Amplats results, lower production, flat guidance

A company with problems of their own, not too dissimilar to the ones mentioned above is Anglo American Platinum Limited. The opening lines are unfortunately the long and the short of what was a year to forget: "In a year that was marred by illegal and violent industrial action across the mining industry, and where continued high levels of inflation and a subdued macroeconomic environment, particularly in Europe, led to severe margin contraction, Anglo American Platinum today reported an operating loss of R6,334 million for the year ended 31 December 2012. This represents a 180% reduction, from a profit of R7,965 million in 2011." This notion that mining companies have billions of Rands, perhaps someone should send those two short lines to the powers that be.


The reason why the company continues to point to Europe is that motor vehicle demand has been awful. See the latest: Declining January car sales sink European upturn hopes. Sadly. So in the short term, a combination of austerity, short term policy uncertainty and tax compliance issues in Europe have seen lower consumption of Amplats core product. This major issue is lost on many people locally, including politicians and Joe Public.


I wanted to do a similar thing, as I did above with Amplats now versus ten years ago, and highlight how their costs have risen and their production is much lower, just so that many people can see all the issues that are facing South African mining companies. So let us start with the numbers today, production in a troubled year was 2.22 million ounces, down 8 percent from the year prior. Let us use the cash costs projection: "between R16,000 and R 16,500 per equivalent refined platinum ounce" And production this year is expected to be around where it was last year, 2012, between 2.1 and 2.3 million ounces. Cash costs per ounce back in the year 2002 was 3599 ZAR. That is around 4.5 times higher now than it was back then. Sadly, back in 2002 total PGM production was 3.947 million ounces. Now. The pattern emerging here is exactly the same between Harmony Gold and Amplats. Lower production, higher costs and no doubt much smaller work force has been the order of the day. Lower capex going forward also means that fewer jobs are/can be created. I have not seen a detailed costs breakdown over the last decade, but I suspect the usual suspects. And now Eskom want further increases.


I saw this morning an interview with the Chamber of Mines (involving Chris Yelland, and Brian Kantor from Investec) in which the Chamber guy said Eskom would have all the excess they needed in 2018 at the current escalation rate, implying that mines aplenty would be closed. I have always said that if government want to lend a helping hand, this is a possibility here. If you want to know why South African mines and industrial South Africa in general is under pressure, search no further than this table: Average price increases. Wow. And I guess that is all to say about that.

Sad face. Business cannot go along absorbing the costs all the time, if government want them to maintain full employment. It is pretty well known that Eskom employees are pretty well remunerated relative to the other SOE's. Which themselves are comfortably above the private sector. This has been the mainstream line: Eskom hike for salary increases - report. Average salary over at Megawatt Park currently (average!!) 633 thousand ZAR per annum. I am not too sure what you think about that, but I would rather this amount offset the outstanding debt, after all, what major risks are these employees taking? And where is the competition? Exactly.