THE world's largest platinum producer, Anglo American Platinum (Amplats), is expected to make sweeping changes at its South African operations after it warned yesterday its earnings were likely to be at least 20% down.

Amplats has embarked on a review of its business to restore it to profit. Analysts have said it will take a very close look at its joint ventures with smaller companies and may suspend loss-making shafts in its Rustenburg complex that are subsidised by more profitable mines in the group.

One analyst has estimated that rationalisation by the platinum sector could cost the country up to 40000 jobs.

Platinum mining companies in SA, which contributes about 80% of the metal for global demand from autocatalyst, jewellery and industrial users, have come under pressure from stagnant prices, rising costs, labour action and safety-related stoppages, which have all combined to erode profit margins in an oversupplied market.

High-profile casualties were Aquarius Platinum, which suspended its Marikana and Everest mines, taking 120640oz of platinum off the market, and Eastern Platinum, which stopped work on a 100000oz-a-year platinum group metal mine and cut back mining at its flagship Crocodile River mine.

Aquarius shared its Marikana mine with Amplats. Other operations, such as Atlatsa's Bokoni mine, in which Amplats has a stake, could also be suspended, analysts say.

Junior miner Platinum Australia went into administration last Friday because of operational issues and poor metal prices.

Amplats said yesterday it could not state with certainty how much lower its earnings for the six months to end-June would be compared to the same period a year ago.

"In view of volatility in exchange rates and metal prices, Anglo American Platinum cannot, with reasonable certainty, quantify the extent of the decrease in expected earnings, other than that the decrease is expected to be more than 20%," it said yesterday.

"The expected decrease in earnings is primarily as a result of lower sales volumes and lower metal prices achieved compared to the comparative period," it said. Its shares fell 5% to R460,11, the second biggest faller in yesterday's session.

Analysts pointed out steady declines in platinum sales this year, with year-on-year falls in monthly production between January and April ranging between 21% and 47%, with some of the decline attributed to a six-week strike at Impala Platinum at the start of the year.

But there have also been processing problems at Amplats.

The average rand price for the basket of four minerals that platinum miners produce is R10 339/oz in the year to date, compared to an average R10525 in 2010 and R10860 last year. Costs have soared on above-inflation electricity and wage increases, hitting profit margins hard.

Kobus Nell, an analyst at Stanlib, said it would be difficult to suspend many more mines because of the political sensitivities around such a decision, that would result in more people becoming unemployed. One mining source reckoned up to 40000 jobs could be at risk in the platinum sector. Not only that, but the National Union of Mineworkers is fighting a losing battle to retain members after the successes of newcomer the Association of Mineworkers and Construction Union, on mines near Rustenburg where its more militant, hardline stance has won it supporters.

The National Union of Mineworkers was likely to harden its stance towards layoffs and shutdowns, making it more difficult for mining companies to adjust their businesses, analysts said.

London-based metals analysts, GFMS, estimated the platinum market to have a surplus of about 600000oz last year and it forecast another surplus this year.

"If that's an accurate figure then a lot more needs to happen," said Mr Nell, adding the market ultimately needed to see growth in demand for the metal because pessimism around offtake was overshadowing news in the market of production cuts.

Amplats, which releases results on July 23, could well announce some scaling back of production at that time, he said.

Amplats has said that the full results of the review will be unveiled towards the end of the year.

Credit Suisse, in a note earlier this year, estimated Amplats could scale its 2-million ounces of own-production to 1,5-million ounces.

"Although we see the ultimate target of creating a more streamlined, higher margin, higher growth Amplats as positive, without substantial closures and divestments (which we do not expect), we do not see significant value unlock opportunities and there are several major implementation challenges," it said.