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Billion-rand cash burn at Amplats’ loss-making mine

Anglo American Platinum (Amplats) CEO Chris Griffith tells Mining Weekly Online’s Martin Creamer that the company will be spending capital totalling from R6-billion to R7-billion in the next three years to boost its platinum assets. Photographs and Video: Duane Daws. Video Cameraperson: Nicholas Boyd. Video Editing: Darlene Creamer.

22nd July 2013

By: Martin Creamer

Creamer Media Editor

  

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JOHANNESBURG (miningweekly.com) – Anglo American Platinum (Amplats) suffered a R1-billion negative cash outflow at its loss-making Rustenburg platinum mine in the six months to June 30.

And Union Section, the other part of its restructure request that has led to the prolonged consultations with government and labour, 'burnt' R350-million in the same period.

Free cash flow generated from Amplats operations remains weak owing to unrelenting cost pressures and lower labour productivity.

The company’s net debt rose by R2.7-billion to R13.2-billion.

The lower cash generated by operations, future funding requirements and ongoing uncertainties in the global economy prompted the board to continue with its suspension of the dividend.

The difficulties in the platinum market continue to be as severe as they were when government compelled Amplats to postpone the remedial action the JSE-listed company proposed on January 15.

Too much uneconomic upper-group two (UG2) ore is mined and costs are too high as a result of the current configuration of the Rustenburg mine and the Union mine.

From those two mines, where Amplats articulated the need for restructuring more than seven months ago, some R1.3-billion of cash went out the door in six months.

Admittedly the cash outflow from the two operations would have been substantially less had Amplats managed to sell all the platinum-group metals (PGMs) that it produced in the period; refinery maintenance often precludes this, resulting in more PGMs being sold in the second half of the year than in the first.

“We will see some extra cash come through in the second half of the year, but that still doesn’t make the problem of Rustenburg and Union go away,” Amplats CEO Chris Griffith tells Mining Weekly Online in a video interview (see attached).

The proposal made seven months ago was for Rustenburg to be restructured into three operating entities, removing 250 000 oz to 300 000 oz a year of high-cost production and mothballing the Rustenburg shafts, Khuseleka 1 and 2 shafts and Khomanani 1 and 2 shafts.

The two Union mines, which are seen as being of greater potential value under different ownership, are being consolidated into one in preparation for their disposal.

“The process has already started and we have a sale team commissioned. In the next couple of weeks we’ll be able to take that process to the mine,” Griffith adds.

It is the lucrative Mogalakwena opencast mine on the northern limb of the Bushveld Complex in Limpopo that is currently carrying the company.

“It’s mining well and it’s producing a lot of money,” says Griffith, who adds that with Mogalakwena always come the substantial copper and nickel credits.

Also, the company is well aware that only a moderate injection of additional capital expenditure (capex) could release another 100 000 oz of PGMs a year from Mogalakwena’s existing concentrator and base-metal refining capacity.

Another plus was that two Amplats joint venture mines, Kroondal and Bokoni, came through with standout first-half performances.

Kroondal production was up 20% and Bokoni had its best second-quarter performance in five years, increasing production by 26%.

Amplats intends spending from R6-billion to R7-billion capital in the next three years, half of which will be to ensure that existing operations can be kept going.

The other half will involve more capex at the Twickenham project on the eastern limb of the Bushveld Complex, at Unki in Zimbabwe and also at Mogalakwena.

Shaft barrels are continuing to be sunk at Bathopele in the Rustenburg Section and investment continues.

“But what we need to do is to spend that money very wisely and, particularly at Rustenburg, we’re not spending as much capital on the UG2 projects and the decline shafts.

“We need to be able to invest through the cycle so that when the cycle turns again, that we are well placed to continue our operations,” Griffith says.

On the upcoming wage talks, the former Kumba Iron Ore CEO says he is “fairly convinced” that there will be constructive dialogue.

“There is a greater understanding of the difficulty that the industry is in and that was a very important hurdle to overcome. The government now understands the difficulties of the gold and platinum industry.

"Although it may not sound like it, I think unions are also getting a better understanding of the difficulties, and that unrealistic wage demands are only going to end up with more job losses,” he says.

London mining analyst firm Liberum Capital says in a note, however, that the ability of mining CEOs to make significant impact is severely restricted in South Africa, where the firm sees the mining industry being forced to operate in a “semi-nationalised manner for the welfare of the state”.

TOP SAFETY PERFORMANCE

Safety in the six months was the best on record, with the number of lost-time injuries decreasing 27% and serious injuries by 34%, resulting in a lost-time injury frequency rate of 1.04 compared with 1.36 in the same period of last year.

However, one employee lost his life in a fall-of-ground accident at Khuseleka mine in Rustenburg.

More than 4 000 Amplats employees are on antiretroviral treatment for HIV and Aids, a year-on-year improvement of 9%.

The company is also working hard to eliminate employee exposure to noise and dust and its use of potable water is being reduced.

Edited by Creamer Media Reporter

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