JOHANNESBURG — Anglo American Platinum, the world's top platinum producer, said it will mothball two South African mines, sell another and cut 14,000 jobs, risking a repeat of last year's strikes when about 50 people died.
Reaction was swift, with a minister saying the government had not been consulted and an Amplats labor leader threatening strikes across South African operations if the closures go ahead.
Tuesday's review is seen as crucial to reviving the fortunes of Anglo American, which owns about 80 percent of Amplats, the platinum producer said it aimed to cut output by around a fifth or 400,000 ounces.
But analysts have cautioned the cut could be overstated, as it is based on production capacity that Rustenburg mines have not matched for several years. Against forecast production, the cuts may amount to closer to 300,000 ounces.
The price of platinum rose over 2 percent to 3-month highs — leaping past gold for the first since March last year — on concerns over supply in South Africa, home to 80 percent of known platinum reserves.
"If they put any shaft on care and maintenance, all of the operations will go on strike. Nothing like this will be allowed," said Evans Ramogka, labor leader in Rustenburg, center of the 2012 strikes and where most of the cuts will fall.
Amplats has said it probably posted a full-year loss because of the violent wildcat strikes which brought many of South Africa's platinum and gold mines to a standstill. The unrest was rooted in a union turf war and aggravated by income disparities within the industry and low wages for dangerous work.
Around 50 people were killed in the violence including 34 striking miners at platinum producer Lonmin who were shot dead by police in August in the deadliest security incident since the end of apartheid in 1994.
If 14,000 jobs are lost, it will represent about three percent of South Africa's mine labor force and set back government efforts to cut unemployment from over 25 percent.
The ruling African National Congress (ANC) is losing support among mine workers before general elections next year.
The National Union of Mineworkers (NUM), a base of ANC electoral support, is rapidly losing members to the militant Association of Mineworkers and Construction Union (AMCU) and other groups.
South Africa's mines minister Susan Shabangu was seething at a news conference, contradicting Amplats' claims it had engaged with the government.
"There was never a consultation. They've come up with their own plan, finalized their plan and told us," Shabangu said.
She said the company had betrayed the trust built up between management and government by presenting Pretoria with a fait accompli. "When the horse has bolted, then they come to us? Is that how it is going to work?"
Amplats said it would aim to replace the jobs through supporting various housing and small business initiatives in the Rustenburg area but analysts said such work would likely be temporary and could hardly fill the gap.
"No jobs in the private industry can replace those mining jobs. They will not be able to replace those jobs with jobs of the same quality," said Peter Major, a mining consultant at Cadiz Corporate Solutions.
Shabangu dismissed this as a public relations exercise.
"Fourteen thousand jobs? In which sector? Brick-laying?" she said to journalists.
The company's profitability is weak, even by the standards of the struggling platinum industry. Its operating margin over the last 12 months is a very lean 7.3 percent, compared to the 13 percent median of 7 of its industry rivals
Its return on equity over the last 12 months is a decline of 0.4 percent, compared to the industry median of growth of 6.4 percent.
Platinum's labor-intensive nature has intensified the perfect storm for Amplats which faces rising wages, power and input costs as demand sagged for a metal used in diesel cars that is largely dependent on Europe's sluggish market.
Prices have tumbled from peaks scaled in 2008 and periodic spikes in recent months have been a mixed blessing for Amplats and its rivals.
In 2006, platinum contributed 24 percent of Anglo's group operating profit but by the first half of last year, safety stoppages and weaker prices left platinum accounting for just 2 percent of group profit.
Amplats said two of its mines in Rustenburg, Khuseleka and Khomanani would be put on "long-term care and maintenance" — when mines are maintained so that they could be reopened in future but are not operated — because of their high costs.
Amplats also said it would "divest the Union mines at the right time - to maximize value under different ownership". Reuters reported on Monday Amplats was likely to sell Union.
SAVING THE COMPANY
Amplats chief executive Chris Griffith said on a conference call with reporters that the proposals were not a short-term response but were vital to "save the company".
"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," he said.
The proposals will have to be pushed through by new Anglo American chief executive Mark Cutifani, who will take over from Cynthia Carroll in April.
Cutifani hailed South Africa as an investment destination as he turned around bullion producer AngloGold Ashanti but is also a realist who will want to deliver for shareholders.
Investors applauded the moves. "It's good that they've made a good, strong first move and this will place them on a great footing to profit when the cycle does turn," said Nic Norman-Smith, chief investment officer at Lentus Asset Management in Johannesburg, which owns Amplats shares.
South Africa is home to about 80 percent of the world's known platinum reserves, but soaring power and labor costs and depressed prices for the metal — used in auto catalysts to lower emissions - have conspired to make much of the industry unprofitable.
A tipping point may have been reached last year by the illegal strikes that hit production and bottom lines.
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