Anglo Plans Move Away From Labor-Intensive Platinum Mining

Apr 25, 2014 4:58 am ET

(Updates with latest pay offer in eighth paragraph.)

April 25 (Bloomberg) -- Anglo American Plc, the world’s biggest platinum producer, plans to switch to mechanized open- pit mining from labor-intensive underground excavation as its South African operations remain crippled by a three-month strike.

The company aims to make the transition in five to 10 years to improve productivity and safety, Chief Executive Officer Mark Cutifani said at the annual general meeting in London yesterday. The change will be carried out in a way that’s “sensitive to its social ramifications,” he said.

A third day of talks between producers and union officials ended yesterday without a resolution or plans for further negotiations. Output at unit Anglo American Platinum Ltd. dropped 39 percent in the first quarter because of the walkout over pay, Anglo said yesterday. The company reduced its forecast for full-year production by as much as 13 percent, with more cuts possible should the deadlock persist.

Cutifani “is bang on,” Paul Gait, an analyst at Sanford C. Bernstein Ltd. in London, said in an e-mail. “The only way to get safe platinum is to get people out of the stope. Labor inflation in South Africa is running far faster than productivity gains in underground mines. That basically makes it a non-viable long-term option.”

Stope is a practice used in mining in the form of steps from steeply inclined or vertical veins.

More than 70,000 members of the Association of Mineworkers and Construction Union have been on strike at the world’s three biggest platinum producers since Jan. 23, the country’s longest mining-industry stoppage, according to the Chamber of Mines.

Cost of Strike

The strike has cost the companies about 14.5 billion rand ($1.4 billion) of revenue collectively and employees 6.4 billion rand in wages, the producers said on a joint website.

Amplats, as Anglo Platinum is known, and Impala Platinum Holdings Ltd. last week offered to increase pay including bonuses and living allowances to 12,500 rand a month by 2017, or as much as 10 percent annually, from an offer of 9 percent before. That’s short of the union’s demand for monthly basic pay excluding bonuses of 12,500 rand within four years. South Africa’s inflation rate was 6 percent in March.

The platinum companies said yesterday they will bypass their unions and put their latest pay offer directly to striking workers starting today.

Amplats closed shafts and cut jobs in South Africa last year and has said it’s considering whether to sell strike-hit operations in the Rustenburg area.

“The only place where you can get sufficient increases in productivity is in Mogalakwena, the large open-pit mine,” Gait said. The cost of labor in South Africa “forces you to the only viable mechanized option.”

Anglo, which is downsizing its platinum business, excluded the Mogalakwena mine from the review.

“The platinum industry is in a fragile situation,” Chairman John Parker said at the annual general meeting. “Strikes inflict long-term damage. The three-month strike cost 650,000 ounces of platinum production in South Africa.”