CHALLENGING OPERATING ENVIRONMENT AND INDUSTRIAL ACTION CONSTRAIN ANGLO AMERICAN PLATINUM'S PERFORMANCE
04 February 2013
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. Headline earnings per ordinary share decreased year-on-year to a loss of R5.62 in 2012, from a profit of R13.65 reported in 2011.
This was primarily due to lower sales volumes, the impact of higher mining inflation on costs and lower realised metal prices. Headline earnings per ordinary share exclude a loss of R463 million resulting from the revaluation of certain investments as well as the write-down of various other projects and assets, which are considered uneconomical in the current environment, to the value of R6.6 billion (after-tax R4.8 billion).
Platinum sales volumes for the period were lower primarily due to the two-month long illegal industrial action experienced during the second half of 2012. During the period of the illegal industrial action, Anglo American Platinum prioritised sales in line with its contractual commitments, as a precautionary measure. Anglo American Platinum, together with its share of joint venture and associate production, lost 305,600 ounces of equivalent refined platinum production as a result of the initial safety suspension, subsequent illegal industrial action, and the ramp up period, which commenced on 16 November 2012. The company reported an 8% decrease in equivalent refinedplatinum production year-on-year, to 2.22 million ounces, mainly due to the illegal industrial action.
In line with the decline in operating profit, operating free cash-flow decreased by R10.13 billion compared with 2011, to a net out-flow of R717 million.Net debt increased by 186% to R10.49 billion from R3.66 billion at the end of December 2011. As a result, gearing increased from 11% in 2011 to 25% at the end of December 2012. Owing to this increase in net debt, the future funding requirements and uncertain global economy, the Board resolved not to declare a final dividend.
Chief Executive Officer (CEO) Chris Griffith said: "While we are not pleased with the operational and financial performance, it is important to put things in context. Operationally, 2012 was a challenging year for Anglo American Platinum and the platinum industry as a whole. The year was characterised by lower prices, illegal industrial action which impacted production, unit cost, labour productivity and, of course, profitability and earnings.In a challenging year, characterised by increasingly volatile markets due to macro-economic weakness combined with supply disruptions, our revenue was impacted by a lower US dollar basket price.
Although 2012 was, in many respects, the safest year we have had, I am, however, deeply saddened that seven of our colleagues lost their lives as a result of work related incidences during this period. We extend our sincerest condolences to their families, friends and colleagues. We wish to assure everyone involved that we regularly remember those who have died and work tirelessly to ensure that we learn from every death. We have thoroughly investigated each incident, to make sure that we will prevent the same type of incident in future. We are continuing to work with Government and our workforce to implement more effective means of addressing major risks and non-compliance to standards. The journey to zero harm remains our key strategic objective."
Despite the less than optimistic outlook for global economic growth, Anglo American Platinum believes that the global platinum market is likely to be balanced in the short term as a result of reduced production by Anglo American Platinum's proposed portfolio review and possible supply disruptions. If South African platinum production returned to pre-strike levels, then the market would be oversupplied. Overall, gross platinum demand is expected to grow marginally in 2013, despite the lack of economic growth in the European market. Tightening emissions legislation in all markets, particularly the implementation of Euro VI and the overall global increase in vehicle production, especially in China and India, are expected to offset the lower volumes in Japan, North America and Europe.
Primary supply challenges are expected to continue during 2013 with higher mining inflation putting pressure on margins and increased risk of supply disruptions from industrial action in South Africa. Supplies of metal from the recycle of spent auto-catalysts are expected to rise as pipeline stocks are processed.
Anglo American Platinum announced the recommendations of its portfolio review on 15 January 2013. The key objective of the portfolio review was to thoroughly assess the structural changes that had eroded the profitability of the company and the changesrequired to create a sustainable, competitive and profitable business.
The company has reviewed the entire value chain, from overheads to direct costs, resources to mining to processing, marketing and commercial strategy, as well as the shape and size of the portfolio which will leverage the industry leading resource base. The consultation with stakeholders and thereafter, the implementation of the proposals of the portfolio review and overheads review is ourkey strategic focus.
Chris Griffith said: "The key recommendation of the portfolio review is the plan to reduce our production target to between 2.1 and 2.3 million ounces per annum to more closely align output with expected demand while retaining the flexibility to meet potential demand upside.
This will be achieved through placing Khuseleka and Khomanani mines (four shafts) on long-term care and maintenance and by consolidating Rustenburg into three operating mines. Production at Rustenburg mines would reduce to a sustainable level of 320,000-350,000 ounces per year. While we plan to keep our production profile flat, we would replace production from high-cost assets with production from low-cost, high-quality assets over the next decade.
Our production profile indicates excess smelting and refining capacity in the short to medium term and provides an opportunity to improve capital efficiency.
The proposed portfolio review recommendations continue to require extensive consultation with government, organised labour and other stakeholders prior to implementation. At the meeting of 28 of January 2013,together with the Department of Mineral Resources and labour unions, we resolved to postpone the continuation of the Section 189 process under the Labour Relations Act, which had commenced on 15 January 2013, in order to allow the extensive consultation to take place. We also agreed that the consultation process will take no more than 60 days, beginning 30 January 2013.
Based on the revised targeted production profile of between 2.1 and 2.3 million ounces of refined platinum for 2013, we aim to contain cash unit costs to betweenR16, 000 and R 16, 500 per equivalent refined platinum ounce. The unit cost target excludes the cost of implementing the portfolio review proposals.
We have aligned our project portfolio with the proposed portfolio option to ensure effective capital allocation and appropriate prioritisation of projects. The review resulted in significant changes to our capital expenditure targets.
We have reduced our capital expenditure target for 2013 to 2015 by approximately R11 billion and for the next decade by 25%, to R100 billion. Capital expenditure for the next three years is forecast to be between R6 and R7 billion per annum, excludingcapitalised interest. We will continue to optimise capital allocation to focus on the highest return and lowest risk opportunities.
Anglo American Platinum is committed to the highest standards of safety and continues to make a meaningful and sustainable difference in the development of the communities around its operations."
Johannesburg, South Africa
04 February 2013
Statement issued by Anglo American Platinum, February 4 2013
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