JOHANNESBURG Anglo American Platinum (AMSJ.J) plans to mothball two South African mines, sell another and cut 14,000 jobs, risking a repeat of last year's violent strikes as the world's largest producer of the metal struggles to halt losses.
Reaction to the long-awaited plan from Amplats on Tuesday was swift, with the government accusing the company of betraying its trust and a labour leader threatening strikes across its South African operations if the closures go ahead.
Improvements at Amplats, 80 percent owned by miner Anglo American (AAL.L), are critical to the fortunes of its underperforming parent. In 2006, Amplats made up a quarter of Anglo's operating profit, but that has dwindled as the platinum miner struggles with rising costs and weak prices.
Investors welcomed the plan to cut output by almost a fifth - or 400,000 ounces a year - and begin a shift to profitable production as the first step in Anglo's own recovery.
But a labour leader promised to fight any attempt to put mines under "care and maintenance", when output is halted but they are maintained enough to be reopened in future.
"If they put any shaft on care and maintenance, all of the operations will go on strike. Nothing like this will be allowed," said Evans Ramogka, labour leader in Rustenburg.
Most of the cuts will fall in Rustenburg, in South Africa's platinum belt about 120 km (70 miles) northwest of Johannesburg. Rustenburg was the centre of the 2012 strikes when about 50 people died, including 34 shot dead by police at rival platinum producer Lonmin (LMI.L).
Analysts cautioned that the size of the headline reduction could be overstated, as it was from planned production - a level Amplats has not reached for several years. Against market forecasts of output, it may be closer to 300,000 ounces, only a little above most analysts' expectations.
"I would expect discontent among unions, among workers, but Amplats has drawn a line in the sand," said analyst Des Kilalea at RBC Capital Markets, adding that other producers would be watching to determine their own next steps.
The price of platinum rose over 2 percent to 3-month highs after the announcement, leaping past gold for the first since March last year, on tighter supply in South Africa, home to 80 percent of known platinum reserves.
Anglo shares fell more than 4 percent after the government expressed its concern. Mines minister Susan Shabangu said Amplats had "betrayed the trust" between the company and government.
Shabangu contradicted Amplats' claims that it had engaged with the government. "There was never a consultation. They've come up with their own plan, finalised their plan and told us," she told a news conference.
Amplats said earlier this week it would sink to a full-year loss because of last year's wildcat strikes which brought many of South Africa's platinum and gold mines to a standstill. The unrest was rooted in a union turf war and aggravated by income disparities within the industry and low wages for dangerous work.
The 14,000 jobs affected by the overhaul amount to almost a quarter of Amplats' current work force including contractors, and three percent of South Africa's mine labour force. If the jobs are cut, the losses would set back government efforts to cut unemployment from 25 percent.
Support for the ruling African National Congress (ANC) is waning among mine workers before general elections in 2014. The National Union of Mineworkers (NUM), a base of ANC electoral support, is rapidly losing members to the militant Association of Mineworkers and Construction Union (AMCU) and other groups.
Amplats - which will also reduce smelting capacity and review marketing arrangements and joint ventures - said it would try to replace the jobs through supporting housing and small business initiatives in the Rustenburg area.
Shabangu dismissed the efforts - which will cost Anglo 470 million rand ($53 million) out of a total restructuring cost of 3.8 billion - as a "public relations exercise", echoing sceptical comments from angry mine workers. "Fourteen thousand jobs? In which sector? Brick-laying?" she said.
For Amplats mine graphic: link.reuters.com/cez25t
SAVING THE COMPANY
Amplats said the cuts are critical for its survival. "This is not a knee-jerk reaction to unions, this is not a short-term response to an economy that may improve in a month or two's time," Chief Executive Chris Griffith told reporters.
"The company has to take these drastic and significant actions to save the company and the employment of an additional 45,000 people," he said.
Even by the standards of the struggling platinum industry, the company's profitability is weak. Its operating margin over the last 12 months was a lean 7.3 percent, compared with the 13 percent average of seven of its industry rivals, according to Reuters data.
Platinum's labour-intensive nature has intensified the storm for Amplats which faces rising wages, power and input costs. At the same time demand has sagged for a metal used in making diesel cars, sales of which are falling in Europe.
Amplats said on Tuesday that two of its mines in Rustenburg - Khuseleka and Khomanani - would be put on "long-term care and maintenance" because of their costs.
The group will also sell its Union mines "at the right time". Griffith said the company had not yet talked to potential buyers or had interest from suitors.
The proposed overhaul, which will be subject to two months of consultation with unions and others, will have to be pushed through by new Anglo American Chief Executive Mark Cutifani.
Cutifani, who takes the reins in April, has defended South Africa as an investment destination but is also a realist with operational experience who improved returns at miner AngloGold Ashanti (ANGJ.J).
"This might not be easy to implement, given the militancy of the workforce, but it looks sensible. The platinum market is likely to see more balanced supply/demand when this has gone through," said one of Anglo American's 20 largest investors. ($1 = 8.8087 South African rand)
(Additional reporting by Sherilee Lakmidas and David Dolan in Johannesburg, Ed Cropley in Pretoria, Agnieszka Flak in Rustenburg and Clara Ferreira-Marques and Sinead Cruise in London; Editing by David Stamp and Anna Willard)