Tuesday, April 22, 2014

Anglo American Looking To Rid Itself Of High Cost Platinum Operations

the recent takeover of union negotiating rights on the platinum mines by the fledgling, highly aggressive, AMCU, and the subsequent now 13 week-long strike which has closed the Rustenburg mining operations, appears, according to media reports, to have focused Anglo's mind on how to rid itself of this troublesome part of its operations, which requires a significantly higher platinum price to make it decently profitable. According to a report in the Financial Times the Rustenburg mines Anglo is looking at divesting, or perhaps closing down, only provide around 20% of its total platinum output and gold miner spinoff from Gold Fields, Sibanye Gold has already expressed an interest in acquiring platinum assets. 
But what the strike, with its initial demands to double the miners' basic wage, has done is enable Anglo to present an ever-stronger case to government to rationalise its Rustenburg operations by closing down unprofitable sections and heavily reduce its highly labour intensive workforce - a move which when it was first promulgated back in 2012 met with considerable official government opposition. The other option is, of course, to sell the operations off assuming it can find a willing buyer and agree tp terms. Cutting thousands of jobs in a country where unemployment within the black majority runs at a very high level is, to say the least, politically problematical, so selling the mines off and let someone else take these difficult decisions may be the easy way out!
There is no easy way out except to close down shafts that do not make money at current platinum prices. This will constrict supply and eventually result in a higher platinum price. However, as in most places on earth everything is political so the companies have to justify why they will want to lay off thousands of workers and close mines. Of course it is irrelevant in the long run what the government or the unions want. You cannot mine a metal at a loss indefinitely as eventually you go bankrupt no matter how many laws or proclamations are issued by some ridiculous government minister. In previous articles I have said that eventually pgm prices would be heading higher due to constrained supply and the closing of high cost mines in South Africa. It seems the first shot has been fired by Anglo.

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