Finance director’s review



Bongani Nqwababa

2012 proved to be a challenging year for the platinum mining industry, amid continued uncertainty in the global economy.

 For a more comprehensive and detailed account of the Group’s financial position and performance, it should be read in conjunction with the Annual Financial Statements 2012.

Amplats was faced with substantial operational challenges, widespread illegal industrial action and continued inflationary pressure on costs, all of which had a negative impact on the Group’s financial performance for 2012.

Amplats’ headline loss for the year ended 31 December 2012 was R1.5 billion, compared to the profit of R3.6 billion earned in 2011. The Group incurred a loss attributable to ordinary shareholders of R6.7 billion. This was the result principally of a writedown of the carrying value of certain projects and other assets, which were not in use as they are considered not economically viable; and a decline of 17% in refined platinum sales, which were impacted by the illegal industrial action during the second half of 2012. Attributable and headline loss for the year were R25.58 and R5.62 per share respectively.



The key financial indicators underpinning our operating performance during the past year were:



The Group’s net sales revenue of R42.8 billion for the year was 16% lower than the R51.1 billion in 2011.

Refined platinum sales for the year ended 31 December 2012 decreased to 2.17 million ounces, down 17% from the 2.60 million ounces sold in 2011. Sales volumes were negatively impacted by losses in production following the illegal industrial action and the need to build pipeline stock to meet customer commitments.


The average US dollar basket price per platinum ounce sold declined by 11% to US$2,406 (from US$2,698 in the prior period). The average US dollar sales price achieved on platinum declined by 10% to US$1,532 per ounce, while the average US dollar sales price achieved on palladium was down 13% on the prior year, from US$735 to US$640 per ounce, owing to low autocatalyst demand. A significant decline in rhodium prices of 37% was seen in 2012, from US$2,015 to US$1,264. The average US dollar sales price achieved on nickel declined by 26% to US$7.76 per pound owing to depressed demand from stainless steel producers.


The decline in metal prices was offset by a weakening of the average rand/US dollar exchange rate of R8.22/US$1.00 from the R7.26 achieved during 2011. After taking into account the effect of the weakening of the rand against the US dollar the average rand basket price per platinum ounce was marginally stronger (showing a 0.9% increase) at R19,764.



Cost of sales

Cost of sales decreased by 1.4% year-on-year, from R42.6 billion to R41.9 billion. On-mine operating expenses increased by R2.4 billion or 9.4% between 2011 and 2012. The Group incurred R9.0 billion on the purchase of metals, which declined year-on-year in line with lower production and metal prices. The cost of processing (smelting, treatment and refining) of R5.8 billion increased by 13.1% over the R5.1 billion incurred in 2011, driven by above-inflation cost increases. Cost of sales benefited from the R3.1 billion movement of inventory during the year (refer to the disclosure of changes in accounting estimates on page 197 of this report). As in the rest of the industry, Amplats experienced mining inflation well in excess of headline inflation (CPI). A number of cost items − such as the price of electricity, diesel and labour – increased much more than did CPI. In addition, operating costs remained under pressure owing to illegal industrial action during the second half of 2012 where fixed costs were incurred despite the disruption in production and additional once-off costs were incurred as a direct result of the strike.


The cash operating cost per equivalent refined platinum ounce increased by 20.7% from R13,552 to R16,364, owing to the continued inflationary pressures, reduced production volumes and once-off costs (e.g. security costs, once-off allowances) related to the illegal industrial action. After taking into account the effect of this action, which resulted in lost production of some 306 koz, the lower absorption of the retained fixed cost base and the once-off costs incurred, the cash operating cost per equivalent refined platinum ounce is estimated at some R15,500 per ounce (on a normalised basis). While the Group saw a number of safety-related stoppages during the year, the effect of these stoppages on production has been minimised as these were contained to the area to which they related and not the entire mining operation. Operational challenges, including the industrial action, employee absenteeism and safety-related stoppages and interventions, had a negative impact on productivity, decreasing m2 by 4% per operating employee, from 6.32 m2 to 6.05 m2.


Operating loss

Gross profit on metal sales decreased by 89.6% to R890 million from the R8.6 billion earned in 2011. With net sales revenue declining by 16.2% year-on-year and the cost of sales increasing marginally, this resulted in the compression of our gross profit margin to 2.1% in 2012, from 16.7% in 2011. After taking into account the scrapping of R6.6 billion of projects and other assets, the Group incurred an operating loss of R6.3 billion from the profit earned last year of R8.0 billion. After adjusting for the effect of the illegal industrial action the Group would have reported an operating loss of R3.0 billion and a gross profit of R4.2 billion (at a margin of approximately 8.6%).

In summary, the largest contributors to the operating loss for the year were:

  • A 17% reduction in sales volumes (which was impacted by the strike), which resulted in a decline of revenue of R6.9 billion.
  • A weighted average decline of 11% in US dollar basket-price prices, which contributed R5.2 billion.
  • The writedown in the carrying value of various projects and other assets to the value of R6.6 billion, not in use, that are considered not economically viable in the current market environment (and the details of which are included on page 196 of this report).

These factors were offset by:

  • the average rand/US dollar exchange rate of R8.22/US$1.00, which was weaker than the R7.26 achieved during 2011 and resulted in a positive contribution of some R3.8 billion
  • a R614 million decline in the cost of sales, as cost escalations above inflation were offset by positive inventory movements

The Group’s earnings are very sensitive to movements in the prices of the commodities we sell as well as to the rand/dollar exchange rate. As an indication of this, a 10% change in the exchange rate or basket price achieved for 2012 would have resulted in earnings being some R2.5 billion different to the actual earnings achieved.

Headline (loss)/earnings and normalised headline earnings

Headline earnings decreased to a loss of R1.5 billion from a profit of R3.6 billion in 2011. On a normalised basis the loss for 2012 would have been R386 million, when compared to a profit of R5.5 billion, which takes into account the once-off R1.1 billion share-based payment charge on the community economic empowerment transaction trust being included in headline earnings and the US$10 million donation to the Tongogara district community in 2011, as well as other non-recurring costs and remeasurements of R1.1 billion (2011: R621 million) that were provided for. The Group recorded a headline loss per share attributable to ordinary shareholders of R5.62, compared to the profit of R13.65 in 2011. The weighted average number of ordinary shares in issue during 2012 was 261.0 million, compared with 261.4 million shares in 2011.

Asset optimisation and supply chain

The Group’s asset-optimisation and supply-chain programmes are firmly embedded in the business. Amplats continues to focus on projects that deliver value and this impacts both our balance sheet and our income statement. It ensures that in the short term we support the generation of profit while remaining focused on a sustainable balance sheet. Our asset-optimisation and supply-chain programmes continue to deliver operational excellence, efficiency and productivity improvements, and partially offset the impact of cost pressures exacerbated by the illegal industrial action experienced during the year.


The proposed restructuring of Amplats’ operations will ensure more effective capital allocation in the direction of those Group operations that are best placed to sustain and create employment over the long term; and will avoid the significant capital expenditure that would be required simply to maintain output from certain marginal operations. Amplats will reduce its planned capital expenditure over the next 10 years by focusing investment on low-cost, high-margin projects. This portfolio will require R100 billion of capital expenditure over the next 10 years. In line with the proposed changes to its mining-and-processing-operations footprint, Amplats aims to deliver R3.8 billion of annual benefits by 2015 through cost reductions and efficiency improvements, including savings of R390 million to be achieved through a redesign of the overhead structure. The delivery of these benefits will be managed and controlled with the rigour, ownership and discipline that characterise the Group’s current asset-optimisation programme.

Capital expenditure

Capital expenditure (excluding capitalised interest) declined from R7.1 billion to R6.8 billion in 2012 as the Group implemented steps to curtail spend under a capital rationing exercise. As part of the ongoing ranking of its capital expenditure project pipeline, Amplats considers the value and risk inherent in projects so as to ensure that:

  • the project pipeline aligns with our long-term strategy and the anticipated market demand
  • projects with lower risk profiles and higher returns are given preference
  • other considerations, such as the availability of water and other infrastructure, are taken into account
  • capital structure and affordability are considered
  • projects selected enhance the overall competitiveness of the Group when compared with other producers and commodities

Stay-in-business capital expenditure decreased by R272 million to R3.0 billion, while project capital expenditure was up by R80 million, from R3.30 billion to R3.38 billion, after the review of the capital funding requirements of the Group. Expenditure on expansion projects was spent mostly on the Twickenham Mine project, the slag-cleaning furnace (further work on this project was stopped as proposed levels of production no longer require the additional capacity that this project would have delivered, and the carrying value was scrapped as a result), and bulk infrastructure and housing at the Unki Mine.

The Group capitalised R399 million (2011: R563 million), which was spent on waste stripping at Mogalakwena Mine as part of its strategy to maintain and increase production. This has necessitated an increase in waste stripping in excess of the life-of-mine average stripping rate.

Interest capitalised during the period increased from R363 million in 2011 to R416 million in 2012. This is a direct consequence of higher interest paid on borrowings during the year, as the Group’s borrowing grew on the back of weaker operating cash flows.

After the projects ranking-and-prioritisation process conducted during 2012 on capital projects and stay-in-business expenditure to ensure that capital funding requirements are aligned with expected growth in demand, the proposed outcome from the portfolio review and the alignment of the project pipeline with the Group’s strategy, Amplats will reduce its planned capital expenditure over the next ten years by approximately 25% to R100 billion. Consequently, the capital expenditure planned for 2013, excluding capitalised interest, will be in the range of R6.0 billion to R7.0 billion. 

Cash flows and net debt

The Group generated R2.7 billion in cash from its operations, which was 80% less than the R13.3 billion generated in 2011. These cash flows were used to pay taxation of R602 million; fund our capital expenditure of R7.2 billion (including capitalised interest); pay aggregate dividends of R590 million (including R58 million distributed to minority shareholders); and settle interest to our debt providers of R201 million during 2011.

Amplats’ net debt position at 31 December 2012 was as follows:


At 31 December, R12.7 billion of the total R20.2 billion in long-term committed debt facilities, and uncommitted debt facilities of R6.3 billion, had been drawn down. Committed debt facilities to the value of R1.5 billion mature in 2013, and we will seek to refinance these facilities. The Group had undrawn committed and uncommitted debt facilities at 31 December 2012 of R13.8 billion (2011: R19.0 billion). The debt profile has a longer-term bias, which matches our capital investment programme.

Amplats has two debt covenants: total net borrowings to tangible consolidated net worth; and a threshold below which tangible consolidated net worth should not decrease. Amplats was not in breach of either of its covenants during the year and has sufficient headroom to meet these covenants in the foreseeable future.

The Group’s net debt position at 31 December 2012 amounted to R10.5 billion, after taking into account cash on hand of R2.2 billion, which has decreased substantially from the R3.7 billion at the end of 2011 owing to a decline in cash flows from operations.



Share price

Amplats’ shareholders comprise only ordinary shareholders. They consist of companies, individuals, pension and provident funds, insurance companies, banks, nominee and finance companies, trust funds and investment companies, and other corporate bodies. The shareholding of Anglo South Africa Capital Proprietary Limited was 79.86% (2011: 79.83%).

Amplats’ share price came under pressure during the year, declining by 16% from the closing price of R532 at 31 December 2011 to R446 at 31 December 2012. Amplats underperformed the mining index of the JSE and certain of its peers in the platinum mining sector during the year.



As previously indicated, Amplats’ aim is to maintain a dividend cover on headline earnings of between 2.0 and 3.0 times, paid out of cash generated from operations. However, the quantum of the dividend would ultimately be subject to prevailing and expected future economic conditions and funding commitments at the time of consideration by the board.

Owing to the substantial increase in the net debt position of the Group and considering future funding requirements, as well as the uncertainty in global economic markets and the proposed outcome of the portfolio review which seeks to deliver a sustainable, competitive and profitable platinum business, the board decided not to declare a dividend in 2012. Amplats will continue to monitor its capital environment and its ability to manage debt levels adequately, and will consider future dividend payments as the situation allows.


Scrapping of projects and other assets

Certain capital projects, and other assets not in use, were deferred during the 
year owing to the prevailing economic conditions and capital constraints. 
It is believed that the future economic benefits associated with the project capital expenditure are no longer probable, and consequently these projects and assets have been scrapped. The following projects and other assets, to the value of R6.6 billion (before tax), were scrapped during 2012:

  • Thembelani 2: R2.2 billion
  • Slag-cleaning furnace 2: R0.6 billion
  • Marikana Mine : R0.7 billion (scrapped during the first half of 2012)
  • Tumela 4 shaft : R0.6 billion (scrapped during the first half of 2012)
  • Various ore replacement projects: R0.7 billion
  • Other assets : R1.4 billion
  • Interest capitalised on these assets: R0.4 billion


Change in accounting estimates

During the year, the Group changed its estimates of the quantities of inventory based on the outcome of a physical count of in-process metals. The Group runs a theoretical metal inventory system based on inputs; the results of previous counts; and outputs. Owing to the fact that the metals in such in-process inventories are contained in weirs, pipes and other vessels, physical counts take place only once a year, except at the Precious Metals Refinery, where it has taken place once every two years. This change in estimate has had the effect of increasing the value of inventory disclosed in the financial statements by R1.4 billion (2011: R417 million). This results in the recognition of an after-tax gain of R1.0 billion (2011: R300 million).


Amplats concluded the 2012, review of its business in order to create a sustainable, competitive and profitable platinum business for the long-term benefit of all its stakeholders. The review was undertaken in response to several factors that had eroded profitability in recent years, including costs, mine depths and ore grades, and its revised long-term expectations for growth in world demand for platinum. The continued operation of unprofitable mines within the current configuration, and in light of platinum’s revised demand and cost expectations, is not sustainable. Details of the review are included on page 8 in the chief executive’s report.


Metal prices

The demand for platinum remains sound, despite the current outlook for growth in the global economy. The South African platinum mining industry faces challenges of declining margins that may impact supply; while the supply of metal from the recycling market is expected to rise as pipeline stock is processed. The overall market is expected to remain in deficit, which will provide some support to prices.

Exchange rate

Relative to the situation in 2012, the US dollar has weakened against the South African rand, and post 31 December 2012 has been trading at around R9.00 to the US dollar. Our revenue and a significant proportion of our operating and capital expenditure is affected by the rand/US dollar exchange rate, and our operating profit thus remains highly sensitive to its fluctuations.

Inflation and cost escalation

The Group experienced internal inflation of around 9.8% during 2012, compared with the producer price index for mining of 7.8%. Amplats continues to focus on operational excellence, productivity improvements and efficiencies. Achieving this optimisation is currently a critical factor, and the Company’s management is facing a challenging period in delivering a sustainable, profitable and competitive platinum business.


Bongani Nqwababa

Finance director


1 February 2013