Impala Platinum (Implats) would review its operations and was leaning towards mechanising its mines, it announced yesterday, after the five-month strike in the sector sent its annual profit down 74 percent.
While news of a review is not a surprise, the seriousness with which the company seeks to go about with this process underscores the damage wrought by the longest strike in South Africa’s history.
The review included a production strategy that would drive on-face efficiency to increase crew efficiencies and the introduction of new technology.
Implats shares declined by 5.27 percent to close at R97 on the JSE yesterday as investors expected concrete details on the firm’s restructuring plans.
It is bound to put the firm in conflict with the unions if job cuts are on the cards.
Adrian Williams, a mining analyst at Avior Capital Markets, said while restructuring appeared inevitable, no company wanted to utter the word while still striving to attain pre-strike production levels.
“The idea of downsizing is a massive demotivator for workers and is unlikely to help already strained employment relations,” Williams said.
“We saw how quick Lonmin was to quell any speculation around restructuring and other companies are likely to do the same.”
Earlier this week, Lonmin denied speculation that it would retrench 5 700 staff as a knock-on effect of wage hikes.
Implats shares declined as it categorically stated it would not retrench and would instead migrate its employees from old to new shafts whereas the market was expecting retrenchments in the sector, Sibonginkosi Nyanga, a mining analyst at Imara SP Reid, said.
“The market does not like the fact that Implats has announced it will not retrench employees. What will it do with rising labour costs?” Nyanga asked.
Joseph Mathunjwa, the president of the Association of Mineworkers and Construction Union, was unable to comment on the review as the union had not been informed about it.
“I don’t know what they mean when they say they are reviewing capital projects. We are clueless on the details. Maybe they will contact us,” Mathunjwa said.
Implats reported a 74 percent fall in headline earnings a share to 86c in the year to June compared with R3.29 a year ago. Basic earnings a share fell to 1c compared with R1.67 last year as a result of the strike.
Terence Goodlace, Implats’s chief executive, said yesterday that the crippling strike had affected the time horizon of capital projects, and had necessitated the review.
“We need to identify where we are good and where we need to improve. We need technology that will help us modernise our mines, and where we can mechanise them,” Goodlace said.
“We are building these shafts, we do not want to lessen labour. The question to ask is how do we use 30 000 employees to build up to our 800 000 ounce target in the long term,” he said.
Implats capital projects include 20 Shaft, 16 Shaft, 17 Shaft as well as the Zimplats operations in Zimbabwe.
Implats lost 312 000 ounces to the strike, and expected to reach pre-strike levels within four months.
“The strike was five months long, but it is a 10-month disruption because it has taken us 10 months to get to where we were in December last year,” Goodlace added.
Implats is focusing on ramping up output to pre-strike levels. Production fell 42 percent to 411 000 platinum ounces. About 575 000 platinum ounces would be produced next year. .
Capital expenditure was cut to R4.4 billion in the year to June from R6.3bn last year and had been cut to R400 million next year as the company could not afford it, Goodlace said.
Operational improvements at the Marula, Mimosa and Two Rivers operations were overshadowed as output was dented significantly. Costs spiked due to mining inflation, earnings slid in the year to June and no dividend was awarded.
Production fell 20 percent and costs were up on mining inflation and the strike.