annual review – a forecast that will be updated in May, this year – and
which therefore excludes recent supply side developments. As a result, JM may review
its position given that production closures at Anglo Platinum, coupled with production
problems at Impala Platinum (Implats), could see the platinum market swing into
deficit during this year. South Africa accounts for about 77% of the world’s platinum
supply.
Investors may take this as a cue to invest directly in the metal through one of the
several platinum exchange traded funds. Already it’s known that strike action at
Implats, the world’s second-largest platinum producer (Amplats is the first), will see
it produce 100,000 oz less than expected, equal to R2bn in lost revenue. Amplats has
earmarked production of between 2.5 million and 2.6 million oz; up to 200,000 oz less
than previously forecast. A 300,000 oz swing in the platinum market is material.
