Anglo American Platinum, the world's top platinum producer, said it will mothball two South African mines, sell another and cut 14,000 jobs, risking a repeat of last year's strikes when about 50 people died.
In a review announced on Tuesday that is seen as crucial to reviving the fortunes of Anglo American, which owns about 80 per cent of Amplats, the platinum producer said it aimed to cut output by around a fifth or 400,000 ounces.
But analysts have cautioned the cut could be overstated, as it is based on production capacity that Rustenburg mines have not matched for several years. Against forecast production, the cuts may amount to closer to 300,000 ounces.
Amplats has said it probably fell to a full-year loss because of the 2012 strikes, which were centred on Rustenburg where most of the job cuts will fall.
The price of platinum rose over 2 per cent to 3-month highs, leaping past gold for the first since March last year, on concerns over supply.
Reaction was swift, with an Amplats labour leader threatening a strike across its South African operations if the indefinite closures, when they would be put on "care and maintenance", go ahead.
"If they put any shaft on care and maintenance, all of the operations will go on strike. Nothing like this will be allowed," said Evans Ramogka, labour leader in Rustenburg.
Activists brought many of South Africa's platinum and gold mines to a standstill last year in a wave of violent wildcat strikes. The unrest, rooted in a union turf war and aggravated by income disparities within the industry and low wages for dangerous work.
Around 50 people were killed in the violence that was unleashed including 34 striking miners at platinum producer Lonmin who were shot dead by police in August in the deadliest security incident since the end of apartheid in 1994.
If 14,000 jobs are lost, it will represent about 3 per cent of South Africa's mine labour force and set back government efforts to cut unemployment from over 25 per cent.
The ruling African National Congress (ANC) is losing support among mine workers before general elections next year. The National Union of Mineworkers (NUM), a base of ANC electoral support, is rapidly losing members to the militant Association of Mineworkers and Construction Union (AMCU) and other groups.
"As the NUM we are extremely disturbed by these job losses and we are asking workers to be united to defend their jobs," NUM General Secretary Frans Baleni told Reuters.
Amplats said it would aim to replace the jobs through supporting various housing and small business initiatives in the Rustenburg area but analysts said such work would likely be temporary and could hardly fill the gap.
"No jobs in the private industry can replace those mining jobs. They will not be able to replace those jobs with jobs of the same quality," said Peter Majors, a mining consultant at Cadiz Corporate Solutions.
The company's profitability is weak, even by the standards of the struggling platinum industry. Its operating margin over the last 12 months is a very lean 7.3 per cent, compared to the 13 per cent median of 7 of its industry rivals Its return on equity over the last 12 months is a decline of 0.4 per cent, compared to the industry median of growth of 6.4 per cent.
Amplats said two of its mines in Rustenburg, Khuseleka and Khomanani would be put on "long-term care and maintenance" – when mines are maintained so that they could be reopened in future but are not operated – because of their high costs.
Amplats also said it would "divest the Union mines at the right time – to maximize value under different ownership". Reuters reported on Monday Amplats was likely to sell Union.
Amplats chief executive Chris Griffith said on a conference call with reporters that the proposals were not a short-term response but were vital to "save the company".
"We must evolve to align the business with our expectations of the platinum market's long-term dynamics and address the structural changes that have eroded profitability over time," he said.
The proposals will have to be pushed through by new Anglo American chief executive Mark Cutifani, who will take over from Cynthia Carroll in April.
Mr. Cutifani hailed South Africa as an investment destination as he turned around bullion producer AngloGold Ashanti but is also a realist who will want to deliver for shareholders.
Investors applauded the moves. "It's good that they've made a good, strong first move and this will place them on a great footing to profit when the cycle does turn," said Nic Norman-Smith, chief investment officer at Lentus Asset Management in Johannesburg, which owns Amplats shares.
South Africa is home to about 80 per cent of the world's known platinum reserves, but soaring power and labour costs and depressed prices for the metal – used in autocatalysts to lower emissions – have conspired to make much of the industry unprofitable.
A tipping point may have been reached last year by the illegal strikes that hit production and bottom lines.