JOHANNESBURG (miningweekly.com) – The drastic R2.7-billion restructure of the Impala Rustenburg mine, involving the loss of 13 000 jobs, the closure of five shafts and cutting of 230 000 oz out of yearly platinum production, has evoked a strong rebuke from the Mineral Resources Minister Gwede Mantashe, who has accused Impala Platinum (Implats) of being “careless, and mindlessly committed to implementing a predetermined outcome, no matter how unworkable that might be”.

Over the next two years, Implats' strategic review, which is being imposed to stop a cash-burn of R3.5-billion a year, outlines a reduction of its yearly production of platinum from the current 750 000 oz to 520 000 oz a year.

In its new form, its Impala Rustenburg mine will have six shafts instead of 11, including two new shafts in ramp‐up, as well as an extensive processing complex that supports the JSE-listed company’s profitable toll refining business.

South Africa’s second-largest platinum group metals producer described its staged, two-year restructuring period as being designed to mitigate implementation risks and socioeconomic impacts.

“We’re very concerned, as a South African producer, of the social implications,” Implats CEO Nico Muller said in response to questions put by Mining Weekly Online during Thursday's media roundtable.

“We want to allow ourselves some time to evaluate the commercial alternatives. One option is to close down shafts and put them on care and maintenance, but we’ve had unbelievable support from the Department of Mineral Resources and even the  Minister himself, to contribute to the process and to collaborate to find alternatives, which is part of our thinking,” Muller told Mining Weekly Online.

The job-cuts plan, as it stands, is for 1 500 employees to exit by the end of this year; another 3 000 employees to exit by the middle of next year, when 1 Shaft ceases to operate; 1 800 to be out by the end of March 2020, when 9 Shaft ceases to operate; and 6 800 exiting when 12 Shaft and 14 Shaft are shut by the end of June 2020.

However, the Minister condemned the planned 13 000 job cuts as being “a clear example of a company that is careless" and denounced Implats' "reckless actions" as adding "injury to insult.”

He complained that the DMR was still at the beginning of an engagement with Implats, wherein it encouraged the company to consider different options of saving jobs and keeping their operations working.

In this regard, Implats management had agreed that it should engage under Section 52 of the Mineral and Petroleum Resources Development Act (MPRDA) but had then run off to announce retrenchments.

Section 52 of the MPRDA allows, through the Section 52 board, for commercial alternatives and other options to be considered before resorting to the labour-reducing Section 189 of the Labour Relations Act (LRA), which is linked to a specified 60-day consultation process with organised labour, plus a 30-day extension, ahead of companies implementing forced retrenchment.

Last year, Implats cut 2 200 jobs without a single forced retrenchment, which the company is hoping to repeat under Section 189 when it cuts 1 500 jobs this year.

Job loss avoidance measures included transferring teams to the company’s growth shafts, including the major 16 Shaft and 20 Shaft projects as well as the reskilling of employees to fill vacancies.

Impala Platinum mine, which currently employs 40 000 people, has a natural attrition rate of 200 employees a month, providing an option for the company to reskill employees to fill vacancies as they arise.

“It’s our intention to avoid forced retrenchments to the extent that we can,” said Muller, who appealed to the media not to interpret that Implats is in conflict with government.

“We’re respectful of their ambitions and, in fact, these are not dissimilar from ours, and we will commit to a process to give credence to the objectives they have to minimise impact,” he said.

The company said that it had engaged with its social partners in the last few months, meeting with the leadership of its biggest union, the Association of Mineworkers and Construction Union, and describing its engagement with the DMR as being “very constructive” and saying it would be continuing to engage with them through the Section 52 process.

“We have interacted with the DMR and even with the Minister, who has been present in our offices, and the government has asked us to consider implementing a process which is initiated under Section 52 of the MPRDA and, in principle, we support that.

“The government sees a Section 189 notification as a communication of retrenchment. Under the LRA, you are required, when you contemplate a labour reduction, to issue a 189, which then provides a platform to communicate with organised labour and to proactively contemplate mitigating measures to prevent job losses as far as possible.

“So, we are aware that the Minister is concerned about the issue of 189 and that we may have a difference of opinion, but I just want to repeat that we’ve had very constructive engagements with the department, we understand the government’s concern, and we’ll continue to engage with them. The intention behind the issuing of 189 is not to communicate a forced retrenchment of 1 500 people. It provides the team with an opportunity to engage with labour in order to start with reskilling, moving of teams to growth areas, and to make use of natural attrition to mitigate that number to every extent possible,” Muller said.

However, the release from the Ministry accused Implats of a “display of arrogance”. It quoted the Minister as saying that only an industry that failed to regard workers as valuable assets behaved in Implats’ manner, which was worsened by the high unemployment rate in the country.

“Further, Implats' actions are a display of arrogance, hence they can go against the grain at the time when even the President of the Republic is calling on all of us to put shoulder to the wheel in turning around our country's economic fortunes.

“The Ministry, once more, urges Implats to reconsider its actions and return to the process we all agreed upon. Now is the time to work collectively and make our country prosper and desist from behavior that is careless and without foresight,” the release stated.

The strategic review is designed to end cash-burn at Impala Rustenburg and set the mine on the road to long‐term sustainability and profitability.

Implats stated in a release to Mining Weekly Online that it was committed to a value‐focused strategy across all operations to improve its competitive position, profitability and financial returns.

It believes that adoption of the strategy review will result in the Implats group reducing its exposure to higher‐cost, less flexible, labour‐intensive operations to improve flexibility and capacity, as well as sustainably generate attractive returns in a changing market and operating environment.

This strategic orientation has been informed by a significant decline in the platinum price and sustained high mining cost inflation.

Cost pressure, the company said, was particularly acute in older, deeper, labour‐intensive conventional mines located on the western limb of the Bushveld Complex, where, over the past few years, Impala Rustenburg had initiated measures to return the operation to profitability.

While there had been many improvements, these optimisation measures alone had not been sufficient to secure the economic viability of the operation in the prevailing low platinum price environment.

The review found that a fundamental business restructuring was the only viable option to secure a long‐term future for the operation.

In a phased approach, operations would therefore cease at Impala Rustenburg’s end‐of‐life and uneconomic shafts, with future mining activity focused on profitable, lower‐cost, high‐value, and longer‐life assets. The strategic transformation would, the company said, involve retaining only six operating shafts as operations concluded at end‐of‐life and uneconomical shafts.

The company’s platinum group elements mill grade would likely then increase from 4.09 g/t in 2018 to 4.25 g/t in 2021 and the Merensky:Upper Group Two ratio would increase from 42% to 50%.

In Impala Rustenburg’s platinum production falling from the current 750 000 oz/y to 520 000 oz/y, non‐profitable platinum production would be removed from an oversupplied market.

Real platinum operating costs would reduce from R25 100/oz in 2017 to less than R22 000/oz in 2021.

Real stay‐in‐business capital expenditure is to fall from R2 800/oz to less than R2 000/oz owing to infrastructure efficiency improvements.

Replacement capital would fall from R820-million a year currently to R120-million in 2021, and to zero in the 2023 in line with the completion of the 16 Shaft and 20 Shaft replacement projects.

The once‐off restructuring cost of R2.7-billion planned for the transition programme would be incurred during the 2019 and 2020 financial years, with the restructuring funded from internal facilities and the monetisation of inventory stocks.

“The only option for conventional producers today is to fundamentally restructure loss‐making operations to address cash‐burn and create lower‐cost, profitable businesses that are able to sustain operations and employment in a lower metal price environment,” said Muller, who added that due care would be taken to ensure that job losses were minimised by job loss avoidance measures.

Negative cash flows recorded at the operation in recent years, and the capital investment to develop 16 Shaft and 20 Shaft, the company said, had been funded from cash flows from other group operations as well as external sources, including an equity raise and convertible bond issue totalling more than R10-billion.

The group’s cash position at the end of the 2018 financial year had been further eroded by ongoing losses, though liquidity had been created by the forward sale of R3.8-billion worth of excess pipeline stocks following the Number 5 furnace fire.

Excess stock would be monetised early by selling forward, which would release R2-billion in cash in 2019, without impacting on contractual deliveries to customers.

Implats’ revolving R4-billion credit facilities are available until 2021 and the company has engaged with its lender group, which is supportive of the strategic review implementation plan.

Discussions are under way to convert the existing bilateral facilities into a single R4-billion revolving credit facility to enhance headroom and flexibility still further.

Implats is expected to have a positive cash balance in the current and next financial years, supported by cash flow from other group operations, including those in Zimbabwe.