Johannesburg - Anglo American, the owner of the second-biggest diamond producer, would keep on investing in new South African projects for as long as operations remained profitable, chief executive Mark Cutifani said on Tuesday.
“We will continue to support South Africa, but at the same time we have to remain profitable,” he said at the Venetia diamond mine owned by Anglo’s De Beers unit. “Sometimes we have to make tough decisions and make sure we get that balance right.”
He spoke as De Beers started the $2 billion (R19.6bn) expansion of the open-pit operation to include an underground mine, extending the life of the asset beyond 2040.
Anglo’s underlying earnings fell 54 percent to $2.84bn last year following a decline in commodity prices and an increase in costs. Its Anglo American Platinum unit, which is the biggest producer of the metal and has most of its operations in South Africa, is consolidating five mines with nine shaft systems into three operating mines to reduce output and help return to annual profit.
Anglo may report underlying earnings of $2.1bn this year, according to the average estimate of 20 analysts.
“The most important thing is that we manage within our means and when prices pull back we have to be very careful where we spend our money and we have to make sure we have the right margins. We have to work both sides.”
Underground output at Venetia was forecast to start in 2021 and the sub-surface operation would replace the open pit as South Africa’s biggest diamond mine, De Beers said.
The operation contained an estimated 96 million carats of the gems and would support more than 8 000 direct jobs.
The global market in polished diamonds might reach $31bn by 2016, De Beers forecast last year.
Russian producer Alrosa produced 34.4 million carats of diamonds last year, surpassing De Beers’s 27.9 million carats output to become the largest producer of the precious stones.
South Africa must “provide the right environment for growth”, President Jacob Zuma said on Tuesday at the Venetia mine near Musina.
“This includes the implementation of transformation measures and also to promote labour market stability in the sector,” he added.
Inter-union rivalry has fuelled tension at South African platinum mines, where the National Union of Mineworkers has lost its status as the most powerful workers’ body to the Association of Mineworkers and Construction Union. At least four union members have died this year as the organisations compete for membership.
Strikes had shaved 0.5 percentage points off economic growth last year and about 0.3 percentage points this year, Zuma said in June.
Shares in Anglo slumped 0.67 percent to R237.15 on the JSE yesterday. – Bloomberg