Amplats and Anglo feel big pressure from government and unions

The response from both government and the unions to the Amplats announcement was of course noticeable shock and horror. Amplats is not SAA. There is no seemingly bottomless pit of money to help the business out when times are tough. There are real shareholders making real life economic decisions. Either it is these four shafts, or all the mines go in a while if the prevailing economic conditions exist. Government could lend a helping hand by strong arming Eskom to offer cheaper electricity prices to marginal mines. With all due respect, Minister Shabangu probably has little real world experience on the business of business. The economic realities are that the mines are losing money. Yes, the idea that mining companies are "making billions" is false. Amplats are going to report a loss for the year. A rather big one at that too, perhaps the parties that are outraged by the shaft closures and job losses failed to see the announcement only a day prior to this one. Oh, and all these businesses pay substantial and hefty tax bills, which contribute to the rather pleasing on the eye lifestyles, talking about large sums of money.


But that is me just being "chacharag", a term made popular by some (populist) fellow who is just a poor cabbage farmer now. It is easy to think that formal employment offered by big companies is secure and that the companies have large sums of money. Correct me if I am wrong, but parent company Anglo American took on a rather large pile of debt in a debt to equity swap when Amplats was forced to raise money just to keep the wolves from the door, somewhere down the line. That was less than three years ago, in case you needed reminding: Anglo American supports Anglo Platinum's $1.6 billion rights offer. The other shareholders, including the Government Employees Pension Fund I presume followed their rights. And I am presuming then that roughly 850 million Rands was sunk into the company via that specific shareholder. Of which no doubt Minister Shabangu will draw down on her pension when she retires. So, in a roundabout way, she is a shareholder.

And!! Wait for it, since the rights issue, where Anglo American shareholders sucked up over 10 billion Rands worth of debt, more debt has been added to Amplats. As much as was retired. And Amplats is not going to be paying a dividend to Anglo American this year. Nope. Not happening.


In 2006, a happier year for the company and shareholders, Amplats produced 2,816,500 ounces of platinum. Sales ballooned, profits were gargantuan when compared to the year prior and the company paid out extraordinary dividends. Cash operating unit costs per ounce produced was 6116 ZAR. That was in 2006. That was before the lights went out, because the longer term planning was not altogether good. You remember from yesterday when I showed you that table, of cash operating costs per ounce? For the September quarter it was 15,377 ZAR per ounce. For the year, the nine months to September it was 14,976 ZAR per ounce. In 2011, for the same period it was 13,093 ZAR per ounce.


Costs. Part poor decision making, part labour, part electricity. And of course, probably the most important part in all of this, part weaker demand. Because you can let the costs get out of control and then what do you have? Peter Major used a gangrenous toe having to be chopped off to save the leg, and save the rest of the body example. I suspect that it is that bad, maybe worse. And requires corrective action. Meanwhile the ruling alliance had this to say in a statement: The ANC condemns the action taken by Anglo American Platinum Limited. That hardly sounds like a friendly country to make bricks and mortar investments: "We call on the Minister of Minerals and Energy to call an urgent meeting of the industry with a view to considering the idea of companies who want moth ball shafts to surrender their licenses in respect of those shafts so that they can be put on a public auction for new owners who are still hungry to mine to put them to good use."


All of this review would be unnecessary if every person was renewing their motor vehicle purchases every two years, or whatever it is that people with shiny new motor vehicles do. But this is not the case -> Europe car sales fall to 19-year low. Is that Amplats fault? No. And that is where I think I will leave my attack on people that only talk to their constituencies. A full blown platinum mine strike will do little for companies willingness to sweat their marginal assets. And for those Japanese scientists beavering away at substitution methods at Toyota R&D centres, we better hope as a country that there is nothing new any time soon.


The repercussions this morning of the overnight speeches from both the Minister and the ruling party have been negative for investor sentiment. {Sarcastic Alert} But who cares about those investors, right? The alert ends. I care. We should actually care what people think of our country as an investment destination.