Anglo Platinum’s operating profit declined by 17% to $2,226 million. This was as a result of lower metal sales and significant increases in key input costs, partly offset by a higher price achieved for the basket of metals sold and a weaker average rand against the dollar.
(unless otherwise stated)
|Net operating assets||9,045||9,234|
|Share of Group operating profit||22%||28%|
|Share of Group net operating assets||27%||35%|
The average dollar price realised for the basket of metals sold equated to $2,764 per platinum ounce, a 7% rise over 2007, with higher prices achieved for platinum and rhodium making the largest contribution to the increase. The average realised price for platinum of $1,570 per ounce was $268 or 21% above the 2007 figure, while the achieved nickel price was sharply lower at $9.79 per pound (2007: $17.04). Anglo Platinum successfully renegotiated the contract sales terms for rhodium, resulting in the realised sales price of rhodium moving closer to market prices during 2008. The average price achieved on rhodium sales for the year was $5,174 per ounce.
|Average market prices ($/oz)||2008||2007|
Source: Johnson Matthey
2008 was a year of unprecedented price volatility in the platinum market with platinum reaching a record of $2,276 per ounce in March before falling sharply as economic conditions deteriorated. 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 major auto companies. Although not immune to the global economic downturn, industrial demand held up reasonably well in 2008, with demand increasing in some areas such as the chemical sector as investment in new capacity reached a peak. High prices in the first half of the year discouraged consumer purchases of jewellery and increased the recycling of old jewellery, thereby reducing demand for new metal. In the second half of the year, the declining price of platinum encouraged purchases of metal by jewellers and investors alike.
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.
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.
Refined platinum production for the year of 2,386,600 ounces was 4% lower than 2007 but in line with the mid 2008 forecast.
Several factors impacted production at operations, including safety related stoppages; the suspension of operations to rehabilitate shaft steelwork at the Turffontein shaft of Rustenburg mine; the disruption of operations at the Amandelbult mine as a result of a major flood event; electricity supply constraints in January and the associated ramp-up period when supply resumed; commissioning delays at Mogalakwena North concentrator and lower throughput at the Mogalakwena South concentrator; the overall expected reduction in built-up head grade; and furnace run-outs at the Polokwane and Waterval smelters.
These reductions were largely offset by an increase in purchased ounces from the new Eland Platinum mine, which commenced delivery to Anglo Platinum in December 2007, together with increased output from the new Mogalakwena North pit and the Modikwa and Kroondal Platinum mines.
The cash operating cost per equivalent refined platinum ounce (in respect of Anglo Platinum’s own mines plus its share of joint ventures) increased by 36% to R11,093 per ounce. The increase in unit costs was attributable primarily to above inflation pressures experienced in key input costs including labour, diesel, chemicals, steel grinding media, explosives and cement, compounded by reduced production from Anglo Platinum’s attributable share of mining operations.
Anglo Platinum’s focus on safety, based on zero harm and a change in safety culture, has resulted in an improvement in the safety performance across the operations, with the lost time injury frequency rate improving by 14% to 1.74 from 2.03 in 2007. Despite the improvement, 17 employees lost their lives at Anglo Platinum’s managed operations during the year, compared with 25 in 2007. Safety continues to be a focus area in the Company’s aspiration towards zero harm through the elimination of all unsafe incidents and conditions.
The rapid decrease in revenue in the second half of 2008 led to declining margins, increased debt levels and confirmation that global economic events would negatively influence short term demand. In line with the Anglo American Group, a review of the company’s capital expenditure programme was completed, resulting in the reduction of total expected capital expenditure for 2009 to $900 million through the deferral of expenditure across several major and numerous smaller projects.
The criteria used to determine project expenditure deferral were to maximise short term reductions in expenditure and minimise the delay in reaching full production. The expected reduction in short term production arising from the deferral of capital projects is largely expected to match the reduced 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, thereby reducing the level of mining output originally planned for 2009.
Notwithstanding the current uncertainty in the global resources and platinum sectors, Anglo Platinum’s long term strategy to develop the market for PGMs, expand its production into that opportunity and to conduct its business cost effectively and competitively remains sound.
The long term prosperity of the business is considered when taking short term action and Anglo Platinum will continue to respond to the challenges that face the platinum industry. While the planned level of refined platinum production of 2.4 million ounces is currently expected to be appropriate for 2009, the company will take appropriate action should economic conditions affecting net platinum demand deteriorate further. Production levels will be continually monitored against global economic developments and revised production guidance will be provided when appropriate.
In order to maintain positive operating margins at the planned 2009 production level of 2.4 million ounces of refined platinum the current cost of production will be reduced. This will be achieved through active management of the supply chain to realise, without delay, the benefits of the significant reduction of input commodity prices; safely reducing units of consumption where possible; managing labour more effectively to improve efficiencies through re-skilling and redeployment where required; avoiding recruitment of non-critical positions; and reducing the number of contract employees at operations.
Every effort will be made to avoid the retrenchment of permanent employees. However, should economic conditions deteriorate further, this may become unavoidable.