Saturday, January 12, 2013

South Africa Braces for Possible Mine-Job Cuts

South Africa Braces for Possible Mine-Job Cuts

Wall Street

JOHANNESBURG—Anglo American AAL.LN -1.45%PLC is poised to cut thousands of jobs in South Africa following a review of its platinum operations here, foreshadowing a wave of layoffs in the country's cash-strapped and strike-hit mining sector, investors and analysts say.

Anglo American initiated a review of its majority-owned platinum unit, Anglo American Platinum Ltd., AMS.JO -0.08%in February last year, as the company sought to reverse a 63% drop in annual profit at the unit and a fall in platinum-mining production. The operation has been hurt by a rise in labor and power costs and a drop in platinum prices. The review, which is expected to be made public over the coming weeks, could result in more than 10,000 job losses, according to forecasts from investors and analysts who track the industry.

Striking Anglo American Platinum miners in South Africa in November. A company review may spur job cuts.

The London-based company hasn't publicly commented on the conclusions of the review, including potential layoffs. It has given earlier indications that there could be job losses, however.

"We will not shirk from making a tough decision," departing Chief Executive Cynthia Carroll told a seminar at a Johannesburg business-school event in December. "Margins have been squeezed dramatically, and the sector hasn't been earning adequate returns...that position is not sustainable."

Earlier this week, Anglo American named Mark Cutifani, chief executive of AngloGold Ashanti Ltd., ANG.JO +2.22%as its new CEO. Mrs. Carroll announced her resignation in October after she came under shareholder pressure for failing to cap cost overruns at flagship mines in Brazil and South Africa.

Investors said they expect some of the group's least profitable South African platinum mines—such as the strike-hit Rustenburg operations— to be closed. They estimate between 200,000 and 300,000 troy ounces of production capacity will be cut. That could equate to upwards of 10,000 job losses, said Kobus Nell, a portfolio manager at South Africa-based investment-management firm Stanlib, an Anglo American shareholder.

South Africa's National Union of Mineworkers also said it is expecting job losses but didn't know how many. "Something big is coming," said NUM spokesman Lesiba Seshoka.

This week, Anglo American Chairman John Parker said the company will soon announce a plan for the platinum business that "reflects a move to increase cost effectiveness and efficiency," but in an earlier interview declined to disclose details of that plan. The company didn't respond to further requests for comment.

Anglo American—which in December estimated a 20% profit decline at the platinum unit for 2012—isn't alone in reviewing underperforming businesses. Several global mining companies initiated reviews of South African operations amid violent labor strikes late last year. Those strikes temporarily shut the country's biggest gold, platinum and iron-ore mines and left dozens dead. Fresh job losses would be a blow to the government, which has struggled to reduce a 25% unemployment rate, and could trigger fresh unrest.

After South African police in August killed 34 miners at platinum producer Lonmin LMI.LN +2.90%PLC, strikes spread to Anglo American Platinum mines and others in the country.

Amid demand for higher wages, Anglo American Platinum threatened to close its Rustenburg mines if workers didn't return, but the government appealed to executives to adopt a more conciliatory stance and to resolve the strikes without job losses. Anglo American has said the strikes, which ended in November, will result in 235,000 ounces of lost platinum output.

The reviews are happening not only after companies lost output due to the strikes, but also as costs of labor and electricity rise and commodity prices come off their highs. Labor accounts for around half of all mining costs.

South Africa's largest gold producer, AngloGold Ashanti, hit by rising mine costs and ageing assets, started a review in November that it said may lead to some gold mines being shut. The company's current CEO, Mr. Cutifani, won't become Anglo American's chief until April 3.

Meanwhile, Lonmin said in November it is restructuring its management team to pare costs, which will likely lead to job losses.

Lonmin already shut one of its mine shafts after the strike, resulting in the loss of 1,200 contractor jobs.

Aquarius Platinum Holdings Ltd., one of South Africa's largest emerging platinum producers, suspended output at two mines last year because the mines weren't profitable enough.

On top of the strikes and mine-cost pressures, South Africa's ruling African National Congress recently agreed to impose more taxes on mining companies to generate revenue for development projects. The party, companies and government agencies will meet within the next three months to discuss the details of how a new tax would work.

Enoch Godongwana, a top ANC economic-policy maker, said most countries pursue taxes to capture more revenue so critics are "unfounded" in accusing South Africa of adding to an uncompetitive mining environment.

Mr. Godongwana said he wants the government to consider a policy that would see companies lose mining rights at operations they shut, closing off any avenue for a return to those sites if commodity prices rise.

Against the difficult mining environment, Gold Fields Ltd. GFI.JO +1.20%in November spun off all but one South African gold mine into another company, citing the need for the older mines to have special management.

Many investors now suspect Anglo American could consider doing the same with some of its South African platinum mines to ring-fence them amid the tougher environment. Mr. Cutifani declined to comment on that possibility, while Mrs. Carroll in December said it isn't an option.

Write to Devon Maylie at

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