Platinum is the big problem for Carroll’s successor
by Ron Derby, 30 October 2012, 06:02 | 1 Comments
In this article JSE-listed companies: Anglo American Platinum , Anglo American
THE relief rally after the news on Friday of Cynthia Carroll’s decision to quit as CEO of Anglo American may have been a bit premature as the problems faced by the 95-year-old company remain. Chief among them is the future of Anglo American Platinum.
Earlier this year, Anglo placed the loss-making business under review. But with the untimely if not unexpected departure of its CEO, the uncertainty over its platinum unit seems set to drag on.
In her last high-profile interview given to Business Day, Carroll promised an outcome by the end of the year.
The new incumbent will, however, need to be brought up to speed on the problems at the platinum miner, the biggest asset on Anglo’s balance sheet, and the different options so far.
There are joint ventures to consider or even the possibility (however unlikely) of disposing of the unit altogether, which would please some of the company’s foreign shareholders, as it would reduce exposure to South Africa.
Rising labour costs and deteriorating labour relations, high electricity costs and unsettling and uncertain rules about mining have raised fears over the future of the industry, which failed to benefit fully from the commodity supercycle. Breaking up Anglo, whose history is part of the history of South Africa’s industrialisation, is not something the government would want.
It would be extreme and would be seen as a vote of no confidence in the future of the country.
But something has to give.
If platinum is to remain an integral part of the Anglo portfolio, the size of the operation is going to have to be reduced.
That is not easily achievable in a country struggling with an official unemployment rate of about 25% and strong trade unions.
Analysts who have been pressing for Anglo’s platinum unit to shut some of its shafts to boost the platinum price were hoping the company would take advantage of the illegal strikes at its operations and stay the course and not rehire workers. They will have been disappointed with Monday’s decision to rehire those employees, which means no shaft closures.
Platinum is an oversupplied market. Before the global recession, the metal rallied to more than $2,000/oz in March 2008, which led to some investors stockpiling the metal in fear of prices rising even further. The metal has since lost its sparkle and is still some way off its high.
Carroll’s replacement will have to answer two questions: "What is the right size of Anglo American Platinum?" and secondly, "How will that right size be achieved?"
Perhaps getting a CEO well versed in the South African mining landscape may be just what’s needed for Anglo as it looks to solve its platinum problem. Whoever it is will have to reduce South African exposure without a taxing battle with government.
Maybe Exxaro CEO Sipho Nkosi. Or perhaps the current head of Anglo American Platinum, Chris Griffith.
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SOUTH AFRICA is about to spend about R47bn on renewable energy generation. While environmentalists and the World Bank will applaud the move, we’ve got to ask exactly who is going to benefit from this spend.
It’s not South Africa, as we don’t have the industrial base for renewable. Countries such as Germany and China are set to be the biggest benefactors from this spend.
Eskom’s five-year tariff application included 3% meant for renewable energies such as wind. This means we are going to have to pay inflated tariffs to make the returns that they require.
This can’t be considered a long-term win for South Africa. If anything it’s a boon to the slowing economies of Germany and China.
In the renewable space, we perhaps have an obligation to better harness the power of the sun. After all, we have so much solar about. Is wind really a long-term answer to the country’s energy shortage?
It’s well and good when there are howling winds or clear skies.
But when these factors — which man can’t control — are absent, wind farms and solar plants become fantastic emblems of our goodwill. Nations such as Germany can invest in renewable energy because the European power grid is interlinked, meaning France’s nuclear stations are the fallback options when Mother Nature doesn’t play its part. South Africa’s and Southern Africa’s energy situation doesn’t quite allow the same.
If South Africa wasn’t being pushed to adopt expensive renewable energy, I wonder what Eskom’s tariff application would have looked like? Where is the nuclear or third coal-fired power station decision?
PLA Price at posting:
6.7¢ Sentiment: None Disclosure: Held
