JOHANNESBURG (miningweekly.com) – As it postpones remedial action to April 30, the government-constrained and African National Congress- (ANC-) criticised Anglo American Platinum (Amplats) risks mounting losses at its already haemorrhaging mines, while, at the same time, its controlling shareholder, Anglo American, suffers yet another financial setback in Brazil, where it is writing down a substantial $4-billion (R36-million) at its ever-demanding Minas Rio iron-ore project, which will take an extra year to build and where execution risk remains.

“Amplats is in real trouble and we have to collectively find ways to return it to profitability so that we can actually save jobs,” Amplats CEO Chris Griffith, only five months into the task, told Radio 702 talk show host John Robbie on Tuesday morning.

Putting the retrenchment process on hold raises the possibility that they will not go through, said Liberum Capital analyst Ben Davis, who describes the $4-billion Brazilian write-off as “a big number”.

“We’ve had very constructive conversations with government and labour and I think our relationship is back where it should be,” said Griffith, who will celebrate his 48th birthday on February 4, the day on which he is expected to announce the heaviest losses in the 58-year history of Amplats, the world’s biggest platinum-mining company, which is in line for a basic-earnings-level loss of more than R6-billion and a loss for the year of R1.5-billion.

Meanwhile, Anglo American said on Tuesday that Minas-Rio capital was expected to overrun to $8.8-billion, persuading the company to record a $4-billion impairment charge on a post-tax basis.

Davis estimated that virtually the entire $5.5-billion purchase price for Minas-Rio plus most of the capital expenditure had been written off.

Amplats met on Monday with the Department of Mineral Resources (DMR), the National Union of Mineworkers, the Association of Mineworkers and Construction Union, the National Union of Metalworkers of South Africa and UASA – with Solidarity a notable absentee – and agreed to explore mechanisms of engagement on Amplats’ restructuring proposals, which involve closing two mines, suspending four shafts, selling Union mine and retrenching 14 000 people.

Monday’s meeting followed one on January 17 with Mineral Resources Minister Susan Shabangu and Amplats in which “constructive” discussions were held and a commitment made to engage positively on Amplats’ restructuring proposals. 

The alliance has agreed to postpone the continuation of the Section 189 process under the Labour Relations Act, which had begun on January 15.

The postponement has been agreed by the tripartite alliance in order to allow for detailed consultation between the DMR, Amplats and organised labour.

The alliance undertook to take no more than 60 days, beginning on January 30, with members recommitting themselves to engage constructively for the benefit of all stakeholders and communicate progress updates.

“What we have agreed on is that we will delay the consultation process that we normally have in place through Section 189,” Griffith said.

During the Section 189 process, companies consult with labour under the facilitation of the Council for Conciliation, Mediation and Arbitration and the Department of Labour.

What Amplats has agreed with the DMR and its labour unions is that it will postpone the commencement of the 189 process for two months to give the company a chance to rather consult with both the DMR and its labour unions outside of the legal process.

“So all we’ve actually agreed to do is do the initial upfront work that you do with labour anyway in the 189 process, outside of the 189, with the DMR, in a 60-day period.

“All we’ve done is agreed to postpone the commencement of the 189 and continue our consultation process outside of that.

“This process with the DMR and labour is a process they feel more comfortable with and, after the request they put to us, we have no objections to consult with them in what we think will be a more amicable environment,” Griffith said, in the 702 interview, in which Robbie asked:

"How heated did it get, because we heard that the Minister and ANC secretary-general Gwede Mantashe were very angry and in fact you were even called arrogant. So obviously tempers were quite frayed. Is it now amicable and are you now talking in a decent way together?"

Griffith: "When all that broke I did say that I wasn’t prepared to have a running battle with our regulator and I think we had very constructive meetings with the Minister and her team.

“This is going to be a difficult process. We’re not going to change the fundamentals of the platinum industry overnight. But I think we’ve had really constructive discussions. We’ve now entered into a process that they feel comfortable with and we will have in these fixed timeframes a really good and constructive consultation process.

"If the retrenchment process needed to happen after the consultation period, the Section 189 process would then be set in motion.

Robbie: "How tough is business at the moment?"

Griffith: "It’s tough. We’re going to announce our results on February 4, next Monday, and our trading statement has given the range where we are likely to trade. We’re in the region of R1.5-billion loss for this year and, at a basic earnings level, over R6-billion loss.

“This is very, very serious, and the world environment in which we find ourselves is really, really tough, so by either shouting at the CEOs or saying that we are not patriotic, that is actually not the case.

“The fact is that we’re trying desperately to keep the business alive. I can certainly hear where government is coming from saying, hey, we want to be part of that process, and collectively we need to see what can be done, but the bottom line is that we have to find a way to make this company profitable again.

“There are two major fundamentals, the one is that we have operations that are loss-making and we have to do something about the operations that are loss-making. They’re eating up the profits that profitable shafts are making. We have to do something about unprofitable shafts.

“The second is that the market is over-supplied, which is why the price isn’t responding. Something has to be done about an over-supplied market being continually supplied by unprofitable ounces. The company is in real trouble and we have to collectively find ways to return the company to profitability so that we can actually save the 45 000 remaining jobs.”

Robbie: How has Marikana affected relationships with labour?

Griffith: Marikana was a terrible tragedy in our country’s history, not only for the tragedy of itself, but also at the time that it came in the platinum industry. It was the worst possible time. We have been talking about the difficulties in the platinum industry for the last two years and we’ve been working on the platinum review for the last year, way before Marikana. But it happened and it put much more pressure on an already dire situation. Now there are a host of relationships that are in a very difficult space and it’s going to take time and effort from all of us to heal those rifts.

Robbie: Obviously, you're first priority is to your shareholders?

Griffith: Our priority is to all our stakeholders. We have always had that way of doing business. We continue to think about our employees, about the country and about our shareholders, because nobody will continue investing in an unprofitable business.

Robbie: Does government understand that, because sometimes, with some of the statements made, you doubt it.

Griffith: I think government does understand that but I think it is just such a difficult time for everyone in our country. It’s not as if it is just difficult for business and it’s easy for government. It’s going to take effort from all of us. Government has certainly had some comments that ring true. They are saying to us that it’s not necessarily only about the outcome, but the process and we want you to involve us more upfront and I think they’ve got a point and we need to work on that.

Davis commented that although the platinum sector had rallied hard, the dplatinum shortage that many were hoping for might be illusive owing to the deferred closures, weak China jewellery demand and increased recycling on higher prices.

Despite the platinum-group metals Rand basket price of R12 700/oz being at its highest level since the 2008 power crisis, large parts of the industry remained cash destructive and valuations remained stretched.

Davis envisaged that upcoming wage negotiations in the second quarter of 2013 might ignite operational labour disruption once more and push the basket higher, but that the overall net effect would be negative for South African platinum miners.

The high Renminbi platinum prices and anticorruption drive was impacting negatively on Chinese jewellery demand, with platinum turnover on the Shanghai Gold Exchange having the lowest volumes since 2008.

Liberum expected Chinese demand for platinum jewellery to fall 210 000 oz year-on-year at current platinum prices.

High dollar platinum prices were also likely to encourage increased recycling.

On Minas Rio, Liberum said virtually the entire $5.5-billion purchase price plus most of the capital expenditure had now been written off and to achieve the first ore-on-ship date of the end of 2014 remained dependent on the scaling of many hurdles in the next twelve months.

The transmission line to the beneficiation plant and the development of the pipeline required issues around land access to be resolved by the end of March.

Prestripping needed to begin at the mine in April and, prior to that, further work was required to resolve issues relating to caves in the mine area.

At the beneficiation plant, the tailings dam needed to be completed by the end of May in order to be filled during the upcoming rainy season.

Overall, considerable execution risk remained, Davis added.