Industry a long way from regaining its shine
‘Poor relationships’ cited by minister fade in face of jobs crisis
● If there was ever a comment to come back and bite mineral resources minister Gwede Mantashe, it was his saying that there wasn’t a crisis in the platinum sector apart from the self-made one of poor relationships with employees and communities.
Since he made these comments at a platinum conference in Johannesburg in April, there has been little good news from the sector, with Impala Platinum unveiling plans to cut its workforce by 13,000 people by closing or selling five mines and cutting platinum production by nearly 250,000 oz.
Lonmin, the world No 3 platinum miner, is forging ahead with the 12,600 job cuts it announced in December 2017 as it stops unprofitable shafts and prepares for a takeover by Sibanye-Stillwater.
While the conversation might be different behind closed doors between Implats management, Mantashe and the Association of Mineworkers and Construction Union (Amcu) leadership, the public statements from the minister and union leadership show the deep divisions so prevalent in SA’s mining industry and the ongoing lack of trust between the players.
Mantashe and Amcu might have preferred to keep the extent of the Implats restructuring out of the glare of public scrutiny, but Implats has a duty to inform shareholders of material events likely to move its share price. The radical restructuring of its flagship asset base, reducing its workforce to 27,000 people from 40,000, would certainly qualify.
Implats managed to reduce its workforce by 2,700 during 2017 without resorting to forced retrenchments and, probably more importantly, without strikes or adverse and attention-grabbing outbursts from Mantashe and Amcu president Joseph Mathunjwa.
Implats CEO Nico Muller warned of some pushback by the government and unions, but the response has been harsh, with Mantashe accusing Implats of “arrogance” and being “unethical”, while Mathunjwa said Amcu would not allow 13,000 to be put out of work and threatened to stop all production at the company’s South African mines.
Implats has struggled for more than six years to cut costs to the minimum and mine more efficiently and productively. But it’s been an exercise in futility and the company is now in a position where radical measures are needed to not only save the world’s second-biggest platinum miner but to send a message to the market about reducing the oversupply of the metal.
“This is designed to take Implats down the cost curve and that’s good. It’s the only place to be in the PGM [platinum group metals] market,” said Nedbank mining analyst Leon Esterhuizen.
Citi said the “new strategy has a better chance of delivering value for shareholders than previous strategies … Clearly, a lot depends on execution, and we expect pushback from labour unions.”
Implats has recorded impairments of R9,4bn against its assets since 2014, incurring deeper and deeper losses as the rest of its assets in SA and Zimbabwe subsidise the unprofitable Rustenburg mines. In the past six years, Implats has raised more than R10bn in equity and bond issues.
Break-even mines
It is critical for Implats to succeed in stopping the haemorrhage of cash from its Rustenburg mines in the next two years, with its plans setting its remaining six mines up to be at best break-even if the prevailing prices for the basket of metals remain largely unchanged in that period.
Implats has convertible bonds worth R6.5bn due in 2022. It either needs to renegotiate the terms or find the cash. It is burning through R1.5bn-R2bn a year at its unprofitable Rustenburg mines.
A critical part of the strategy will be finding a buyer for two of the five shafts, which have a life of an estimated eight years, and possibly a third, which can be revived if neighbouring Sibanye-Stillwater agrees to a deal to allow mining into its resources that are unlikely to be mined by the gold and PGM miner for years to come.
Analysts raised the question of who would be brave enough to buy old, deep-level mines with conventional, labour-intensive operations where productivity was a problem and the outlook for platinum prices was clouded.
Mathunjwa has demanded the state nationalise the mines Implats plans to close or sell, or offer them to a junior miner with the additional sweetener of one of the remaining six mines thrown into the mix to ensure sustainability for the new entrant.
The problem is Implats has just two profitable mines of the six it is keeping. Two are large, new shafts that the company is ramping up to full production over the next two years and they still need capital, while two more are unprofitable but with the expectation they can be managed to profit quite quickly.