JOHANNESBURG (miningweekly.com) – Diversified mining major Anglo American is embarking on a review of its platinum business, which has been wracked by government safety stoppages.

Despite its platinum operating profit increasing to $890-million in the face of 81 safety stoppages, London analysts peppered Anglo American CEO Cynthia Carroll with questions on the turnaround plans for JSE-listed Anglo American Platinum (Amplats), which lost 109 000 oz of platinum to nonfatal Section 54 mine stoppages.

Carroll said that the platinum business faced significant cost inflation, safety stoppages and European demand challenges.

As a result, the company had decided to embark on a review process in order to assess the "optimal configuration" of the platinum portfolio, "to maximise shareholder value and returns through the cycle".

Earlier, after posting record $13.3-billion 2011 earnings, she said: “We are prepared to take the tough decisions where assets are not delivering acceptable returns. You’ve seen us doing this before and we’ll do it again,” she said.

Bank of America Merrill Lynch analyst Jason Fairclough described platinum as Anglo’s business with the most turnaround and value-release potential.

“What can you do to fix this?” Fairclough asked Carroll during question time, again suggesting an unbundling solution in which the market would be allowed to value Anglo’s platinum assets separately.

Anglo could “fix it and then spin it off”, which was consistent with his approach when Anglo presented its interim results in August.

Carroll once again rejected the unbundling suggestion out of hand and explained that Amplats, like the rest of the South African platinum-mining industry, had suffered safety-stoppage setbacks at the hands of the Department of Mineral Resources (DMR) safety inspectorate.

“Sadly or unfortunately, however you want to describe it, inspectors were going into our mines and not just stopping sections where there was a safety discrepancy, but they were stopping entire mines for days on end and the industry at large lost about 300 000 oz,” Carroll said.

Near-term quick fixes were in the offing and the DMR was showing signs of adopting the right approach.

“We’re seeing some fair treatment with respect to stoppages,” she said.

Simultaneously, the shape and size of the platinum portfolio was under review, with improvements ranging from increased recycling to leveraging off the money-spinning Mogalakwena mine and taking a decision on the emerging Unki project in Zimbabwe, which has been commissioned a year ahead of schedule.

Workforce deployment might also feature in how Anglo got its platinum business back to the returns it was seeing in 2008.

“We’re not doing anything other than focusing on getting it right," Carroll reiterated.

Liberum Capital said in a note that Anglo’s platinum business was “a hidden source of operational leverage", calculating that moderate increases in metal prices would report to Anglo’s bottom line exponentially.

CODELCO CONFIDENCE

Carroll said that Anglo would not be moved from defending its fair legal rights and protecting value for its shareholders in its dispute with Codelco, the State-owned Chilean copper company that is attempting to force Anglo to sell it half of Anglo American Sur at a below-market price.

The sale of 24.5% of Anglo American Sur to Mitsubishi had delivered value.

“We have done the right thing,” Carroll insisted, conceding that the company would probably be involved in a drawn-out legal dispute with Codelco on the issue.

Despite Anglo’s willingness to negotiate a commercial solution with Codelco, that had not been possible to reach a settlement that “takes into account our strong legal position”.

While the company continued to be open to “sensible negotiations conducted in good faith”, it had to be recognised that Codelco was in breach of what was a simple two-company contract.

She contended that Codelco had been well aware of Anglo’s right to sell down its holdings to a third-party prior to any valid exercise of the option, but had nevertheless sought to exercise its option prematurely.

“We’re very firm and clear about our legal rights,” she reiterated under analyst questioning.

PERU PROJECT

Responding to a question from Deutsche Bank analyst Tim Clarke on Anglo’s Quellaveco project, Carroll said that Anglo’s “dialogue table” in Peru was “really unique”.

She disclosed that new Peruvian President Ollanta Humala was “very supportive” of Anglo in Peru and had recognised that what the company was carrying out was probably the model for the country.

Anglo executive John MacKenzie said that the community consultation and local representative consultation model involved 28 different stakeholders and dealt with water, environmental and social contribution issues.

The communities had given their support to the water scheme that Anglo was proposing at Quellaveco, environmental proposals had been largely accepted and discussions now centred on the contribution of the project to local communities.
 

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