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Harmony results and update from Amplats: Graham Briggs (Harmony Gold), Chris Griffith (Amplats)

Harmony Gold’s surprise jump in profits and the latest on Amplats’ restructuring plan.

HILTON TARRANT: Harmony Gold today reported a 28% jump in headline earnings for the second quarter despite production being 9% lower due to the stoppages at strike-hit Kusasalethu. The mine remained shut, operating costs dropping by R127m, mainly due to lower summer electricity tariffs, with a 9% gain in the rand gold price also contributing to Harmony’s improved results. My colleague Geoff Candy spoke with Harmony chief executive Graham Briggs this morning and suggested that the numbers look good, despite it being a tough quarter.

GRAHAM BRIGGS: It’s been a tough quarter I think not only for Harmony but for the mining industry – and behind that of course a lot of labour issues and the like. But we’ve been successful in getting most of our operations performing very well. We are in a good space.

CHRIS GILMOUR: Let’s talk about Kusasalethu, because clearly that’s where a lot of the issues took place. You announced on December 20 that you were going to close early for the December break and on January 7 you came back and said you are not going to mine there until you guarantee the safety of workers. How are the negotiations progressing?

GRAHAM BRIGGS: They are going fairly well, Geoff. There are basically two processes that are ongoing. One is the Section 189, and that’s facilitated by the CCMA through the Department of Labour. That has had two meetings; it’s got a third meeting this week. By the second meeting we’ve got agreements on the rationale for why we did what we did, and everyone basically agrees that we are going to agree on a process on signing some sort of agreement which maintains law and order and rights for people and so on. Obviously there’s a big emphasis on safety and security.
   It’s a bit of a turnaround for a general process like that, because it’s normally labour that’s taking people to the CCMA. This is a demand from employers that we have rights and we also have the right to make a profit.
   We are undergoing another process which is really bilateral discussions with individual unions, between the company and the unions, and that’s also sort of trying to meet their concerns and so on. So I’m quite optimistic that we will be signing soon. Not the early part of this week – we’ve got another session which is on the 6th, which is during this week, and hopefully we will make more progress. So we’ve got a draft document which is being circulated. We’ll get comments back from the various participants.

GEOFF CANDY: Best case scenario – when would Kusasalethu be back at full production?

GRAHAM BRIGGS: It’s going to take while, because to get 6 000 people back to the mine you have to make sure you do it safely, you have to make sure everyone is healthy, and so it’s going to be a process. We think we can probably bring back about 1 000 people a week, so that takes us to six weeks. And then obviously build up what happened during the quarter of December. In fact we have to make sure we maintain safe conditions underground. That will take some time. So, if we are really optimistic, by June we should have much better production coming out of Kusasalethu.

GEOFF CANDY: And finally, does the introduction of Sibanye change the dynamics from an investor-based point of view from the landscape of the South African mining sector?

GRAHAM BRIGGS: It’ll certainly change the dynamics of a Gold Fields shareholder as to how he invests – does he maintain his shares in both companies? From our perspective I don’t think it’ll make a difference. There’s obviously going to be perception issues. There is going to be more marketing from Sibanye talking about purely South African, and hopefully that sort of changes the dynamics from the public perception. How shareholders deal with it I don’t know. Shareholders have things that they follow, their managers obviously demand certain returns and so on. So that’s a process.

HILTON TARRANT: Graham Briggs there. Well, Anglo American Platinum, as mentioned earlier, also out with numbers today – a R6.7bn net loss for the full year last year. Headline loss per share of R5.62. These numbers were telegraphed to the market. Equivalent refined platinum production down by 8%, platinum sales volume down by 17%. The company’s chief executive Chris Griffith joins us now.
   Chris, obviously the restructuring plan announced last week has really dominated coverage and headlines here. There has been talk of a moratorium on those proposed job cuts and news out today that a certain base of those affected workers could be redeployed into other Anglo American operations in the country. Any movement?

CHRIS GRIFFITH: Good evening, Hilton, and good evening to your listeners. I think most of what was discussed on the restructuring plan has actually been on the table right from the get-go. So you’ll recall when we made the announcement we said 14 000 employees could be affected by the restructuring, and we said in that plan that about 30% of those employees we thought could be redeployed to other Anglo American operations in South Africa. And the remainder we would see to create additional job opportunities through additional projects, one of which being the anchor housing project in Rustenburg.
   I think as things have settled down quite a bit more, people are starting to read through the documents that we released. I think people are starting to think about what some of the plans are that we put on the table, and starting to get some more air time now. So actually around the restructuring, for that portion of the plan there is nothing new.
   But what is new is the change that we have introduced with the Department of Mineral Resources – so not a moratorium. But what we’ve said is we’ve delayed or postponed the commencement of the Section 189 process. So where you do your normal consultation under the Section 189, you actually do that in the CCMA under the Labour Relations Act. All that we’ve done is agreed to bring forward that consultation. The DMR will be part of that process with labour, and we’ve given it a defined time frame of 60 days. If at the end of that period there is still restructuring necessary, we would then commence with the Section 189. So actually not much of a difference in time frame; perhaps added about a month onto the process.
   But, other than that, the process still continues and I think rightfully so. Today we’ve had the majority of the commentary and the questioning has been around “OK, we see the results have come through this year, you’ve warned us around these. You’ve told us that it was already a difficult situation that the industry found itself in. On top of that we had the strikes. So I think there was an anticipation of these kind of results, but now I think much more concern around what is it that you are doing to rectify the company. Tell us about the restructuring and what it means for the company going forward.”

HILTON TARRANT: Chris, you speak about that engagement with labour and with the department continuing. Is it possible that we may yet see any credible alternative to the plan which is on the table?

CHRIS GRIFFITH: Look, we’ve done a lot of work around this. This wasn’t a knee-jerk reaction, as we’ve told the market many times. It wasn’t a knee-jerk reaction to the industrial action at the end of the year. the company started the portfolio review as early as February of last year. So we’ve done a lot of work. It’s taken almost a year to come up with the answers. We think that we’ve stress-tested our plan inside out and backwards and forwards, so I think it would be surprising to us if there was a credible alternative or substantially different alternative put on the table. However, we’ve got to be able to do a consultation process with an open mind so that we listen to other proposals put on the table.
   But the fact is that we have done a substantial amount of work. I think we understand what the market dynamics are. We have a number of unprofitable shafts and we have an oversupplied platinum industry, and we think there needs to be action taken around both of those items if we are likely to see this business become more profitable going forward.

HILTON TARRANT: Our thanks to Chris Griffith. David, just to bring you in here, Anglo [Platinum] does say in the commentary to its numbers today that if this restructuring does go ahead we are likely to see the platinum market balance by the end of the year, which I guess is good news for producers.

DAVID SHAPIRO: We’ve already seen that happening. We’ve seen the platinum price creep up now to $1 680, $1 690. It’s exceeded gold again. So we’ve seen the improvement there – and I think that also comes against the belief that the world economy is picking up. So we are getting to a balance. Of course it’s going to be good for platinum shares. Impala’s been picking up, Lonmin has been picking up, but I still think there are troubles overhanging Angloplats – which will be resolved, hopefully, as Chris says.

HILTON TARRANT: As it is your stock pick for the year I’m guessing you are hoping that they are resolved.

DAVID SHAPIRO: Don’t remind me!

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