Implats embarks on strategic review after S.Africa strike

* Results of review to be unveiled in December

* Share (Frankfurt: 5CI.F - news) price tumbles

* Implats CEO says will 'mechanise where we can'

* Earnings fell 74 percent in year to end-June (Adds analysts, CFO, latest share price)

By Ed Stoddard

JOHANNESBURG, Aug 28 (Reuters) - World No.2 platinum producer Impala Platinum (Other OTC: IMPUF - news) said on Thursday it had launched a strategic review that could include a shift to mechanisation in the wake of a five-month strike that hit its Rustenburg operations in South Africa.

The company also warned of a tough time ahead on the cost front as it struggles to ramp up production after the strike and rolls out pay increases of up to 20 percent.

"Costs in 2015 are not going to be pretty," Chief Executive Terence Goodlace said in a conference call with journalists.

The results of the strategic review will be unveiled in December and Goodlace said it might not entail job cuts at Rustenburg, where he said "we don't need less labour, we need more labour" as it strives to expand the operation.

But he said the review would also be looking at new technology and boosting productivity in the labour-intensive shafts around Rustenburg, which rely heavily on a poorly-educated migrant workforce drawn from rural areas.

"We are looking at modernising the workplace and will mechanise where we can," Goodlace said.

Mechanisation almost always refers to the replacement of human labour with machines and so it would ultimately mean a reduced workforce.

But the platinum belt around Rustenburg, with its narrow seams, presents geological and engineering challenges to mechanised mining methods.

SHARES DROP

Analysts said the market wanted a clearer picture before December of what restructuring steps the company might take.

Implats shares fell 7.6 percent, making it the biggest decliner by far on Johannesburg's Top-40 index, which was down almost 1 percent.

"It is not clear at all what they are going to do and the market does not like uncertainty," said one industry analyst.

Citi's Johann Steyn said in a note to clients that it did "not expect good news to come from Implats over the next six to 12 months," but that much of the bad news was priced in and so the bank was maintaining its "buy" rating on the stock.

A painful restructuring is expected in South Africa's platinum sector, in large part because of the strike by the Association of Mineworkers and Construction Union (AMCU), the longest in the nation's history, which ended in June.

Prices for the precious metal used for emissions-capping catalytic converters in automobiles also remain depressed.

Implats' rivals Anglo American Platinum and Lonmin were also hit by the strike and Amplats has said it plans to sell or spin off some of its mines.

Lonmin (LSE: LMI.L - news) said this week it had not yet decided on the size and shape of any restructuring. Industry sources have told Reuters the company is looking at a blueprint which will include the shutdown of some shafts and lay offs.

Job cuts are a thorny issue in South Africa, where the unemployment rate is close to 25 percent, and in the platinum belt could trigger strike calls by AMCU, whose members have downed tools in the past to protest against planned lay-offs.

EARNINGS, PRODUCTION DOWN

Implats lost over 300,000 ounces to the strike, which would be worth around $450 million at current spot prices. Group production fell 25 percent to 1.178 million ounces.

Goodlace said that, as the company ramped-up operations, it expected to produce 250,000 ounces at the strike-hit Rustenburg shafts in the six months to the end of December, compared to 390,000 ounces last year - underlining the lingering impact of the stoppage.

Implats said its headline earnings per share slumped 74 percent to 86 cents in the financial year to the end of June, in line with guidance it gave earlier this month.

But its balance sheet held up relatively well as it benefited from a weaker rand currency against the U.S. dollar, which lifts platinum's price in local terms, and reined in costs to preserve cash.

Its net cash at the end of the year stood at 4.3 billion rand ($404 million) compared to a restated 4.1 billion rand at the end of its 2013 financial year.

Chief Financial Officer Brenda Berlin said much of that cash would be depleted in the first half of the current financial year as the strike-hit operations ramp up, but the company expected to rebuild its cash position in the second half. (1 US dollar = 10.6320 South African rand) (Editing by Tom Pfeiffer)