[miningmx.com] – LONMIN gave further evidence it was on the recovery trail despite the blowout of its furnace No 2 which would hamstring the platinum firm’s ability to sell higher-than-guided metals-in-concentrate production.
Lonmin CEO, Simon Scott, due to be replaced by Anglo American Platinum (Amplats) executive Ben Magara on July 1, said metals-in-concentrate production for the financial year would be in excess of 700,000 ounces. This compares to the guided production figure of 680,000 oz.
However, the failure of the company’s furnace No. 2 would result in a significant lock-up with Scott saying that Lonmin would seek the most advantageous means of selling the material during the year. As a result, platinum sales would remain at the stated level of 660,000 oz for the year.
The metal lock-up would be helpful to the platinum group metal market that Scott said would be in deficit, a position helped by Amplats decision to press ahead with restructuring of its Rustenburg opeations, albeit on a lower scale.
Nonetheless, the platinum price would remain constrained for at least a year owing to the existence of several months worth of metal supply and sluggish growth in the European diesel-powered automotive market, said Scott.
All in all, it was a good six months reporting period for Lonmin (ended-March 31). Saleable production increased 2.4% to 326,142 oz compared to the corresponding period of the previous financial year. Unit cost increases were contained to 5.8%.
The outcome was a very robust improvement in operating profit: up to $90m compared to $14m in the previous financial year. Earnings per share increased to 13.3 cents compared to a loss previously of 6.3c/share.
The market, however, liked what it saw. Shares in Lonmin gained 6.4% at the time of writing on the JSE and was last trading at R41.20/share.
Following its $767m rights issue last year, Lonmin removed all debt but the balance sheet is still a cause for concern. The company posted a trading cash outflow of 17.2c/share and a free cash outflow of 31.9c/share, worse than the 22.9c/share outflow in the previous financial year.
Commenting on Lonmin’s exposure to South Africa’s fluid labour relations market, Scott said wage talks due to kick off later this year would be “a challenge”.
Lonmin signed an October wage increase agreement last year, but Scott said it was essential the group engaged earlier than usual. “We are responding inclusively to changing labour conditions,” he said.
“Clearly, the industry is challenged. The ability to sustain wages is constrained. If we see an increase in the cost base there is the rising likelihood there will be further shrinkage. But we are positive on wage talks,” he said.
As with many of South Africa’s platinum mines, the new majority union at Lonmin is the Associated Mineworkers & Construction Union (Amcu) which supplanted the National Union of Mineworkers (NUM).
Lonmin had not yet been able to sign a recognition agreement with Amcu and the matter has been referred to arbitration which Scott said he welcomed.
