Anglo American Platinum (Amplats) is undertaking drastic measures to ensure its survival in the current commodities climate which has seen platinum prices plummet to all time lows.
Below is an outline of the initiatives it is undertaking to maintain a ‘healthy’ balance sheet.
Rightsizing the organisation
As previously announced, the support and service functions have been reorganised and overhead structure right-sized to support a more focused and less complex business with a reduction of 420 positions mainly in managerial and supervisory roles.
The majority of employees in these positions have accepted and been paid voluntary severance packages (VSPs), with the remaining positions to leave the company during 2016.
This reorganisation will deliver labour cost savings of R200 million per annum from 2016. In addition, non-personnel overhead savings of R600 million will be delivered by 2017, with further upside identified.
Opportunities to further increase efficiencies at the operations includes a revised development timeline and plan for Twickenham which has led to 550 employees and contractors leaving the company.
During the section 189 process involving support and services functions, VSPs were offered to all employees at the company’s own mines. This will result in a reduction in headcount of 900 at Rustenburg, 400 at Union and 450 at the company’s retained portfolio.
In addition, restructuring plans at the Bokoni mine, managed by Amplats’ joint venture partner Atlatsa Resources Corporation, to stop loss making production will lead to some 2 500 employees and contractors exiting the Bokoni mine, largely by 31 December 2015.
The cash outflow to the company arising from the severance packages paid for the full reduction in headcount is c.R0.9 billion (pre-tax) and will be charged to the Income Statement in the period to 31 December 2015, impacting basic and headline earnings.
Disciplined and focused capital allocation
Given the particularly weak PGM price environment since mid-2015, the company has decided to postpone investment in all growth and replacement projects until least 2017.
This decision has triggered the following impairments, which will be accounted for in the year to 31 December 2015:
Development on the Twickenham project has been suspended and the operation restructured to reduce cash losses, including placing the Twickenham shaft on care and maintenance. Production continues at the Hackney shaft. The mine is being redeveloped from a conventional mine to become a largely mechanised operation, which seeks to increase productivity and the profitability of the mine.
Previous development on a conventional mine and some of the related infrastructure and assets may not be utilised in the new mechanised mine layout. These assets, together with capitalised interest and study costs have been written off, resulting in a R2.4 billion (after-tax) impairment.
Twickenham’s accounting carrying value after the impairment is R2.2 billion. This impairment will be included in basic earnings but excluded from headline earnings.
- Tumela 5 project at Amandelbult
Development of the Tumela 5 shaft has been stopped and the feasibility study and early development expenditure amounting to R0.3 billion (after-tax) has been written off. This write-off will be included in basic earnings but excluded from headline earnings.
- Royal Bafokeng Platinum (RB Plat) and Bafokeng Rasimone Platinum Mine (BRPM)
Amplats has a 12% shareholding in RB Plat and a 33% direct interest in BRPM. In November 2010, when RB Plat listed, the investments in both RB Plat and BRPM were required to be revalued for accounting purposes to the fair value at that date, which resulted in fair value gains of R0.7 million (after-tax) and R2.9 billion (after-tax) respectively.
Given the decrease in PGM prices and the reduction in the market value of RB Plat shares, the company has assessed the carrying value of its 12% shareholding in RB Plat and 33% direct interest in the BRPM for impairment.
Consequently, the investment in RB Plat has been written down by R0.8 billion (after tax) to R0.6 billion and the investment in BRPM has been written down by R2.7 billion (after tax) to R3.5 billion.
- Atlatsa and Bokoni Platinum Holdings (Bokoni)
In light of the difficult market conditions and negative cash flows incurred by Bokoni, Amplats has written off its 23% equity interest in Atlatsa and 49% shareholding in Bokoni with a carrying value of R1.4 billion.
Amplats has also written off the various loans it has extended to Atlatsa and Atlatsa Holdings (its Black Economic Empowerment shareholder), and those loans it expects to extend in December 2015, with an accounting carrying value of R2 billion in aggregate. The company continues with its discussions to exit from its interests in Atlatsa and the Bokoni mine.
Repositioning the portfolio
Amplts continues with its repositioning to create a high quality asset portfolio with low cost, high margin production, low safety risk and high productivity through mechanisation.
The announcement of the signed Sale and Purchase Agreement (SPA) of the Rustenburg operations on 9 September 2015 was a significant step in transitioning the portfolio, allowing the company to focus its capital allocation decisions on higher priority capital projects in a more focused portfolio.
The company will impair the fixed assets of the Rustenburg operations by R4.6 billion (after-tax) during the year ending 31 December 2015.
As the transaction remains subject to various regulatory approvals, the Rustenburg operations have not been reclassified as held for sale at this stage.
The company continues to proceed with the exit of the other mines identified as non-core, being Union, Pandora and Bokoni. The Union mine plan is being refined in order to facilitate an exit process during 2016, and the company is in discussions with its joint venture partners to enable its exit from the Bokoni and Pandora mines.
Balance sheet strength maintained
The balance sheet position of the company remains strong as a result of focusing on ensuring operations are cash positive, disciplined capital allocation and ensuring overheads are right-sized. Consequently, the net debt position has improved from the year ended 31 December 2014 of R14.6 billion.
The company has legally binding committed facilities of R22 billion and is comfortably within its debt covenants. The committed facilities that were due to mature in 2015 were rolled over and only R1.5 billion of facilities are due to mature in 2016.