AngloGold reviews mines as strikes bite

2012-11-08 14:15

Johannesburg - AngloGold Ashanti [JSE:ANG] cut its dividend and warned of restructuring at its South African operations after weeks of wildcat strikes wiped out $400m in output.

"We are in the middle of a review of our South African operations and there is no doubt that we are going to have to do some restructuring work," chief executive Mark Cutifani told journalists on a conference call on Thursday after the group reported third quarter results.

Restructuring could mean marginal shafts are closed, leading to job losses at a time when social tensions are running high in the mining communities and companies are under political pressure to avoid taking such a course.

The decline of the once dominant mining industry has been hastened by a wave of illegal strikes that have rocked its gold and platinum sectors this year. The violence unleashed has killed around 50 people and unnerved investors.

South Africa's gold output fell 11.1% in volume terms September compared to the same month last year, according to official data released on Thursday while production of platinum group metals slid 17.8%.

Anglo American is also reviewing the viability of shafts run by its platinum unit, Anglo Platinum [JSE:AMS].

In the case of AngloGold - which is not part of Anglo American - the labour unrest is seen adding pressure to less-profitable and older operations where reserves have been in decline as shafts plunge deeper into the earth, adding to costs.

"The onset of the strike action has accelerated the imminent decline of mature mines and accelerated the likelihood of the downsizing of the operations," said David Davis, mining investment analyst at SBG Securities.

This could include AngloGold's Kopanang mine among others.
Strikes bite

AngloGold lost around 43 000 ounces to the strikes in the third quarter and has made provisions for a loss of 250 000 ounces in lost output for the current October to December reporting period - about $425m at current spot prices.

The 250 000 ounces would represent about a quarter of global output for the company, which has been diversifying and gets about 60 percent of its production from outside South Africa.

AngloGold cut its quarterly dividend in half to 6 U.S cents as it reported a six percent drop in third quarter earnings on Thursday.

Production fell 4% to 1.03 million ounces from the pervious quarter and it cut capital expenditure cut by $200m to between $2bn and $2.1bn as it moved to counter the impact of the strikes and ensure financial flexibility.

Cutifani also warned that rapidly rising wages, which have been outpacing inflation in recent years, needed to coincide with productivity boosts.

"If we are going to continue to give pay rises above inflation those pay rises have to be supported by underlying productivity increases. That is the only way it is going to happen or their will be large scale reductions in employment," he said.

While wage deals have been perceived in the boardroom as generous, the view from the rank and file is very different.

Workers at the bottom end of the scale are coming off a very low base for dangerous work. And the average miner also has eight dependents, and so wage hikes do not go far especially in the face of accelerating food inflation.

  • george.larkins.14 - 2012-11-08 14:39

    Restructure,get rid of the dead wood. Provide work for people that want to work.It is not the mines problem that an average miner has got 8 dependents.They should plan better. Goverment must create the jobs they always promise (EMPTY PROMISSES).The Mines have given these strikers ample time to return to work.They rather earn F@@@all than earn at least something.NOW is the time to act.It can not get worse IF LAW AND ORDER IS MAINTAINED.

      strikeback.strikeback - 2012-11-08 16:01

      George, we will all benefit if the day that "dead wood" is removed come sooner than later. Also they should stop calling strike action "illegal". This is an insult to the legal system and law enforcement agents. How can so much "illegal" activity take place whilst the law enforcement officers are watching? Stick to "unprotected" and "Wildcat" strikes. At least we can see no one is protected during strikes by "wild" people. To root out unfair wage demands and strike action, we need to take a stand against workers who partake and instigate such action. Make sure we do not employ them again.

  • heathway.master - 2012-11-08 15:45

    If one has the mental capabilities of a 10 year old child, it will be completely impossible to correlate certain actions with certain outcomes. Anyhow, whatever happens is most certainly not the strikers fault, and will be wholly blamed on the greed and oppressive behaviour of others.

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