JOHANNESBURG (miningweekly.com) – Platinum producer Anglo American Platinum (Amplats) on Monday reported an R843-million operating profit for the year ended December 31, a significant turnaround from the R1.9-billion operating loss recorded the year before.

However, the company’s headline earnings nearly halved to R786-million, from R1.45-billion in 2013, while the profit attributable to ordinary shareholders was R624-million, compared with a loss of R1.4-billion in 2013.

In a conference call with analysts and the media on Monday, Amplats CEO Chris Griffith reiterated the negative impact of the five-month strike by employees at the start of 2014 on the company’s financial results.

“We estimate that the strike cost us about R8.5-billion in lost operating profit,” he stated.

“We lost about R12-billion in revenue from the loss of 530 000 oz of production, which comprised 424 000 oz which we lost during the strike itself and further 108 000 oz which were lost during the ramp-up phase,” he explained.

However, he noted that the company was able to offset some of these losses by managing to fulfil its sales obligations by drawing down inventory.

The sale of inventory raised R3.4-billion in revenue but this cost Amplats about R3-billion, as the inventory was previously capitalised on the balance sheet.

Additionally, Griffith highlighted that strict cost control and the principle of ‘no work, no pay’ had led to cost recuperations of R3-billion after taking into account the cost of food provision to workers and of deploying extra security, as well transport during the strike.

“The strike impacted 40% of our operations but the performance of the rest of the operations was excellent, with refined platinum production at the unaffected operations up 5% year-on-year,” he stated.

Griffith stated that the Mogalakwena mine had delivered a “record performance” with output up 10% year-on-year to 369 800 oz, compared with 335 800 oz in 2013.

“Our joint venture operations also continued to perform well with 2% increases in output recorded overall,” he said.

Further, Griffith pointed out that the strike affected Union, Rustenburg and Amandelbult mines had achieved “excellent” post strike performances owing to optimisation work that had taken place at these mines.

“We achieved the ramp-up in two months, which was well ahead of schedule and overall performance improvements enabled these mines to achieve a 12% improved production output in the fourth quarter of 2014 compared with the fourth quarter of 2013.”

He highlighted that the value being achieved from Amplats’ commercial strategies – which started in 2012 and which focused on market development activities, contractual terms, risk management and the company’s revised customer portfolio – had collectively increased the company’s operating profit by R2.1-billion in 2014.

“An example of this is can be seen through our commissions, which have reduced to R14-million from R418-million in 2013.”

Griffith said the fourth-quarter production performance in conjunction with the company’s marketing successes provided Amplats with “great momentum” for this year.

2015 OUTLOOK
In 2014, demand for platinum exceeded supply from both mining and recycled sources for the third consecutive year.

“Therefore, while the platinum price declined in the second half of 2014, largely as result of macroeconomic factors, we believe that the fundamentals point to a more positive pricing going forward,” Griffith averred.

He further explained that, over the past three years, the deficit had been met by producers selling from working inventory, particularly during the strike period, and also from the supply of above-ground stock.

“The upshot of this is that stockpiles have been significantly diminished from about 4.1-million ounces at the end of 2012 to about 2.5-million ounces at present.

“Additionally, with the fall in the platinum prices, these remaining stocks are less liquid than they were previously,” Griffith explained.

Conversely, he noted that the demand for platinum continued to be strong, driven by the higher sales of lightweight vehicles.

Moreover, he said that demand from the platinum jewellery sector was also looking positive and industrial demand remained firm owing to new capacity in glass and chemicals.

Griffith added that there was even a strong exchange-traded fund demand for platinum.

“The same strong fundamentals exist with palladium and rhodium. Therefore, the platinum group metals market looks set to perform strongly this year,” he stated.

STRATEGY UPDATE
Griffith outlined that Amplats would aim to shift its focus from being a volume producer to a value producer this year.

“The restructuring of our operations are largely complete and we have started to implement optimisation plans at the Union and Rustenburg mines.”

As part of these improvement programmes, the last of the decline sections at Union had been closed in the fourth quarter of 2014.

“Plans to exit from our Union and Rustenburg mines are progressing well and we believe the optimisation programme in place at Union makes it a sustainable, independent operation and also complementary to an exit from Rustenburg for Amplats,” Griffith stated.

Last month, the company had opened a data room to a shortlist of interested parties, who were  undertaking due diligence studies on the Union and Rustenburg operations.

Griffith added that preparation for the possible listing of the Rustenburg operations on the JSE, under a spin-off company, was also progressing “as the asset is a strong proposition for this exit route - with or without Union included in the deal”.

He said a final decision on the exit mechanisms would be made by the end of the first half of this year.

However, Griffith said that, while Amplats was targeting to dispose of the Union and Rustenburg mines by end of this year, if the company decided to select the listing of the mine as a disposal option, this could delay its exit target date by a few months.