In spite of record 2011 numbers for Anglo American — group revenues jumped 11% (to nearly $36.6 billion) and earnings increased 23% (to $6.1 billion) compared to the prior year — the company is assessing its 79%-owned subsidiary Anglo American Platinum (Amplats), which achieved an operating profit of $890 million in 2011.
The company was stern in its remarks to investors about Amplats last week. Cynthia Carroll, Anglo American’s CEO, stated: “We are prepared to take the tough decisions where assets are not delivering acceptable returns. You’ve seen us doing this before and we’ll do it again.”
What caused this harsh stance on a business that helped drive the company to record profits? Mostly government safety stoppages. Amplats lost production of some 109,000 ounces of platinum because of numerous nonfatal mine stoppages in 2011, even while its operating profit spiked 10%. However, Amplats suffered a decline in underlying earnings in 2011, posting $411 million compared to $425 million the previous year. And though it contributed about 20% of its parent’s revenues in 2011, Amplats benefited more from high metal prices than performance that year. Lying at the heart of that troubled performance was its work stoppages.
South Africa’s Department of Mineral Resources (DMR) initiated many of those halts in platinum production. Carroll noted that inspectors were “not just stopping sections where there was a safety discrepancy, but they were stopping entire mines for days on end and the industry lost about 300,000 ounces.” She acknowledged, however, that DMR was now showing the company “some fair treatment with respect to stoppages.”
And some stoppages have been necessary. Anglo American lost 17 miners in fatal accidents in 2011 – 12 of those miners from its platinum operations.
While safety stoppages, even those unrelated to fatalities, have no doubt hammered the company’s platinum production, it is unlikely that Anglo will be getting rid of the goose that lays the golden – or in this case platinum – egg anytime soon. That would reduce its market value and make it vulnerable to takeover bids by its rivals. Instead, the company may seek improvements (such as increasing recycling) or it may sell or shut down some of its more problematic mines, according to analysts in this Bloomberg article.