Resources giant Anglo American has launched a restructuring and cost savings programme for its South African platinum operations as it emerged that the division would record a big loss for 2012 after being hit by strikes and falling prices.
Anglo American Platinum, widely known as 'Amplats', said on Tuesday that it has come up with a "clearly defined proposed strategy to create a sustainable, competitive and profitable platinum business for the long term benefit of all its stakeholders."
The group said that up to 14,000 jobs could be affected by the shake-up.
Amplats, the world's largest platinum miner, began a review of its business back in February 2012. Anglo American owns 79.8% of the business.
"The platinum business has attractive underlying fundamentals, but we are facing tough decisions to restore profitability to our operations," said Amplats Chief Executive Chris Griffith.
"We must evolve to align the business with our expectations of the platinum market's long-term dynamics and address the structural 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 performance in recent years, and will be consulting extensively with our stakeholders in relation to our proposed changes."
As part of these changes, Amplats will "reconfigure" its Rustenburg operations into three mines, putting four unsustainable, high-cost shafts on long-term care and maintenance. This will reduce its production profile by around 400,000 ounces per annum. It also may include the closure of some processing operations at the project, namely the Waterval UG2 Concentrator and No. 2 Smelting Furnace.
The firm also believes that its Union mines, which produced 254,000 ounces of platinum in 2011, would be of greater value under different ownership and has confirmed its intention to sell them "at the right time". For now, the project will be "reconfigured to protect near-term value", by stopping mining or consolidating activities.
Meanwhile, Amplats has proposed a programme which hopes to deliver 3.8bn-rand (£271m) of annual benefits by 2015 through cost reduction and efficiency improvements, including savings of R390m to be achieved through the redesign of its overhead structure.
"As a result of the proposed changes to the business, a total of up to 14,000 jobs may be affected, 13,000 of which will be in the Rustenburg area."
Good for the platinum sector
Analyst Alison Turner from Panmure Gordon said this morning that the Amplats review is "good" for the wider platinum sector and prices. She said that restructuring will reduce world primary platinum supply by 7%.
"We were already positive on the outlook for platinum taking the view that the South African industry would not deliver production growth to meet recovering platinum demand.
"Following today's announcement from Anglo Platinum we now expect the market to move more rapidly to a larger and more sustained deficit position driving a sustained increase in the platinum price."
Strikes and prices hit earnings in 2012
On Monday, the company released a statement saying that headline earnings per share are expected to fall to a loss of between 491 cents and 628 cents for last year, well below the profit of 1,365 cents reported in 2011.
The firm said that sales volumes during 2012 were affected by two-month-long illegal industrial action which resulted in an initial safety suspension and ramp-up period.
Total lost equivalent refined platinum production, including from joint ventures and associates, amounted to 306,000 ounces. What's more, the losses in production meant that unit cost operating costs increased during the period.
Amplats also recorded losses of 463m rand (£33m) resulting from the revaluation of certain investments and 6,606m rand (£472m) for the write-down of the value of various assets that are no longer considered "economically viable". As such, the company said that basic earnings per share are forecast to drop to between 2,487 cents and 2,624 cents in 2012, from a profit of 1,374 cents in 2011.