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CHIEF EXECUTIVE OFFICER’S REVIEW |
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 Global economic events during the
second half of 2008 added complexity to
programmes in place to address Anglo
Platinum’s operational and cost challenges.
I am pleased that the management team,
with the support of the Board, is adapting
to the current uncertain economic conditions and
building a sound base to enhance medium and long-term
value in the unique platinum business sector. |
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INTRODUCTION |
I joined Anglo Platinum during a period of tough operational challenges, at a point when further
organisational change was required to return the Company to optimal performance. The impact of
global economic developments on the Company during 2008 demanded additional and urgent
short-term action. The first half of 2008 was characterised by record high metal prices, high operating
margins and strong inflationary pressures. The change in conditions in the second half of the year
was profound, leaving operating margins largely eroded by the end of 2008.
Our management team has been bolstered with the appointment in 2008 of Mike Rogers and
Fritz Neethling, whose extensive collective experience in the South African mining industry is already
enhancing team effectiveness. Our team has risen to the challenge of taking decisive, short-term
action while retaining the necessary focus on the medium- and long-term initiatives necessary to
deliver sustained value. I am also pleased to welcome our new executive director: finance, Bongani
Nqwababa, to the team, particularly under the current economic conditions.
Despite high costs and the volatile metal-price environment, for the third year in a row, Anglo
Platinum achieved record earnings (R13.3 billion in 2008). Our operating costs remained unacceptably
high as a result of inflation, the reduced volumes associated with a number of one-off events in 2007
and 2008, and improvements in operating efficiencies not yet reaching their desired levels. Planned
lower production in 2009, in recognition of market demand, includes a commensurate reduction in
costs to retain positive operating margins across the group. |
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SAFETY |
One of the most challenging aspects of my role at Anglo Platinum is to ensure that our approach to
employee safety moves us towards our goal of ‘zero harm’. I firmly believe that safety is an integral
part of every employee’s role at work each day. I am personally committed to integrating our
enhanced safety improvement plan into the daily actions of every Anglo Platinum employee.
Initiatives to achieve this integration are currently under way, based on the results of an extensive
review of the enhanced safety plan.
Against this commitment, it is with deep regret that I report that 17 employees lost their lives while
at work at our managed operations in 2008. On behalf of management, I extend our sincere
condolences to their families, friends and colleagues. |
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THE MARKET |
The unprecedented scale of movements in the price of platinum during 2008 and associated
changes in demand in different segments highlighted the unique nature and inherent strength of
the structure of the platinum market. Each demand segment reacts differently to the magnitude,
rate of change and duration of price movements.
Strong autocatalyst and investment demand, primarily from the newly introduced exchange traded
funds (ETFs), led platinum to the record level of $2,276 per ounce in March 2008. The high metal
prices in the first half of the year also resulted in intensified efforts to thrift platinum group metals
(PGMs) from catalyst systems and to substitute cheaper palladium for platinum. Palladium benefited
from its high price differential with platinum and from developments in technology, thereby
increasing its share in the diesel market.
In the second half of the year, the global economic downturn reduced credit availability for vehicle
purchases. Anglo Platinum estimates that demand from the autocatalyst segment decreased by
more than 8% or 330,000 ounces, owing to the smaller number of vehicles produced and a rundown
of stock levels by the major auto companies.
Metal purchases by platinum jewellery manufacturers declined materially as a result of the high prices
and there was a corresponding increase in the use of recycled jewellery metal. This was particularly the
case in Japan and China. However, platinum’s strong, established brand identity supported demand at
the retail level, where the high price forced de-stocking, impacting on manufacturing and display stocks.
Japanese investment in physical platinum increased dramatically in the last quarter of 2008. This was
assisted by the low platinum price and the strength of the yen against the dollar, with investor interest
growing strongly at a time when other financial markets plunged. At the same time, ETF positions
began to recover. The jewellery trade used this opportunity to rebuild stocks and to use new metal in
manufacturing, especially once the availability of recycled metal began to decline.
Investment and speculative interest declined rapidly in mid-2008, with a substantial sell-off in
physical platinum (coins and bars) in Japan, large disinvestment in platinum ETF units in Europe and
reductions in net long positions on the New York Mercantile Exchange and the Tokyo Commodity
Exchange. This sell-off and reduction in net long positions led the rapid price decline in platinum, to
well below $1,000 per ounce by October 2008.
The global supply of platinum has decreased by
11% or 740,000 ounces, over the past two years
and is not expected to increase in the current
global economic environment. As a number of
government support packages to stimulate the
world’s biggest economies start to have an
impact, an increase in the demand for PGMs is
expected.
Anglo Platinum expects a balanced platinum
market in 2009. It also anticipates that the
platinum price, which suffered ‘downside
overcorrection’ on negative news flow in the
second half of 2008, is likely to trade above
$1,000 per ounce on average during 2009. |
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OPERATIONAL
PERFORMANCE |
I am pleased to report that in 2008 we produced
2.39 million ounces of platinum, in line with our
forecast of 2.4 million ounces and above the
revised forecast range of 2.2 to 2.25 million
ounces announced following a furnace run-out
at Polokwane Smelter in November. The smelter
returned to production two weeks earlier than
expected and this, together with the selected
processing of high-grade concentrate stocks,
virtually negated the delay in refined metals
production, although sales volumes were
reduced by the usual lag between refining and
despatch.
Several one-off events in 2008 made maintaining
operational efficiency most challenging. They
included the flooding at Amandelbult Section;
the suspension of operations to rehabilitate
steelwork at the Turffontein shaft at Rustenburg
Section; electricity supply constraints in January,
together with the ramp-up period when supply
resumed; safety-related stoppages; and
commissioning delays and consequent lower
throughput at the Mogalakwena North
concentrator.
The losses resulting from these production disruptions were partly offset by the increase in purchased
ounces from the new Eland Platinum mine, which began delivery to Anglo Platinum in December
2007; and by increased production at the new Mogalakwena North pit and the Modikwa and
Kroondal mines.
I am pleased that the remedial actions taken to address the disruptions to operations in 2008
minimised the latter’s impact on output. They also included measures to prevent similar events in
future. The second run-out at Polokwane is a good example of this, as lessons learnt and
improvements made after the first failure, and also the output-focused approach to the second
repair, significantly reduced the downtime. I believe that the excellent people we have within Anglo
Platinum are capable of extracting far greater value from the Company’s extensive asset base. I look
forward to leading the further change in organisational culture and acknowledge the willingness
shown by our employees to embrace such change.
One of the key initiatives currently under way is the restructuring of our mining operations into more
efficient stand-alone units. The new structures will allow operational management to meet the
safety, labour and technical challenges of the current mining environment. We will split our largest
mines into smaller new mine entities, to ensure the focused and value-based management of our
assets. These improvements will support a sustainable reduction in the unit cost of production and
will also underpin our commitment to extracting maximum value from our assets. |
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ORGANISATIONAL CHANGE |
| Anglo Platinum has embarked on an organisational change programme aimed primarily at changing
the Company culture. The initiative, based on our Company values, is focused on output and strives
to integrate these values into daily activities. It also supports our unrelenting drive to achieve zero
harm in the workplace by changing our attitude to safety and enhancing our clarity of purpose. The
new mindset will facilitate a management style that will ensure continued operational efficiency and
improved productivity. |
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PROJECTS |
The implementation of Anglo Platinum’s extensive portfolio of mining and processing projects, in
place to maintain and, potentially expand refined platinum output in the long term, continued in
2008. Projects remained largely on schedule, despite the global competition for skills and resources
that is associated with capital projects of this nature and that made implementation in the first half
of 2008 most challenging.
The rapid decrease in prices in the second half of 2008 led to declining margins, reflecting how
global economic events can negatively influence short-term demand. We conducted a review of our
capital expenditure programme, as a result of which the total capital expenditure for 2009 has been
reduced to R9.1 billion, to be achieved through the deferral of expenditure across several major and
numerous smaller projects. This level of capital expenditure supports the production level of 2.4
million ounces in 2009.
The criteria used for project expenditure deferral were to maximise short-term reductions in
expenditure and minimise the delay in reaching full production. Where capital deferral reduced
short-term production, this could be accommodated because reduced refined output was required
to address the short-term reduction in demand.
The commissioning of the Mogalakwena North expansion project concentrator is complete. Capital
expenditure planned for the accelerated removal of overburden at the new North pit has been
deferred. As a result less ore will be exposed, consequently reducing the level of mining output
originally planned for 2009. |
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MINING RIGHTS AND TRANSFORMATION |
Anglo Platinum received letters of grant in 2008 for new order mining rights, for Rustenburg,
Amandelbult, Union, Lebowa, Mogalakwena, Twickenham, Der Brochen and BRPM mining areas
from the Department of Minerals and Energy. Some of these are conditional on the submission of
revised social and labour plans. The application for conversion of mineral rights associated with our
50:50 joint venture with the African Rainbow Minerals consortium over Modikwa mine - is being
prepared as a joint submission from both partners.
In September 2007, the Company announced two major black economic empowerment
transactions, with partners Anooraq Resources and Mvelaphanda Resources. Steady progress is
being made in concluding these transactions. The Mvelaphanda transaction is almost complete,
with final consent awaited from the Minister of Minerals and Energy on the disposal of the Booysendal
property. Owing to the global economic slowdown, certain aspects of the Anooraq transaction are
being re-evaluated and the date for their fulfilment has been extended to 30 April 2009. Both parties
remain committed to concluding the transaction during 2009.
During the year, we reached agreement with our employees and labour unions on the key terms and
structure of the Company’s broad-based employee share participation scheme (ESOP). The Company
has established the Anglo Platinum Kotula Trust to facilitate the scheme on behalf of the beneficiaries
and issued approximately 2.5 million shares to the trust, representing approximately one per cent of
the Company’s issued ordinary share capital. More than 90% of the beneficiaries of ESOP will be
historically disadvantaged South Africans.
In 2008 we reached agreement with Royal Bafokeng Holdings (RBH) to restructure the Bafokeng-
Rasimone Joint Venture. This includes the Styldrift project, whereby Anglo Platinum will retain an
effective stake of 43% in the venture and receive payment for the transfer of control. The transaction
will result in the creation and listing of a black economic empowerment PGM producer, controlled
by RBH and independently managed. The transaction is expected to take between one and two
years to complete. |
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OUTLOOK |
Notwithstanding the current uncertainty in the global resources and platinum sectors, we believe
that our long term strategy – to develop the market for platinum group metals, to expand our
production into that opportunity and to conduct our business cost-effectively and competitively –
remains sound.
It is essential that we consider the long-term prosperity of the business when taking short termaction.
Nevertheless, Anglo Platinum intends to respond on an ongoing basis to the challenges that
face the platinum industry. While we believe that our planned level of refined platinum production
of 2.4 million ounces is appropriate for 2009, management will take appropriate action should
economic conditions affecting net platinum demand deteriorate further. We will continue to
monitor our production levels against global economic developments and will provide revised
production guidance when appropriate.
To maintain positive operating margins at the planned production level of 2.4 million ounces of
refined platinum in 2009, we need to reduce the current cost of production. This will be achieved by
reducing the number of contract employees at operations and by the active management of the
supply chain to realise, without delay, the benefits of significant reductions in input commodity
prices. Every effort will be made to avoid the retrenchment of permanent employees. However,
should PGM prices deteriorate further, this may become unavoidable.
The combination of the reduction in capital expenditure and of cost-reduction initiatives is expected
to reduce the rate of increase in net debt in 2009. Funding facilities in place are adequate for our
anticipated funding requirements. |
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CONCLUSION |
| I would like to take this opportunity to thank all our employees for their contribution to the Company
during what has been a challenging year. Current initiatives will test all of us at Anglo Platinum,
particularly in the context of global economic uncertainty. Implementing the cost reductions
required on our operations to maintain profitability will require tough decisions to be taken.. I am
convinced that the executive team in place is well positioned to manage these challenges. |
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Neville Nicolau |
| Chief Executive Officer |
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| Johannesburg |
| 5 February 2009 |
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