Amplats: The crisis continues

Let’s start with the numbers: the world’s top platinum producer reported an operating loss of R6.3 billion after write-downs of projects and operations of R6.6 billion. That is 180% in the opposite direction from a profit of almost R8 billion from 2011. Headline earnings were slashed from R13.65 per share in 2011 to a year-on-year loss of R5.62. Operating cash flow decreased by R10 billion and net debt increased by 186%, with gearing more than doubling. No final dividend was declared by the board due to the increase in debt and costs of future investments. Basically, 2012 was ugly for Amplats.

CEO Chris Griffith put the situation in context in a media release before briefing investors later on Monday. “Operationally, 2012 was a challenging year for Anglo American Platinum and the platinum industry as a whole. The year was characterised by lower prices, illegal industrial action which impacted production, unit cost, labour productivity and, of course, profitability and earnings. In a challenging year, characterised by increasingly volatile markets due to macro-economic weakness combined with supply disruptions, our revenue was impacted by a lower US dollar basket price.”

Speaking to media, investors and analysts at the Anglo American headquarters in Johannesburg, Griffith and his team presented of the results before taking questions. The company’s restructuring plan was a key concern.

Amplats has come under intense pressure from Mining Minister Susan Shabangu, unions and the African National Congress (ANC) for its plans to mothball the Rustenburg Kusuleka and Khomanani mines. Announced 15 January, the strategy that was a year in the making would cut production by 400,000 oz per annum and affect 14,000 jobs, while adding R3.8 billion in value creation for the company per year. After scathing criticism from Shabangu, who threatened to review the company’s mining license, Amplats agreed to postpone the official retrenchment process while it consults stakeholders for 60 days.

Griffith was careful on Monday to acknowledge the consultation process, but he said at this stage Amplats had few other options than restructuring if it were to achieve long-term stability. He gave two reasons for closing the shafts: they are not profitable and demand was lower than the company predicted before the global financial crisis. “We cannot keep expanding in an oversupplied market or prices will fall,” said Griffith, raising the all-important issue of the platinum price.

He said the move to cut production was not a knee-jerk reaction and suggested from Amplats’s point of view, the consultations with stakeholders would first be used to convince them the decision is necessary.

Responding to a question on whether the government has a right to intervene, Griffith assured investors. “The fact is that we have to have the right as a company in this country to do what we need to do to be profitable, but do so sustainably,” he said, before disappointing those who want the shafts to change ownership. Griffith said Kusuleka and Khomanani are an “integral part of our Rustenburg operations” and will not be sold. “The assets are not up for sale, not to anyone or a state-owned mining company.”

National Union of Mineworkers (NUM) spokesman Lesiba Sheshoka said it was unacceptable for the mines to be mothballed. “It can’t be acceptable that they will retrench workers and not sell the shafts. The government must apply the ‘use it or lose it’ principle.” He questioned whether Amplats was really committed to finding a solution to save jobs in the consultation process. “As far as we are concerned we don’t think there is anything that justifies the reason to retrench people,” he added. Sheshoka said investors scared of calls for government intervention must understand that “everywhere people invest there are risks.”

Joseph Mathunjwa, president of the Association of Mineworkers and Construction Union (AMCU), was also cautious of Amplats’s sincerity in the consultation process but called for parties to “be cool”. “One can comment once they have made the findings of the three spheres (Amplats, government and unions) then the union will be in the position to say something out of that. I think I’ll be jumping the gun if I say this is what we are going to do or this is what we are going to say,” Mathunjwa told Daily Maverick. Workers, however, are worried, he added. “Everyone is worried… You can imagine the person that is working there who has been selected to face such an unfortunate situation.”

But Godfrey Lindani, who works at the Kusuleka mine, said employees not only would not accept the retrenchments, but also wanted a pay rise. “If they close them Anglo Platinum must go back to America. If ever they try to close those two shafts, Anglo Platinum will have a serious problem,” he said over the phone from Rustenburg. “Everyone will go on strike and the whole Anglo Platinum will go on strike. Everyone is unhappy about that statement (to restructure operations).”

Lindani serves on one of the working committees at Amplats that helped organize a two-month strike in 2012. He said workers started 2013 expecting to continue to negotiate their wage demands from last year.

After the 2012 mining unrest, employees became highly organised on committees without direct influence from unions and tensions between fellow workers, unions, and management rose along with the level of violence. “Our shaft has been producing,” said Lindani, suspicious of the Amplats figures. “We have done our own research. We were told our shaft is number one; now we are being told our shaft is being closed? Both Kusuleka and Khomanani say they are working hard. We have told workers they must produce more so management cannot close the shafts.”

Lindani said he would rather see government control the mines than Amplats. “If management for Anglo are not ready to negotiate, they can bring those (mining licenses) so government can take over. We can’t be robbed by the guys from America. It’s better to be robbed by our own government.”

But the hands of the Department of Mineral Resources and the ANC may be tied. Any attempt to revoke mining licenses would result in a lengthy court case, which would cause panic for international investors already uncertain of expanding in South African mining.

The Democratic Alliance says that the ANC government is partly to blame for the current problem. Shadow Minister of Mineral Resources James Lorimer told Daily Maverick he blames too much red tape restricting investment – “bad rules which are badly applied” – and says legislation giving the minister too much power creates uncertainty in the industry. Rising costs such as electricity could have been mitigated if the government altered Eskom’s funding model, he argued.

What do the Department of Mineral Resources and the ANC think about Anglo American Platinum’s results and its CEO’s comments? They have gone quiet after standing up to the mining giant’s restructuring plans. The ANC was unavailable for comment and department spokesperson Zingaphi Jakuja referred Daily Maverick to an outdated press release. DM