Jan 28, 2016
Anglo American and Lonmin heap pain on South African mining with 9,000 job cuts
3 MIN READ
Imbattled miners have cut jobs in the face of plunging commodity prices, putting pressure on the South African government
3:21PM GMT 28 Jan 2016
The South African mining industry has suffered a double blow after under-pressure miners Anglo American and Lonmin unveiled 9,000 job cuts between them.
Around 4,000 roles are to go in Anglo’s iron ore division while platinum producer Lonmin has shed 5,077 workers since the end of last year.
Crashing commodity prices have forced miners to cut costs across the world. In December Anglo American unveiled plans to shrink its workforce from 135,000 to 50,000 by 2017, as it looks to sell off or close around 60pc of its assets.
The cuts will heap pressure on the South African government, which is battling an unemployment rate of 25pc. Around 440,000 people are employed in the country’s mining industry.
Mosebenzi Zwane, South Africa’s mining minister, said the government would seek to mitigate the impact by transferring workers to other mines or retraining them.
“We’re going to do everything possible in our power to try and control the situation until the price of commodities improves,” he said.
Anglo American’s Kumba Iron Ore unit said restructuring at its Sishen mine would result in the loss of 2,633 permanent roles and 1,300 contractors. The tumbling price of iron ore, which has fallen 35pc in the last year, means Kumba will cut back production at the mine and convert it into a “smaller, more focused operation”.
“After exhausting all other avenues and doing all we could have done to reduce costs, we have no choice but to take more significant steps to preserve the viability of the mine,” said Norman Mbazima, Kumba chief executive.
Shares in Anglo American enjoyed a rare bounce in London on the news, soaring 14pc by early afternoon, and reversing some of the heavy losses the stock has sustained in the last year.
In a production update, Anglo revealed its output rose 5pc in 2015, despite the falling price of metals.
The bulk of that increase was down to a 25pc rise in platinum production during the year – even though the price of the precious metal tumbled by around the same amount amid a supply glut.
Anglo’s output of copper and iron ore fell by 5pc and 4pc respectively, although copper production crept up again in the last quarter. The group, which owns De Beers, said diamond production dropped 12pc in 2015 in response to tough trading conditions.
For miners caught in the grip of the commodity price collapse, the decision to cut production runs the risk of losing market share, while closing mines can incur significant costs. As such, many companies prefer to cut costs instead of production.
Barclays analysts described the update as “solid”, but warned: “Overall we remain cautious on Anglo – every division of the business remains under pressure, including the biggest earnings contributor, De Beers.”
Anglo is due to provide more detail on its restructuring plans – and where further job cuts might fall – at its preliminary results on February 16.
Lonmin job cuts
Meanwhile, Lonmin, one of the world’s biggest producers of platinum, said it had achieved 85pc of its planned job cuts.
The South African miner has been cutting its workforce since announcing losses of more than $2bn in November. It narrowly avoided going out of business in December when it raised $400m in a discounted rights issue. Part of that money has gone on paying off debts.
Lonmin’s platinum production was up 22pc in the three months to January 28, partly due to a weak comparison with the previous year, when it was beset by problems at one of its smelters. Sales were up 2.4pc in the quarter, helped by the weakening of the rand against the US dollar, in which platinum is priced.
Speaking last year, Lonmin’s chief executive, Ben Magara said: “Our priority is our employees,” adding that each of Lonmin’s 32,000 workers supported a further 10 people indirectly.