Anglo’s platinum policy – fact or fiction?

Media reports suggest that Anglo American is looking at divesting itself, or perhaps closing down, some, or all, of its Rustenburg platinum mining operations.

Almost 20 years ago, Anglo American sacrificed Johannesburg Consolidated Investment (JCI) on the altar of emerging black investment in South African mining and in so doing took over the then around 50% owned JCI’s best assets. Of these perhaps the most significant were the company’s platinum mines around Rustenburg and its Union and Amandelbult operations, leaving Anglo American Platinum as comfortably the world’s largest platinum miner. Now, according to reports circulating in South Africa and in London, it appears to be looking at disposing of its deep Rustenburg platinum mining operations which it sees as a problematic and vulnerable business.

As we noted in recent articles (Platinum strike could be godsend for South African pgm miners and Union intransigence will put thousands of platinum miners out of work – permanently) the recent takeover of union negotiating rights on the platinum mines by the fledgling, highly aggressive, AMCU, and the subsequent now 13 week-long strike which has closed the Rustenburg mining operations, appears, according to media reports, to have focused Anglo’s mind on how to rid itself of this troublesome part of its operations, which requires a significantly higher platinum price to make it decently profitable. According to a report in the Financial Times the Rustenburg mines Anglo is looking at divesting, or perhaps closing down, only provide around 20% of its total platinum output and gold miner spinoff from Gold Fields, Sibanye Gold has already expressed an interest in acquiring platinum assets.

But what the strike, with its initial demands to double the miners’ basic wage, has done is enable Anglo to present an ever-stronger case to government to rationalise its Rustenburg operations by closing down unprofitable sections and heavily reduce its highly labour intensive workforce – a move which when it was first promulgated back in 2012 met with considerable official government opposition. The other option is, of course, to sell the operations off assuming it can find a willing buyer and agree tp terms. Cutting thousands of jobs in a country where unemployment within the black majority runs at a very high level is, to say the least, politically problematical, so selling the mines off and let someone else take these difficult decisions may be the easy way out!

The so-called ‘deep’ platinum mines in the Rustenburg area have proved hugely difficult to mechanise. The platinum bearing horizon is only a few centimetres thick – easily recognisable by a 1 cm thick chrome contact – and dips at around 9 degrees. Traditionally it is mined in longwall sections around 30 inches (0.9 m) wide and is hugely labour intensive. To get any kind of standard mechanised equipment in would require much wider mining widths and hugely increase dilution as a result. There have been attempts – indeed they are ongoing – to introduce boring-type equipment on to the face, but so far this has seen too much downtime with equipment development by specialist manufacturers like AG Associates of Seattle (run by ex-Robbins people). Funding seems to have dried up, at least for now, for further work on this.

While the mines are not deep by the South African gold mining sector standards, the rock temperature gradient in the relatively young Bushveld Complex rocks makes for difficult (unpleasantly hot) working conditions, which suggests AMCU are perhaps right to call for much higher wages. But the mines just can’t afford them given the numbers of workers they have to employ to extract the platinum bearing reefs at current metal prices. Something will have to give and, as we have pointed out in these columns before, it is all likely to result in huge job losses with uneconomic mines, or sections, being closed, or perhaps sold off, as the latest rumours suggest, to a company which may feel it can find a way around the inherent technical problems, or find an economic, and feasibly technical, means of mechanising the mining operations. Either way it will likely mean significant job losses.

If Anglo is going down the divestment route, this is unlikely to be a quick process. After all it has already suggested some time back that it is looking to sell its Union Platinum division – so far presumably without finding any takers prepared to pay what Anglo might be asking.

Altogether rationalisation, or sale, of the Rustenburg operations might well fit in with new CEO Mark Cutifani’s plans to make Anglo American a more streamlined de-risked diversified mining company. As with many of the mining majors now, following the trials and tribulations of the past couple of years when the markets have turned against the miners, this is all part and parcel of the latest trend towards divesting or closing what are viewed as non-core businesses – and platinum may currently fall into this category as far as Anglo American under Cutifani is concerned. There’s no smoke without fire and the media may well have got this one right.

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