Winds of change blow for Anooraq and Amplats at Bokoni

Twin tragedies bookended four months of turbulence and change at the Bokoni platinum mine in South Africa’s Limpopo province. 

Restructuring agreements between joint-venture partners Anooraq Resources (ARQ-V, ANO-N) and Anglo American (AAL-L) subsidiary Anglo American Platinum (Amplats) were overshadowed by the second employee death at the site in four months.  

Operations were suspended in mid-November after an employee was reportedly struck and killed by a dump truck at the Middelpunt Hill UG2 shaft. The Department of Mineral Resources issued a week-long safety stoppage at the shaft, causing an estimated production loss of 1,500 oz. platinum group elements (PGEs). 

The next death occurred on Feb. 15 after a worker fell from the 6-E17 raise line. The department imposed a subsequent suspension of Bokoni operations that was lifted on Feb. 17. 

Compliance and safety have been ongoing concerns at Bokoni, as Anooraq and Amplats attempt to increase production and lower cash costs with platinum prices falling 12% in the past six months. 

Progress had been made despite inflation in labour and material costs. Third-quarter 2011 production improved 19% to 33,358 oz.  platinum, palladium, rhodium and gold (4E), and unit operating costs fell 14% to US$1,375 per oz. 4E. 

In an effort to continue production increases and address safety concerns, Dawid Stander was named managing director at Bokoni in the first week of February. Stander, who had been working as an independent consultant, was general manager at the mine from 2001 to 2005 when production increased by 100,000 oz. PGE. He has 32 years experience with stints at BHP Billiton (BHP-N) and Impala Platinum.

In a joint statement, Anooraq CEO Harold Motaung and Amplats executive head Vishnu Pillay said that under Stander’s previous leadership at the mine, the operations “enjoyed significant growth, together with improvements in safety, operational and financial performance.” 

Stander’s appointment was part of restructuring Bokoni’s operations. The companies announced an agreement on Feb. 2 that would see Anooraq’s outstanding debt refinanced, as well as restructuring and recapitalizing the Bokoni Platinum group. 

Under the agreement Amplat will decrease Anooraq’s US$368-million outstanding debt by US$213 million in exchange for full interest in the Boikgantsho platinum project bordering the Mogalakwena mine, and the eastern sections of the Ga-Phasha platinum project, 250 km north of Johannesburg in the Bushveld igneous complex. Ownership considerations at Bokoni will remain unchanged, with Anooraq at 51% and Amplats at 49%.

The remaining debt balance will be reconsolidated into a new debt facility with an initial low-interest-rate schedule designed to escalate — from zero to 12% — in tandem with increases in Anooraq’s cash flow. 

Following the completion of a feasibility study, Amplats will provide Anooraq with another US$159 million under the consolidated debt agreement to cover the costs of a US$325-million capital development program. 

Improvements include installing a new concentrator plant and accelerating production plans at the Middelpunt Hill Delta UG2 expansion project. The capital expenditures are expected to raise Bokoni’s output by 100,000 oz. PGE before 2016. 

Despite steps to streamline and expand operations at Bokoni, parent-company Anglo American — which owns 79% of Amplats — cannot be enthusiastic about its subsidiary’s bottom-line contributions. Amplats cut 2012 output targets in late February, and initiated an employment freeze after annual profits tumbled 64% to US$463 million last year. 

According to Anglo American CEO Cynthia Carroll during a conference call, decisions on Amplats won’t be forthcoming until later in 2012. “We are looking at the size and the shape of the platinum business and how we can fundamentally shift it and return it to the sort of returns we had in 2008,” Carroll says.

In a Feb. 20 note to clients, Deutsche Bank analysts Tim Clark, Rob Clifford and Grant Sporre speculate that “closure of shafts is more likely given the structural position.” 

Dropping the platinum portion of its business could decrease Anglo’s market value by US$15 billion, speculatively making it a more attractive target for takeover bids  from interested parties, including the new unit formed by the acquisition of Xstrata by Glencore International. Xstrata approached Anglo in 2009 with a merger proposal, and analysts have speculated Anglo may be targeted by the new major mining power. 

A Reuters survey revealed a bearish attitude towards 2012 platinum prices amongst analysts, as median forecasts for the year dropped 15% to US$1,610 per oz. since July 2011. 

Platinum is qualified as one of the late-cycle commodities that typically lag behind primary resource indicators. Prices are tied to broad European demand in automotive production, as well as the Chinese jewellery market. 

Declining platinum prices and high costs affiliated with doing business in Southern Africa — the world’s largest platinum-producing area — continue to raise marginal-cost questions for invested companies. Though the recent agreements between Amplats and Anooraq may see unit costs fall as production output rises, questions remain over the project’s long-term ownership dynamics.