JOHANNESBURG Anglo Gold Ashanti (ANGJ.J), the world's third-largest bullion producer, cut its dividend and warned of restructuring at its South African operations after weeks of wildcat strikes wiped out $400 million in output.
"We are in the middle of a review of our South African operations and there is no doubt that we are going to have to do some restructuring work," chief executive Mark Cutifani told journalists on a conference call on Thursday after the group reported third quarter results.
Restructuring could mean marginal shafts are closed, leading to job losses at a time when social tensions are running high in South Africa's mining communities and companies are under political pressure to avoid taking such a course.
The decline of South Africa's once dominant mining industry has been hastened by a wave of illegal strikes that have rocked its gold and platinum sectors this year. The violence unleashed has killed around 50 people and unnerved investors.
South Africa's gold output fell 11.1 percent in volume terms September compared to the same month last year, according to official data released on Thursday while production of platinum group metals slid 17.8 percent.
Global mining giant Anglo American (AAL.L) is also reviewing the viability of shafts run by its platinum unit in South Africa, Anglo American Platinum (AMSJ.J) (Amplats), the world's largest producer of the precious metal.
In the case of AngloGold - which is not part of Anglo American - the labor unrest is seen adding pressure to less-profitable and older operations where reserves have been in decline as shafts plunge deeper into the earth, adding to costs.
"The onset of the strike action has accelerated the imminent decline of mature mines and accelerated the likelihood of the downsizing of the operations," said David Davis, mining investment analyst at SBG Securities.
This could include AngloGold's Kopanang mine among others.
AngloGold lost around 43,000 ounces to the strikes in the third quarter and has made provisions for a loss of 250,000 ounces in lost output for the current October to December reporting period - about $425 million at current spot prices.
The 250,000 ounces would represent about a quarter of global output for the company, which has been diversifying and gets about 60 percent of its production from outside South Africa.
AngloGold cut its quarterly dividend in half to 6 U.S. cents as it reported a six percent drop in third quarter earnings on Thursday.
Production fell 4 percent to 1.03 million ounces from the previous quarter and it cut capital expenditure cut by $200 million to between $2 and $2.1 billion as it moved to counter the impact of the strikes and ensure financial flexibility.
Cutifani also warned that rapidly rising wages, which have been outpacing inflation in recent years, needed to coincide with productivity boosts.
"If we are going to continue to give pay rises above inflation those pay rises have to be supported by underlying productivity increases. That is the only way it is going to happen or their will be large scale reductions in employment," he said.
While wage deals have been perceived in the boardroom as generous, the view from the rank and file is very different.
Workers at the bottom end of the scale are coming off a very low base for dangerous work. And the average miner also has eight dependents, and so wage hikes do not go far especially in the face of accelerating food inflation.
(Additional reporting and writing by Ed Stoddard; editing by Keiron Henderson)