JOHANNESBURG (miningweekly.com) – As the platinum group metals (PGMs) mining industry moves closer to a prolonged weak price environment, Anglo American Platinum (Amplats) is continuing its aggressive approach to strip down to a basic stay-in-business mode.

Disciplined capital remained a key priority for Amplats to keep its head above water and ensure all operations remained cash flow positive, while deferring, for two years, investment in all growth and replacement projects and identifying more assets to shed.

“In this low-PGM price environment, we have managed the business for the current prices and ensured all operations remained cash flow positive by improving our operational performance and efficiencies; reducing costs and capital expenditure (capex); and cutting out unprofitable ounces,” CEO Chris Griffith said on Monday.

The sharp commodity price decline, in addition to impairments and restructuring costs, had weighed heavily on Amplats’ earnings for 2015, with headline earnings plunging to R107-million from R786-million in the prior year, and headline earnings a share falling from 301c in 2014 to 41c in the year under review.

One-off restructuring costs of R900-million and R1.8-billion of Amplats’ R14-billion in impairments for the year contributed to the weak headline earnings.

A basic loss a share of R46.38 was reported for 2015, a significant contraction on the basic earnings a share of 239c in 2014, while the group reported a total comprehensive loss for the year of R10.6-billion, compared with the profit of R545-million in 2014.

Post-tax impairments impacting basic earnings included R4.5-billion for the Rustenburg operations, R2.5-billion for Twickenham, R300-million for Tumela 5, R100-million for MIG plants, R800-million for equity interests in Royal Bafokeng Platinum (RBPlat) and R2.7-billion for Bafokeng Rasimone Platinum Mine (BRPM), as well as R1.4-billion for the equity interests in Atlatsa Resources and Bokoni Platinum.

Amplats had an 11.68% shareholding in RBPlat and a 33% direct stake in BRPM, as well as a 22.76% shareholding in Atlatsa and a 49% shareholding in Bokoni’s holding company.

During the 12 months to December, capital had been strictly allocated to sustaining the operational performance of the group, with a more “thoughtful, risk-based” approach to the appropriate allocation of stay-in-business (SIB) capital.

Total capex for the year decreased some 36% to R3.7-billion, excluding the R999-million set aside for the Mogalakwena mine waste stripping programme.

SIB capex was reduced by more than R1-billion to R2.5-billion, while around R648-million was cut from growth capital, bringing it to R1.2-billion for the year, as major capital project decisions were delayed until 2017.

After embarking on significant restructuring in 2013, focus remained on repositioning the group’s portfolio by retaining core assets, exiting noncore assets and placing future value operations on hold to generate long-term value with high-quality assets, low-cost production, high-margin ounces and reduced safety risks, Griffith pointed out during a presentation of the company’s results, held alongside the Investing in African Mining Indaba, in Cape Town.

As Amplats reorganised and right-sized its overhead structure to support a more focused and less complex business, around 420, mostly managerial and supervisory, positions were cut – a move expected to produce some R200-million a year in labour cost savings from 2016.

The revised development and project timeline and plan for Twickenham mine, which was being placed on care and maintenance, led to 547 contractors exiting the company.

Twickenham, however, remained critical to Amplats’ portfolio, with redevelopment, from a conventional mine to a largely mechanised operation, set to resume once the market demands and the group's balance sheet allowed.

A further reduction in the company’s own headcount was reported, with 1 000 at the Rustenburg operations, 450 at the Union mine and some 400 within the platinum miner’s retained portfolio.

In addition, restructuring plans at the Bokoni mine, managed by joint venture partner Atlatsa, to stop lossmaking production, led to the exit of some 1 079 employees and contractors by end-December.

Discussions for the disposal of its interests in Atlatsa and Bokoni were ongoing.

Given the further industry headwinds expected, Amplats was also considering exiting its 50% interest in the Kroondal mine, as well as its stake in Pandora.

Amplats was currently in the process of selling its Rustenburg mine to Sibanye Gold, with the transaction expected to become unconditional during the latter part of this year.

The process for the sale of Union mine also continued; however, Amplats warned of idling the mine, besides other options,  should the disposal not be progressed in the first half of this year or if the mine did not generate cash.

Further, plans for life extension at Tumela through the proposed Tumela 5 shaft had been mothballed temporarily, as, despite being the preferred replacement project, a lower capital, higher returning option was required.

SALES AND PRODUCTION
Amplats posted a strong recovery in platinum production in 2015 after a five-month industrial action and subsequent ramp-up impacted the output during 2014.

“Strong operational performances were achieved by Mogalakwena, Amandelbult and Unki, with improved performances at Rustenburg and Union as they benefited from an increased focus on operational efficiency,” Amplats explained.

Total refined platinum production was up 30% to 2.46-million ounces during the period to December, with total platinum production increasing 25% to 2.33-million ounces, supplemented by a drawdown in pipeline inventory of 130 000 oz.

The increased refined production led to an increase in platinum sales, which were up 17% to 2.47-million platinum ounces during 2015.

The 2015 net sales revenue increased by 8% to R59.8-billion; however, the average dollar basket price per platinum ounce sold decreased by 21% to $1 905.

“The average dollar sales price achieved on all metals declined, with platinum down by 24% to $1 051/oz, palladium 12%, rhodium 16%, nickel 31% and copper 25%,” Amplats pointed out.

The average rand/dollar exchange rate weakened some 17%, leaving the average realised rand basket price per platinum ounce 8% weaker at R24 203.

Meanwhile, despite the decline in PGM prices in 2015, Amplats generated free cash flow from operations of R4-billion.

“Positive cash flow generation at every operation is the ongoing focus and cash conservation, along with stringent cost controls, has been enforced.”

Further, the company was able to reduce its net debt position to R12.8-billion in 2015, from R14.6-billion in 2014.

“Disciplined capital allocation and right-sizing overheads will deliver additional cost savings. Decisions on major capital projects have been
delayed to at least 2017. As a result of these initiatives, the company believes the financial position remains strong to manage through the current weak PGM price environment,” Griffith commented.

With Amplats’ project portfolio now aligned to the market environment, capex for project and SIB capital over the next year was set to be maintained at between R3.7-billion and R4.2-billion.

The capitalised waste stripping at Mogalakwena would reach around R1.2-billion for the year.

Amplats did not declare a dividend in 2015.