High-flying Amplats Sets Next Wave of Strategy in Motion

18TH FEBRUARY 2019

MARTIN CREAMER

JOHANNESBURG (miningweekly.com) Anglo American Platinum (Amplats), which shot the lights out with a set of stupendous cash-splurging, debt-negating, high-dividend-yielding 2018 results, on Monday set its next new wave of strategy in motion, which involves extracting the full potential from its operations through people and innovation, investing in its own portfolio to deliver industry-leading cash flows and investing in the development of the market to increase demand.

The word platinum on its own is out and the in are the words platinum-group metals (PGMs) as a collective, because of the rhodium, palladium and even ruthenium contributions, which helped to generate free annual cash flow of R5.6- billion.

Mining Weekly Online can report that shareholders pocketed R3-billion in dividends off a combined production of 5.2- million ounces of PGMs, and saw their shares perform as the star of the Johannesburg Stock Exchanges All Share Index.

The next wave strategy now involves Amplats CEO Chris Griffith squeezing every last drop out of its PGM mines and joint ventures in South Africa and Zimbabwe in a stabilising, optimising and then global benchmarking progression using low capital expenditure (capex) and targeting lightning-quick, high-margin payback.

Outgoing FD Ian Botha, who will be replaced from April by Craig Miller, reported the doubling of headline earnings and move from net debt to post-dividend net cash of R2.9-billion on higher rhodium prices chipping in R2.6-billion, high palladium prices contributing R2.1-billion and high ruthenium prices yielding R1.3-billion.

Depressed platinum contributed less than 40% of 2018 Amplats revenue at R1.5-billion, reinforcing that the Johannesburg-listed company is a PGMs producer and not just a platinum producer. Huge capex going into large, new long-horizon projects is being avoided and capex-light, fast-return investments are now mainstream and take in even ultra-fine peripheral opportunities in chrome recovery. Amplats is blessed with the wonderful Mogalakwena PGMs mine in Limpopo that again churned out a record 7%-higher 1.2-million ounces of PGMs and generated free cash flow of R4- billion at an all-in sustaining cost (AISC) of $286/oz of platinum.

With the company bullish on platinum going forward, it is rolling out a plan to increase Mogalakwenas platinum alone from 300 000 oz to 550 000 oz at the highest margin of operation, through shovel and truck efficiency improvements, further slope angle increases to lift the cut-off grades.

The Amandelbult mine, still in turnaround transition, achieved a 1% PGMs production increase to 869 000 oz and generated free cash flow of R603-million, at an AISC of $794/oz of platinum. Five hundred faster electro-hydraulic drills have been introduced for more efficient drilling at Amandelbult, chrome volume is being increased to two-million tonnes a year and the low-capex extra-low-profile trackless mechanised mining is being introduced on a 20-degree dip as part of a 15 East project. Unki in Zimbabwe, where a new smelter has been commissioned, generated R525-million in free cash flow at an AISC of $616/oz of platinum on 16%-higher PGM production.

The target now is to achieve best practice low-capex performance using a platform of better shovel performance, waste tonnage reduction, throughput increases and higher recoveries. Rope-shovel efficiency at Mogalakwena is on its way to 45-million tonnes a year from 26-million tonnes a year, concentrator throughput is going 10% higher, recoveries are going to 83% from 81% and smelter and refinery availability is being lifted to an operating factor of 81% from 73%. Once at those new high levels, steps will be taken to set new global levels of performance by introducing bulk sorting, PGMs and chrome ultra-fine recovery, coarse particle discovery, dry disposal to reduce energy intensity, advanced fragmentation and shock breaking to cut grinding costs.

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A section of the opencast Mogalakwena resource is showing itself to being amenable to underground mining options. The mining industry is littered with examples of companies under huge pressure in good times to put money into the ground that failed to give the right returns, said Griffith, an approach Amplats is avoiding through its low-capex, high- margin and fastpayback approach to providing PGMs to the market.

The third leg of new wave involves investment in PGM market demand, with $30-million supporting jewellery growth, $4.2-million going into investment development and $100-million being invested in private venture capital company AP Ventures, matched dollar for dollar by South Africas Public Investment Corporation.

Meanwhile, Norman Mbazima, a member of the Anglo American plc group management committee, will assume the role of Amplats chairperson, following the resignation decision of Valli Moosa, who has served as a director since 2008. These changes will be effective after the Amplats annual general meeting, which is scheduled to take place on April 17. Mbazima, who joined the Anglo American group in 2001 at Konkola Copper Mine in Zambia, was subsequently appointed CFO of Anglo Americans global coal business. He became Amplats FD in 2006 and later stepped in as joint- acting CEO.

Mbazima was CEO of Scaw Metals from 2008 and later CEO of Anglo American Coal SA from 2009 to 2012. From 2012 to 2016 he served as CEO of Kumba Iron Ore and more recently as the deputy chairperson of Anglo American South Africa.

Mbazima is a Fellow of the Association of Chartered Certified Accountants. In October last year, he was appointed as a nonexecutive director to the Amplats board.

Source: http://www.engineeringnews.co.za/article/high-flying-amplats-sets-next-wave-of-strategy-in-motion-2019-02- 18/rep_id:4136

QUESTION 1 (20 Marks)

On the basis of the article, undertake a detailed SWOT analysis of Anglo American Platinum as a learning organisation. A minimum of FOUR (4) significant points each for the strengths, weaknesses, opportunities and threats should be extracted from the article to buttress the discussion. In addition to the SWOT analysis you should indicate how benchmarking could improve Amplats understanding of its competitive position and its strengths and weaknesses, and provide a systematic process for effecting change.

QUESTION 2 (20 Marks)

Anglo American Platinum (Amplats).... set its next new wave of strategy in motion, which involves extracting the full potential from its operations through people and innovation, investing in its own portfolio to deliver industry-leading cash flows and investing in the development of the market to increase demand.

2.1 Considering the statement above, comprehensively elaborate on Amplats next wave of strategy

2.2. Suppose that you are an operations analyst at Anglo American Platinum and you have been asked to appraise the

companys inventory ordering policy. The following information is available:

INFORMATION:

Anglo American Platinum uses ABC analysis as an inventory categorisation method. The current inventory ordering policy is to order 10 000 units of an A-item inventory when the level falls to 4 500 units. Forecast demand to meet production requirements during the next year is 62 500 units. The cost of placing and processing an order relating to this inventory

(10 marks)

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item is R250, while the cost of holding a unit in store is R50 per unit per year. You anticipate that both costs will be constant during the next year. Orders are received two weeks after being placed with the supplier. Assume a 50-week year and that demand is constant throughout the year.

REQUIRED:

Based on the information above, answer the following questions:

2.2.1 Using a quantitative analysis, appraise the optimality of the current ordering policy of the A-item inventory (Show

all calculations).

2.2.2. Calculate the economic order quantity (EOQ) of the A-item inventory (Show all calculations).