AQP.L Share News (AQP)

By Ed Stoddard and Clara Ferreira-Marques RUSTENBURG, South Africa/LONDON, Jan 10 (Reuters) - MinerEvans Ramokga has a warning for Anglo American as the mining group prepares to unveil a revival plan for itsSouth African platinum business: don't close any shafts. "If one shaft closes, we stop all the shafts," said Ramokga,a winch operator at Anglo American Platinum (Amplats) and AMCU union activist, sitting in a fast food restaurant inthe platinum belt city of Rustenburg. This is no idle threat from a militant union that broughtmuch of South Africa's mining industry to a standstill lastyear. But it is one investors say Anglo cannot afford to bow to,as costs rise, prices stagnate and platinum profits tumble. Slashing output - and potentially thousands of jobs at oneof the sector's biggest employers - could prove socially andpolitically explosive. Next year brings elections in a countrywhere one in four is unemployed and many accuse the ANC ofbetraying the poor who helped bring it to power. Anglo is expected to make its plan for Amplats public asearly as next week, almost a year after it was commissioned. Ithas three broad options. It can spin off Amplats; it can dolittle and hope profits rebound; or it can close loss-makingshafts to create a nimbler, profitable business. In reality, analysts say, the choice is only how much tocut, where and how. "Things are never as obvious as they seem from a distance.The issue is the mines are getting ever deeper and labour is nolonger cheap," said analyst Paul Gait at Sanford Bernstein. "Anglo's strategy in platinum has always targeted volume.They have to move to a framework where they think 'we have moreresponsibility in this market than just the production of ounces- if the price isn't right, we have to do something about it.'And that may be cutting high cost production." According to its annual report, Amplats employed more than54,000 mineworkers in 2011, including contractors - up from theyear before despite heavy retrenchment after 2008, making it oneof South Africa's biggest mining employers. Unlike mining for many commodities, largely mechanised,geology has kept platinum mines too narrow for automation,requiring tens of thousands of miners to use hand-held drills insweltering conditions instead. Platinum's labour-intensive nature has intensified theperfect storm for Amplats, 80-percent held by Anglo and facingrising wages, power and input costs as demand sagged for a metalused in autocatalysts - particularly for diesel cars, andtherefore largely dependent on Europe's sluggish market. Prices have tumbled from peaks scaled in 2008 and periodicspikes in recent months have been a mixed blessing for Amplatsand its rivals as they have mostly been triggered by strikes inSouth Africa, home to 80 percent of known platinum reserves. In 2006, platinum contributed 24 percent of Anglo's groupoperating profit. In 2011, squeezed by labour and power costs,that share was down to 8 percent. By the first half of lastyear, safety stoppages and weaker prices left platinumaccounting for just 2 percent of group profit. It still accounts for a quarter of net operating assets. There is little hope of a quick fix for Amplats. But whilecutbacks may not be on a scale that would push prices back torecord levels, they may be deep enough to support prices, whichwill also be a boon to rivals such as Lonmin. Amplats accounts for some 40 percent of global supply. "Our base case is that (Anglo) are likely to put two oftheir existing Rustenburg operations on care and maintenance,and if they do that, that would take out 200,000 to 220,000ounces of platinum per year," said Tom Kendall, an analyst withCredit Suisse, which has a 2013 forecast for platinum of $1,695an ounce, above the current price around $1,590. Last year, Amplats produced some 2.5 million ounces. Mostanalysts expect the miner to at least cut its two lowest-marginshafts - Rustenburg shafts Khuseleka and Khomanani, whose impactanalysts estimate at 230,000 to 250,000 ounces. More optimisticforecasts put cuts as high as 500,000 ounces. The group will also try to cut back overhead costs, excesssmelting capacity and improve marketing, analysts say. FLASH POINT For parent Anglo, the strategy for untangling the platinumgordian knot will be watched as a potential flash point betweenexisting management - particularly chairman John Parker - andits newly minted chief executive, Mark Cutifani. Cutifani, currently the boss of miner AngloGold Ashanti, takes over in April and will inherit a strategydesigned under his predecessor, despite being hired in largepart for his experience of deep-level precious metals mining. "The positive way of looking it at is that Anglo gets twohits at the ball. This review can help stem the bleeding, andthen Mark (Cutifani) can apply his expertise to really fixingthe business," Sanford Bernstein analyst Gait said. The possibility of spinning off Amplats is a tempting one.According to HSBC analysts, the South African discount Anglo hasattracted is worth more than the value of its platinum holdings. But it is an option long discarded by outgoing chiefexecutive Cynthia Carroll, and analysts agree it is unlikely. "If you can make platinum work, you wouldn't spin it out -and if you can't make it work, spinning it out makes it moredifficult," analyst Des Kilalea at RBC Capital Markets said. Doing nothing for now - perhaps tempting in the context ofheightened union tensions - is also not an option. The main question is how to cut without reviving the 2012wave of strikes. The Rustenburg operations expected to be hit bycuts have been at the core of union unrest. Amplats' four lowest-margin mines, likely targets for cuts,employed some 22,000 people last year - excluding contractors. AMCU's Ramogka said the workers were indifferent to thereview, and wanted to have the next round of wage talks first. Other AMCU organisers in Rustenburg said mine closures wouldbe seen as a ploy to cut its support. AMCU has wrested tens of thousands of members from thelarger National Union of Mineworkers in a turf war at the rootof the labour violence that claimed over 50 lives last year. For its part, Anglo will hope rising costs will keep miners'heads cool. "People are tired of striking," said another AMCU organiserwho declined to be named. "They are struggling with money. Nowschool is starting and they must pay school fees.". (Additional reporting by Jan Harvey in LONDON; editing by JanetMcBride)