Amplats Proposes Mine Closures for Return to Profitability

Anglo American Platinum has proposed a plan to organizationally reconfigure its fully-owned Rustenburg operations in
South Africa into three mines—Thembelani, Siphumelele and Bathopele—with five shaft systems. Its Khuseleka and
Khomanani mines in the Rustenburg area (four shafts) would be placed on long-term care and maintenance.
(Photo courtesy Anglo American Platinum)
Anglo American Platinum (Amplats) report-ed on January 15, 2013, that it had con-cluded a review of its business, announced in February 2012, to create a sustainable, competitive and profitable platinum busi-ness for the long-term benefit of all its stakeholders. The report followed a state-ment a day earlier that the company expected to incur a loss for the year ended December 31, 2012.

As a result of the business review, Amplats proposed reconfiguration of its 100%-owned and managed Rustenburg operations in South Africa into three mines—Thembelani, Siphumelele and Bathopele—with five shaft systems. Its Khuseleka and Khomanani mines in the Rustenburg area (four shafts) would be placed on long-term care and maintenance. Its 85%-owned and managed Union mines on the northwest limb of the Bushfeld Complex would be sold, when the timing is right. Rustenburg processing operations would be reconfigured to align with the revised mining footprint, which might include closing the company’s Waterval UG2 concentrator and No. 2 smelting furnace.

Amplats initiated its business review in early 2012 in response to lowered expec-tations for platinum demand growth and a number of structural changes in its plat-inum business that have eroded profitabil-ity in recent years, including increased capital intensity, increasing mine depths, declining ore grades, higher-than-inflation unit cost increases, price-sensitive jewelry demand, and increasing secondary supply of platinum. (The company charts these platinum industry trends in considerable detail going back to the year 2000 in a slide presentation on its website.)

Amplats’ proposal met immediate and vociferous objections from labor union and government sources. The objections focused mainly on the loss of jobs and did not address the need for changes at Amplats if it is to remain a viable company over the long term.

“Prevailing and forecast market condi-tions necessitate cash preservation and the optimal allocation of capital,” the Amplats statement said. “The proposed restructur-ing of the operations will ensure more effective capital allocation toward the com-pany’s mines that are best placed to sus-tain and create employment over the long term. The company proposes to reduce its planned capital expansion expenditure over the next 10 years by approximately 25% to R100 billion to focus investment on low-cost, high-margin projects.” (The U.S. dollar/Rand exchange rate in late January was about $0.11/R1.)

Amplats expects the proposed changes to deliver R3.8 billion of annual benefits by 2015 through cost reduction and efficiency improvements, including savings of R390 million to be achieved through a redesign of the company’s overhead structure.

Amplats “will continue to take its social responsibilities seriously, particularly to its employees and surrounding communities, and proposes to provide a comprehensive package of support to any affected employ-ees and communities. In particular, the company will target the creation of at least 14,000 jobs—an equivalent number of jobs to those that may be affected by the restructuring. The job creation initiatives will focus on housing, infrastructure and small business development in Rustenburg and the labor-sending areas.”

Amplats’ CEO Chris Griffith said, “The platinum business has attractive underlying fundamentals, but we are facing tough deci-sions to restore profitability to our operations. We must evolve to align the business with our expectations of the platinum market’s long-term dynamics and address the struc-tural changes that have eroded profitability over time. We have reviewed our business across the entire value chain, building upon the steps taken to improve operational per-formance in recent years, and will be con-sulting extensively with our stakeholders in relation to our proposed changes...

“By creating a sustainable, competi-tive, and profitable business, we will be in a stronger position to continue substantial investment, provide more secure and stable employment, and benefit our cus-tomers, suppliers, and shareholders.”

Griffith emphasized that Amplats’ pro-posals grew out of the business review begun in February 2012 and were not made in response to strikes that disrupted Amplats’ operations during the fourth quarter of 2012.

Following a second meeting that includ-ed Amplats, the Department of Mineral Resources and organized labor, Amplats announced on January 29 that continuation of the process begun on January 15 would be postponed to allow for a detailed consultation process to take place between these three groups and that the three groups had agreed that the process would take no more than 60 days. The three groups “re-com-mitted to engage constructively for the ben-efit of all stakeholders and will communi-cate progress updates as and when appro-priate,” the Amplats statement said.

Amplats is 79.8% owned by Anglo American plc and is the world’s largest pro-ducer of platinum. Apart from the mines that are the focus of the proposed restruc-turing, Amplats has three other 100%-owned and managed mines in South Africa and one in Zimbabwe, and it has two 100%-owned development projects in South Africa. It has non-managing, 50% interests in four other mines in South Africa and non-managing 49%, 42.5%, and 33% interests, respectively, in three other mines in South Africa.

It owns and operates 14 concentrators and three smelting complexes, and it owns and operates a base metals refinery and a precious metals refinery. The pri-mary role of the base metals refinery is to separate precious metals from the smelter products and provide feed for the precious metals refinery.

As featured in Womp 2013 Vol 02 -