The precarious state of South African mining was made clear yesterday as Anglo American Platinum (Angloplat) announced a sweeping restructuring that drew a swift rebuke from Mineral Resources Minister Susan Shabangu.
The restructuring by Angloplat, the world’s biggest platinum producer, involves idling four shafts in Rustenburg, cutting output by 400 000 ounces a year, and could see as many as 14 000 workers lose their jobs as the company tries to stem losses triggered by slumping demand and rising costs.
Job losses are a political hot potato in South Africa, with unemployment officially estimated to be running well above 25 percent. Against that backdrop, it was inevitable that Angloplat’s restructuring plan would cause consternation within the government and among the unions.
Both the government and the unions duly blasted the planned restructuring as irresponsible, while the ANC asked the government to recall some mining licences.
Angloplat is a subsidiary of Anglo American, which recently announced that it would replace its departing boss, Cynthia Carroll, with Mark Cutifani, currently AngloGold Ashanti’s chief executive, in April.
In a hastily convened press conference, Shabangu said that, “notwithstanding the purported unprofitability and unviability”, the decision to mothball the Rustenburg operations for an undefined period “demonstrates that the company believes it is ethically acceptable to execute a complex form of hoarding of minerals and deprive the country of economic growth and workers of their livelihoods”.
Shabangu said her department would subject the entire Anglo American portfolio of mining rights to regulatory scrutiny to ensure compliance with prescripts.
“It is regrettable that the company consulted with the department less than seven days ago despite major socio-economic ramifications of its decision.”
That Angloplat has had to conduct a review of its platinum operations is no surprise, however, since the company had announced in February last year that it would assess its operations as it became clear that the platinum industry was facing serious challenges.
The review was already under way when South Africa’s platinum belt, which accounts for more than half of the world’s platinum supply, was engulfed by turmoil from August to October as a wage protest at rival Lonmin escalated, resulting in the killing of more than 40 people.
Frans Baleni, the general secretary of the National Union of Mineworkers, said Angloplat’s planned retrenchments were a “blood bath” and would destabilise communities.
“The job losses are a blow, 14 000 jobs is not child’s play. It will have a severe economic impact,” Baleni said in an interview on eNews Channel Africa.
In response to Shabangu’s criticism, Anglo American spokesman Pranill Ramchander told Business Report: “We fully respect Minister Shabangu’s concern about jobs, which we also share.”
But he added: “Today’s announcement is about creating a viable and sustainable platinum business for the future.”
Angloplat’s announcement comes at a time when the mining sector is under intense scrutiny after last year’s violent strikes. The industry has had to struggle with persistent uncertainty following calls for nationalisation and criticism that it continued to profit on the back of cheap labour.
Mining is a major employer in South Africa, employing about 1 million people, half of whom are directly employed. And each of those jobs is estimated to support about 10 people. By that scale, the prospect of 14 000 job losses at Angloplat could mean devastation for a lot of people, analysts said.
Even so, Angloplat chief executive Chris Griffith said management “has to take drastic and significant actions to save the company”.
Angloplat plans to slash capital expenditure by 25 percent in the next decade to R100 billion.
Angloplat’s plan calls for it to cut production by about 400 000 ounces a year, and the company is now targeting producing between 2.1 million and 2.3 million ounces a year.
Angloplat will reconfigure its Rustenburg operation into a 320 000 to 350 000 ounce a year producer. The four shafts to be idled are Khuseleka 1 and 2 and Khomanani 1 and 2.
The Rustenburg processing operations will also be reconfigured to align them with the revised mining footprint, which may include closing the Waterval UG2 concentrator and number two smelting furnace.
The company would also sell its Union operations “at the right time”, Angloplat said.
In the meantime, it has proposed stopping mining activities at the Union North declines, combining Union North and South shafts into one operation and mothballing the Mortimer Merensky concentrator.
The company expects to create 14 000 jobs in mining and elsewhere as part of its R800 million social plan to mitigate the effects of the restructuring. It estimated that the reorganisation would cost R3.2bn, including R1.2bn for the job cuts.
Alison Turner, an analyst at London-based Panmure Gordon, said there were merits to the restructuring at Angloplat.
“It does have a positive impact on the short- and long-term supply and demand of the platinum sector which will be more attractive,” she said.
Angloplat’s production cuts amount to nearly 7 percent of global output. Platinum prices had their biggest jump in four months yesterday, surpassing gold, as investors expected lower supply to push prices up.
Spot platinum climbed as much as 2.5 percent to $1 699.50 an ounce. – With additional reporting by Ellis Mnyandu and Wiseman Khuzwayo