Amplats fallout rocks markets
Analysts say Amplats, which is expected to post big losses, had no option but to scale back, writes Chantelle Benjamin.
The aftershocks that followed Anglo American Platinum's decision to close four shafts with a loss of 14000 jobs – the largest single retrenchment by a mining company in the history of the country – initially saw favourable market reaction; both Amplats' and its parent company Anglo American's share prices went up.
Details of the plan were unveiled this week by Amplats' chief executive officer, Chris Griffith.
However, as the scale and the potential impact of the closure sank in, Anglo lost as much as 6% of its market value, Amplats lost 4% and the rand fell 1.59%, taking it close to the R9.00 level. Amplats is the country's largest single employer, but will cut its 60 000 workforce by nearly 25% to 45 000.
Workers at Amplats' Rustenburg shafts immediately went on wildcat strikes, although the National Union of Mineworkers warned this could lead to their dismissal without being paid retrenchment packages.
Minister of Mineral Resources Susan Shabangu warned that the government would comb legislation to see whether the miner was meeting its commitments to the country.
The estimated 300 000 ounce cut in production, which does not include other minerals mined during the process, is a potential loss of exports of about R6.4-billion, putting additional pressure on the country's trade deficit.
Analysts say a 400 000 ounce figure put forward by Amplats is based on full production figures, which Amplats has not reached for some time. The government will also lose revenue from royalties and corporate taxes.
On Tuesday, platinum rallied to a three-month high of $1699.50 on the news that less platinum would be entering the oversupplied market, trading for a time at a higher value than gold. But, on Wednesday, the metal surrendered some of its gains, dropping to $1670 and losing top place to gold again.
Analysts believe the platinum price was underpinned by news that Amplats staff had downed tools on Wednesday, prompting fears of renewed mine violence. It was hoped that news of a reduction in the supply of platinum would drive up the price.
The world's largest platinum producer, responsible for 40% of supply, is due to report heavy financial losses for 2012 in February when it releases its financial results because of poor prices and sustained labour unrest last year. Amplats has cut about 19 000 jobs since 2008, but is not the only platinum mining company to be affected. Last year, Eastern Platinum and Aquarius Platinum suspended operations on mines or projects.
Ian Woodley, Old Mutual mining and resource fund manager, said the decision by Aquarius to retrench some of its staff last year meant the company was able to relocate all of its staff to other mines.
"They got in early and were able to place staff. I cannot imagine that any other mines in the Rustenburg area will now be hiring."
Amplats expects about a third of its employees to find work within the Anglo American group, with two-thirds being absorbed by small business initiatives and a housing project in the Rustenburg area. It is hoping its restructuring will deliver cost savings of R3.8-billion by 2015.
The company borrowed R20-billion from shareholders and paid it back three years ago. But it is now R10-billion in debt again.
Just breaking even
Poor market conditions and labour strikes that hit the three largest platinum miners – Lonmin, Impala Platinum and Amplats – has created doubts about whether the situation is likely to improve. But the platinum sector is not the only one affected. Despite the strong gold price, Harmony Gold is at present in negotiations with unions about the possible retrenchment of about 5200 workers following a review of its Kusasalethu mine in Carletonville, which has not been in operation since October because of strikes.
The Chamber of Mines chairperson, Bheki Sibiya, speaking in November last year to the Cape Town Press Club, predicted that 10 000 jobs would be lost in the mining industry in the first half of the year, although it seems now the number will be higher. Sibiya singled out platinum, gold and chrome mines as being the most likely to shed workers.
"More than half of the platinum mines are just breaking even, if not running at a loss, due to poor demand and the lower platinum price," Sibiya said. "The gold sector has to mine deeper and deeper and this is going to incur more costs, especially for electricity to pay for the hoisting of men and material."
In the chrome sector, the problems were lower demand and prices.
Sibiya expressed concern that the mines were under pressure from the unions and government when "more should be done to protect the sector".
Any closure of operations or mines will have a significant effect on the businesses that supply or support the mining sector, as well as on the Rustenburg area, the areas that supply the workers for the mines and the government's plans to create jobs.
Analysts said the market was concerned about further violence in the mining industry because of Amplats' retrenchment plans and the government's negative reaction to the news.
Woodley said: "Political risk is back in fashion and we get reminded of it all the time, and the Anglo American and Anglo Plats share price decline reflects that. [There is, of course, political risk in other countries, but] concern around political risk in South Africa is high, because policy is not seen to support business."
The Cadiz Corporate Solutions mining head, Peter Major, agreed. "The government is saying this [the restructuring plan] means war and unions are saying this means war, and, in the light of Marikana, investors are concerned about the implications of possible violence or political backlash."
Analysts said that Amplats had no choice but to reduce costs in order to survive. Some said the restructuring should have come a year ago, if not two years ago, when it became obvious that platinum was under pressure. They warned that section 189 of the Labour Relations Act required that 60 days be given for consultation with labour, but it might take six to nine months before the process was completed.
"Nevertheless, something dramatic has to be done," Major said. "Shareholders are exasperated by Amplats' continued losses and the accumulation of debt [now about R10-billion net], especially after the company held a rights issue in early 2010, which raised R12.5-billion to pay down much of the R22-billion gross debt in the company at the time."
Woodley was optimistic that the closure of the shafts did not necessarily spell their demise. He said they could be reopened if conditions improved. "Anglo Plat has done so before. Some shafts closed in 2008-2009 were reopened in 2010-2011, so it has been done," he said.
Selling the brand
Speculation that billboards advertising the National Union of Mineworkers (NUM) are part of a recruitment drive was denied this week, but the union did say that it is running a television campaign to highlight its achievements. It has faced substantial opposition in the mining sector since the emergence of the Association of Mineworkers and Construction Union, losing its dominant position in some mines, particularly in the platinum sector.
Lesiba Seshoka, the NUM spokesperson, said this week that the TV campaign was to ‘reassure members’ that the union still has their ‘interests at heart’. The prominently placed billboards, describing the NUM as a ‘winning union’, is part of a year-long campaign to celebrate the union’s 30th anniversary, Seshoka said.