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2 500 job cuts and counting: Impala Platinum faces seriously tough choices

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JOHANNESBURG — Falling platinum prices are causing havoc for local producers, who are being left with little choice but to cut thousands of jobs. South Africa is the largest producer in the world, but that doesn’t really mean much when the price hits a nine-year low. The state of the industry should also be another headache for Mineral Resources Minister Gwede Mantashe, who has faced criticism about the country’s new mining charter, especially its free-carry requirement. – Gareth van Zyl

By Felix Njini

(Bloomberg) – Impala Platinum Holdings Ltd. is facing some tough choices as the South African miner works to stem losses at aging shafts amid slumping prices for the metal.

The world’s second-largest producer has already cut 2,500 jobs in the year through June and says there may be more to come. Only three of the 10 shafts at its sprawling Rustenburg mining complex were making money as of March. Things have only gotten worse since then, with platinum prices dropping another 9 percent and hitting a nine-year low last week.

Implats, as the company is known, will announce the results of a strategic review of Rustenburg in September, said spokesman Johan Theron. The challenges facing the industry mean the miner can’t discount the possibility of more job losses, he said. The company employs about 31,000 people at its Rustenburg operations.

File Photo: The mining shaft and main buildings stand at the Impala Platinum mine in Rustenburg, South Africa. Photographer: Nadine Hutton/Bloomberg News

The company said in March that the strategic review, announced last year, would look at measures to “refocus or close unprofitable areas” and could lead to shafts being closed earlier than planned.

It will be difficult for Implats to avoid cutting its production if prices stay low, said Rene Hochreiter, an analyst at Noah Capital Markets Ltd.

“There isn’t much management can do at this platinum price,” Hochreiter said. “They have been surviving on hope but it isn’t a very good strategy.

Implats isn’t the only one facing difficulties, with about half of the industry’s production estimated to be unprofitable. Rival Lonmin Plc is cutting 12,600 jobs over three years and its future hinges on the speedy approval of a merger deal with Sibanye Gold Ltd. Anglo American Platinum Ltd., the top producer, is in a better position than its counterparts after exiting high-cost assets, Morgan Stanley analysts said in a note.

Platinum prices have dropped by more than half since a 2011 peak, as demand for the metal used to curb pollution from diesel cars weakens, partly because of slower sales of the vehicles in Europe. The sell-off in the metal has gained pace this year amid concerns that industrial demand could be curbed as trade tensions escalate.

Implats shares have dropped 34 percent this year, making it the second-worst performer on the five-member FTSE/JSE Africa Platinum Mining Index, behind Lonmin. Sibanye, which produces both gold and platinum-group metals, is down 50 percent.

Implats has initiated a so-called Section 189, a labour process South African companies must complete before dismissing workers for operational reasons, Theron said.

“The industry has been under profitability and financial viability pressure for some time, especially the deeper labor-intensive mines around Rustenburg,” he said. While platinum-group metals in rand terms have remained persistently low, “cost inflation has continued to escalate unabated.”

A Lonmin Plc sign sits on the wall outside the Marikana platinum mine, in Marikana, South Africa. Photographer: Waldo Swiegers/Bloomberg

Implats shut a shaft at its Rustenburg operation in January and flagged three more to be closed once mined out. Two new shafts will together produce about 300,000 ounces a year by 2021-22 to replace higher-cost production, Theron said.

“With prices where they are, some supply has to be taken out and, sadly for the high-cost miners such as Implats and Lonmin it probably should be them,” said Ben Davis, an analyst at Liberum Capital. “The demand picture isn’t that great. They have to keep making cuts until the market tightens as there is no perceived scarcity of supply.”

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