TAKING EVERY STEP
WITH THE FUTURE FIRMLY IN MIND
CHANGE AND SUSTAINABILITY
2012 was a particularly challenging year for the platinum industry and for Amplats in particular. Lower platinum group metal prices amid global economic uncertainty; protracted unprotected industrial action; and continued above-inflation cost pressures on the business have all significantly undermined the Company’s ability to return a profit. A headline loss of R1.5 billion is reported for the 2012 financial year.
I rejoined Amplats in September 2012 following Neville Nicolau’s decision to leave in July. My career in mining began on the operations of this great company 23 years ago, and it is indeed an honour to be entrusted with leading the executive team and the business, as Amplats takes the difficult steps needed to ensure that it once again becomes a sustainable, competitive and profitable platinum enterprise capable of delivering long-term benefits for all its stakeholders.
OVERVIEW OF 2012 PERFORMANCE
Safety, health and the environment
Although this was our safest year ever, it is with sadness that I have to report that seven of our colleagues died while on Company business in 2012. On behalf of management, I would like to extend my sincere condolences to the Gumede, Leboea, Mahagaja, Malesa, Mzondi, Nyirenda and Sidubulekana families who lost their loved ones in incidents at our operations. I will continue to do everything I can to ensure that we remain steadfast in our commitment to achieving zero harm throughout our operations.
Good progress has been made during the past five years in improving our overall safety performance, specifically in reducing the number of lost-time injuries. The lost-time injury-frequency rate at Amplats has been declining steadily, from 2.03 in 2007 to 1.15 in 2012. Conscious of the imperative to achieve zero harm, Amplats has created two new executive-level positions related to the safety and health of our employees. The first position is that of executive head responsible for safety, health and the environment. The second is that of executive head: technical, which requires a thorough understanding of the safety, occupational health and environmental dimensions of our business and will boost the deployment of appropriate technology to eliminate or reduce hazards in the workplace. Both positions will be filled shortly.
Through this strengthened leadership, and through our Zero Harm in Action programme, which I will continue to lead, Amplats will be going all out to ensure that every employee is able to go home safely and in good health at the end of his or her shift.
Company operations retained their environmental management system certificates against the ISO 14001 standard in 2012, and all but one operation’s new water-use licences have now been granted by the Department of Water Affairs. Amandelbult Mine continues to operate under the conditions contained in its water permit, granted under previous legislation. Engagement with Government officials continues, and the new licence is likely to be issued in the course of 2013.
Once again, the Company performed well in the rating of companies’ disclosure on climate change issues undertaken by the Carbon Disclosure Project (CDP). Amplats achieved second position in the materials category of the CDP’s 2012 Global 500 Climate Change assessment of disclosure. Overall, Amplats was rated among the top-scoring companies of the Global 500 Report and was the highest-rated South African company, an achievement of which we are extremely proud.
"Good progress has been made during the past five years in improving our overall safety performance, specifically in reducing the number of lost-time injuries."
Largely under the influence of global economic instability, and with issues in Europe weighing particularly heavily on market sentiment, the prices of platinum group metals (PGMs) remained depressed in 2012. The average US$ basket price per platinum ounce sold declined by 11%, from US$2,698 in 2011 to US$2,406 in 2012, a development driven primarily by weaker demand on poor market sentiment. Gross demand for platinum declined by 140,000 ounces or 2% in 2012, after the significantly weaker demand for autocatalyst and industrial applications exceeded the increase in demand in the jewellery sector, which responded to the low platinum price.
In 2012, the platinum market moved into deficit, owing to a fall in supply of almost one million ounces in both newly mined platinum and supplies of platinum recycled. In South Africa supplies of platinum were negatively impacted by labour stoppages and mine closures.
The palladium market moved from a surplus in 2011 to a significant deficit in 2012 as South African output was lower also owing to labour stoppages and mine closures and less metal was sold from Russian stockpiles. Gross demand for palladium rose by 15% in 2012, owing to an increase in demand from the autocatalyst sector and a significant increase in investment demand.
Since a recovery in the European automotive market is still predicted to be some way off, demand from the autocatalyst sector is expected to remain flat. Furthermore, additional recycled metal is likely to be available in the market as the stocks of spent autocatalysts are recycled. It is our view that global platinum demand will be growing more slowly over the next decade than was previously forecast. The market may still remain in a slight deficit in 2013, principally as a consequence of the challenges in metal supply being experienced by all primary platinum producers in South Africa.
Production at our Rustenburg, Union and Amandelbult mines was negatively impacted by unprotected industrial action that spanned almost two full months, from 18 September to 15 November 2012. At the Rustenburg mines, production decreased by 43,300 ounces or 8%, while at the Union and Amandelbult mines production decreased by 13% and 23% respectively. The net effect of the strike action was a loss of platinum production of 306,000 ounces, including 82,000 ounces lost during the start-up period following the strike.
Our overall equivalent refined platinum production was 2.22 million ounces. Of these, 1.46 million ounces were produced by our managed mines and the rest by our joint-venture operations. This represents an overall decrease of 8% compared to production in 2011. Output from our joint-venture operations was 3% lower year-on-year owing to industrial action at the Modikwa and Bokoni mines, and to the curtailment of Marikana Mine in June 2012 because of unfavourable market conditions. While output at the Mogalakwena Mine decreased by 2% to 300,200 ounces on account of a decline in tonnes delivered to the concentrator and poorer ore grades, this was offset by improved recoveries.
Decreased production for all operations was offset partly by higher volumes from Unki Mine in Zimbabwe. Equivalent refined platinum production at Unki increased by 20% to 62,100 ounces after the mine exceeded its ramp-up schedule and reached steady-state production levels a year ahead of plan.
Overall, our refined platinum production decreased by 6% to 2.38 million ounces after the processing of pipeline stocks in the second half of 2012 reduced the impact of the industrial action.
"In South Africa supplies of platinum were negatively impacted by labour stoppages and mine closures, with supplies from the region at their lowest in 11 years."
REVIEW OF PROJECTS
Capital expenditure decreased by 4% to R7.2 billion. Of this, R3.4 billion related to project spend, R3 billion to stay-in-business capital and R399 million to waste-stripping at the Mogalakwena Mine. The majority of project capital expenditure was invested in Twickenham Mine (R801 million excluding pre-production costs) and Unki Mine (R183 million).
During 2012 a decision was taken to stop the Thembelani 2 shaft project and to shift capital to more attractive opportunities within Amplats. Tumela 4 shaft, slag-cleaning furnace No 2 and a few smaller projects have also been halted as they are not viable in the current economic and operating environment. As a result we have had to undertake a writedown of R2.2 billion for Thembelani 2 shaft; and a write-down of R4.4 billion for Tumela 4 shaft, Slag-cleaning furnace No 2 and the rest. We will continue to prioritise capital projects and stay-in-business expenditure to ensure that capital funding requirements are aligned with our strategy.
"We spent R276 million in 2012 on community projects."
The market conditions, the substantial operational challenges related to the unprotected industrial action and the above-inflation cost pressures
− in the region of 10% − all had a significant bearing on the Company’s financial performance. Amplats posted a headline loss of R1.5 billion, compared to the profit of R3.6 billion earned in 2011. The loss attributed to ordinary shareholders of R6.7 billion is principally the result of the writedown previously mentioned and of the decline of 17% in refined platinum sales caused by the unprotected industrial action in the second half of 2012. Attributable and headline losses for the year were R25.58 and R5.62 per share respectively.
Clearly the Company’s financial performance is not sustainable. If action is not taken to reconfigure its operations, its very existence may be in jeopardy. It is for this reason that everything we are undertaking now is being done with our future in mind.
TRANSFORMATION AND SUSTAINABILITY
The social and economic transformation of South Africa and, in parallel, of our Company, remains crucial if the injustices of the past are to be redressed. Full coverage of our progress in meeting the objectives of the Mining Charter is included in the Sustainable Development Report for 2012 that accompanies this integrated report. In summary, however, we are able to state that we have made good progress in transforming our workplace. Some 38% of top management positions at Amplats are now occupied by historically disadvantaged South Africans, 13% of whom are women. Our efforts to encourage women to work in the industry are gaining traction, with 12.7% of the total workforce now consisting of women.
There remains much to be done, however, and it saddens me to reflect on the death of Ms Binky Moseane, who was assaulted and killed underground at Khomanani Mine. Our sympathy and condolences are extended to Binky’s family, friends and colleagues. The South African Police Service investigation into this murder continues and the Company continues to support the investigation. Following this shocking incident, we have taken steps specifically to improve the safety of the women working underground at our operations, so as not to deter women from seeking employment there.
While the industry has come under increased scrutiny in 2012 for its socio-economic performance, I am confident that we have played a significant role in transforming many people’s lives for the better. This we have done through our support for initiatives that improve the quality of education, health and other basic services; and by providing important primary infrastructure such as roads, housing, water and electricity in the areas close to our operations. We spent R276 million in 2012 on such community projects.
Despite our substantial commitments to community welfare, however, we firmly believe that a great deal more can be accomplished. The most effective fulcrum for achieving better outcomes, I remain convinced, is greater collaboration between mining companies on development issues in similar operating regions. We have already begun to engage our stakeholders in this regard, and look forward to sorting out overall regional challenges around housing and basic infrastructure through co-operation and fruitful partnerships.
OUTLOOK AND PROPOSED CHANGES TO OUR COMPANY
During 2012, we undertook an extensive review of the business. The need for such a review was first mentioned in February 2012 at the Company’s results presentation, because several factors that had impacted our profitability in recent years had come together in such a way as to suggest the need for a long hard look at our operations. These included increasing capital intensity; increasing mine depths and decreasing ore grades; higher-than-inflation unit-cost increases; the substitution of cheaper PGMs for platinum; and the increased recycling of platinum, which was gaining strong momentum and reducing the demand for primary mined platinum. All these aspects, together with the more general but ever-clearer realisation that for various reasons the global demand for platinum would be growing significantly more slowly over the next decade than had previously been envisaged, clearly called for fresh analysis and revised strategies.
We had also previously stated that a number of our mines had been under considerable economic pressure and making losses for some time. Obviously such losses are not sustainable, not even in the medium term, and we now need to take strong action to ensure the long-term sustainability of our business for the benefit of all our stakeholders, including our employees and our host communities.
The extensive review that has taken place across the entire business − from the operations to the corporate offices − has received input from the board, the executive, functional heads of department and many individual employees. Our proposed changes to the business are built, firstly, on halting our loss-making operations and on concentrating on our higher-quality and lower-cost operations and secondly on aligning our output with expected market demand. Therefore, and as announced on 15 January 2013, we have proposed fundamental changes to the Company. These include reconfiguring the Rustenburg operations into a sustainable 320,000 to 350,000 ounces per annum platinum producer across three operating mines. Four unsustainable, high-cost shafts need to be put on long-term care and maintenance, namely Khuseleka 1 and 2 and Khomanani 1 and 2. Rustenburg’s processing operations will also be reconfigured to align with the revised mining footprint, which may include closing the Waterval UG2 concentrator and No 2 smelting furnace.
It is believed that the Union mines are likely to be of greater value under different ownership as it will not be competing for allocation of our capital and the intention, therefore, is to sell them at the right time to maximise value. In the interim, they will be reconfigured to protect near-term value. This will be done by stopping loss mining activities at the Union North declines, combining the Union North and South shafts into one operation, and putting the Mortimer Merensky Concentrator on long-term care and maintenance. The restructuring of joint-venture operations has also been reviewed in order to optimise long-term profitability and competitiveness.
This proposed restructuring of operations will enable us to allocate capital to those of our mines that are best placed to sustain and create employment over the long term. We also cannot continue to maintain our current overhead structure if our mining and processing footprint is getting smaller. We are therefore proposing to redesign our overhead cost base to fit the new mining and processing footprint, and have identified potential annual overhead savings of R390 million by 2014. These savings extend beyond our operations to the corporate office, and include creating new centres of excellence and expertise to bring together services, scarce skills, and save time, effort and money. We have also looked at opportunities to further reduce costs and improve efficiencies in direct and indirect costs, and have identified a further R3.5 billion per annum in potential savings by 2015. This adds up to the possible creation of an annual value of R3.8 billion.
Regrettably, these proposed changes will have an impact on employees. We estimate that some 14,000 roles will need to be restructured or else vacated through retrenchment. Affected employees have been notified of these proposed changes and are now involved in a formal collective consultation process. Where labour restructuring is necessary, we will implement retrenchment support and assistance packages that go well beyond what has been standard for the industry. These are described in the accompanying Sustainable Development Report.
Over and above the regulated packages, we have designed a comprehensive social plan to ensure that we can compensate for all the jobs that may be impacted. The social plan will be focused on our employees (and their dependants) in the Rustenburg area and the labour-sending areas. Amplats has a very proud history of making a contribution to South Africa. We will continue to take our responsibility to our employees seriously, and to treat them with care and respect during this difficult period.
"Rustenburg operations should be reconfigured to a 320 to 350 koz per annum platinum producer."
EXECUTIVE AND STAFF
I would like to take this opportunity to thank Neville Nicolau for his contribution to the Company over the past four years and for his personal leadership of the culture change programme and safety improvement initiatives and wish him all the best with his future endeavours. Also during the past year Khanyisile Kweyama, executive head: human resources, was transferred as executive director to Anglo American South Africa Limited. I would like to wish Khanyisile all the best in her new role. We are in the process of recruiting a worthy replacement.
On behalf of the executive and board I would like to express my appreciation to Cynthia Carroll for her leadership and dedication to the Company as chairman and wish her well with her future.
Lastly to the management and staff of Amplats: thank you for helping us through a year that was difficult, often as a consequence of uncontrollable external factors and events. I again call on your support during 2013, as we make the changes necessary to ensure a sustainable future for this Company.
1 February 2013