AngloGold’s last spin of the gold coin
Some see miner exiting SA as it cuts jobs, faces pay talks
● The question prompted by AngloGold Ashanti’s move to cut 2 000 jobs locally in an attempt to streamline its operations is: just how much more life does it think there still is in South Africa’s ever-shrinking gold fields?
National gold output peaked at 1 000 tons in 1970 and last year the industry produced only 147 tons. At its peak, it employed more than 550 000 mineworkers. Now it employs fewer than 100 000. While mechanisation has long promised to reach more gold deeper than 5km, it has simply not happened.
The job cuts at AngloGold — Africa’s largest gold miner — are an attempt to cut overheads across the business, including at executive level. After the cut, the miner would have 6 200 workers, compared to South Africa’s biggest gold miner, Sibanye-Stillwater, which has 34 000.
With a dollar gold price largely stagnant for the past five years and a strengthening rand, AngloGold, which started a restructuring programme last year, is looking ever closer to the point where local operations will be inconsequential to the group.
In the past two years the gold price has in- creased by 5.7% while the rand has strengthened by 20.5%.
René Carlo Hochreiter, an analyst at Noah Capital Markets, believes AngloGold is going to leave South Africa completely about 20 years after being formed from some of the gold assets of Anglo American.
He said the business could not continue making losses and the job cuts would sustain it for another six months before it needed to make another cut or let go of its last underground mine in the country, if conditions did not change.
As part of its restructuring plans, the miner has sold two of its underground mines, Kopanang and Moab Khotsong, and shut its TauTona-Savuka mine last year.
What remains in its South African portfolio is the Mponeng mine, theworld’s deepest at more than 4km, which is 32 years old. Along with the mine AngloGold owns a tailings business.
AngloGold is one of the four companies that need to prepare for gold wage negotiations in the next month. If the wage demands are too high, the company would close the mine, Hochreiter said.
AngloGold chief operating officer Chris Sheppard said the business had a large overhead structure. “We are finally dealing with the post-sales of Kopanang and Moab Khotsong and closure of TauTona’s Savuka; we are finally [getting] down to the retained structure.”
It now seems possible that AngloGold’s 2014 proposal to split its South African assets from its international ones might just hap- pen — by natural attrition.
The plan to split the assets was rejected by shareholders because of the cost implications and caused a mini crisis.
On the restructuring, Leon Esterhuizen, an analyst at Nedbank, said the miner was trimming down just to survive.
The company’s all-in costs of its South African business in the first quarter of this year was $1 361/oz, compared to a gold price of only $1 330/oz during that period.
“They are battling to make a proper margin. Anglo Gold is not the only one. The whole gold sector is struggling right now, so cutting 2 000 people is to make a profitable margin,” Esterhuizen said.
They are battling to make a proper margin. AngloGold is not the only one
Leon Esterhuizen
Nedbank analyst
Anglo Gold was approached by Sibanye a while ago to buy its Mponeng operation.
However, with Sibanye’s debt burden and Harmony having just bought Moab Khotsong, Esterhuizen said the mine’s two main potential buyers were out of the picture.
“I don’t think they necessarily want to sell it. They still think they can make some money out of the business,” he said.
However, Roger Baxter, CEO of the Minerals Council South Africa (previously the Chamber of Mines), said more than 50% of gold mining was loss-making at current prices. “It is a mature industry. There are a number of mature shafts. The cost pressures have made it extremely difficult to run those operations on a viable basis.”
Baxter said it was inevitable that parts of gold mines would have to be restructured, which would result in job losses over time. Further significant cost pressures such as the wage demands were going to bring some challenges.
On the coming wage talks, Sibonginkosi Nyanga, an analyst at Momentum, said the unions had matured and understood the implications of extremely high pay demands or a strike.
“It’s an open secret that the rand is not assisting our gold operations, so the unions recognise that there is little room for negotiations.”