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Amplats makes first annual loss, risks more labor strife

By Sherilee Lakmidas

JOHANNESBURG (Reuters) - Anglo American Platinum (Amplats) warned on Monday of growing labor unrest as the world's largest producer of the precious metal cuts back operations in an attempt to restore profits.

The company said it made its first annual loss last year, when South African gold and platinum mines were brought to a halt for almost two months as stand-offs between rival unions and violent wage protests killed more than 50 people.

It was the most damaging labor strife since the end of apartheid in 1994 and raised questions about President Jacob Zuma's management of the economy.

Amplats is wrestling with soaring input costs and suppressed platinum prices and aims to mothball two mines and sell another, leading to a possible 14,000 job cuts.

"We don't want to scare anyone but the fact is we have got wage negotiations, we have got new unions and there could still be disruption around implementation of portfolio reviews," warned Amplats Chief Executive Chris Griffith on Monday.

"We certainly don't foresee the same kind of situation that we saw last year," he said. "We are hoping that all stakeholders realize that this has caused massive damage to companies."

Amplats, which is 80 percent-owned by resources giant Anglo American , said it would not pay an annual dividend after suffering a headline loss per share of 562 cents a share for 2012, compared to a profit of 1,365 cents a year earlier.

The strikes at its mines lasted about six weeks before management agreed in late October to reinstate workers sacked for illegal walk-outs. It resulted in a loss of 306,000 ounces of platinum, reducing the company's full-year output by 8 percent to 2.2 million ounces.

Mine workers in South Africa say their wages have badly lagged the rising cost of living for decades, pushing their families deeper into poverty.

The government has objected strongly to the restructuring at Amplats, underlining how difficult it will be for the mining giant to push through changes critical to its recovery.

The plans are also seen as a test for other producers toying with restructuring in the wake of the damaging strikes of 2012.

Peter Leon, a partner and head of African mining and energy at law firm Webber Wentzel, saw talks between between Amplats, the government and the unions as grounds for guarded optimism.

"Clearly, it's positive that all the parties are talking rather than shouting at one another,' he told Reuters at a mining conference in Cape Town.

However, "although there's a commission enquiry into Marikana, the socio-economic issues up in the platinum belt are still with us and the government has done nothing about trying to address them."

Shares in Amplats were up almost 1 percent on Monday. The stock has shed 21 percent of its value in the past year, compared to a 9.25 percent drop by the JSE's platinum index <.JPLAT>.

BLEEDING CASH

A new union, the Association of Construction of Mineworkers Union (AMCU), has muscled in on the turf of the National Union of Mineworkers (NUM) using a more confrontational approach than the NUM, which represented at least four fifths of South Africa's mining workforce and has links to the government.

The unrest began a year ago as AMCU took on the NUM at Impala Platinum .

It flared again in August at Lonmin over pay and 34 protesters were killed by police at Lonmin's Marikana mine in the deadliest security incident since apartheid.

Since then, AMCU has won majority membership at more operations. Griffith said that the new union now represented around 40 percent of the Amplats workforce.

Although Amplats mines are operating normally again, the company also faces operating challenges at its Rustenburg mines because of the depth of some reefs.

Griffith admitted the company was bleeding cash and could not afford to do nothing. He said supplying unprofitable ounces into an oversupplied market made no sense.

"We have got enough space, we have got headroom, we are not about to breach covenants but we have to turn around the profitability of this company," he said.

Amplats aims to cut output by almost a fifth - or 400,000 ounces a year - reducing its production target to between 2.1 and 2.3 million ounces a year.

This, coupled with possible supply disruption due to strikes, is likely to help balance platinum supply with lower demand and lead to higher prices.

Amplats believes it would take four months to implement the strategy outlined in its review, but a government and union outcry over the mass dismissals could still derail the plans.

That would jeopardize hopes of a return to dividend payments by 2014.

"This year was always going to be a turnaround year that is cash neutral and low in profitability due to the once-off costs of retrenchments and social plan costs," said financial director Bongani Nqwababa. 2013 was never going to be a bumper year but we are very positive about 2014 onwards."

(Additional reporting by David Dolan; Editing by Ed Cropley and Tom Pfeiffer)

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