[miningmx.com] – ANALYSTS expect the platinum price to correct in the coming weeks when Lonmin restarts its processing division.
“Clearly, the automotive makers still have a lot of inventory,” said one UK analyst who added that the platinum price had underwhelmed during the 16-week strike at the Rustenburg mines of Lonmin, Anglo American Platinum (Amplats) and Impala Platinum.
“It tells you that the market is not as tight as some people were suspecting,” he said.
Commenting on its interim results published today, in which the UK platinum producer posted a 35.5 US cents per share interim loss against a 13.3 cents per share profit at the interim stage in the 2013 financial year, Lonmin said it planned to restart its three concentrators and furnace in May to process remaining material in its pipeline.
Platinum sales for the half year were 263,675 ounces, some 19% lower than the prior year period. Platinum Group Metal (PGM) sales totalled 547,413 ounces, 6.7% lower than the prior year period, the group said.
“Theoretically, Lonmin could start processing this week and start selling metal in the next week,” said another analyst. “So the platinum price will probably go down. The market is not really as tight as it should be,” he said.
The price of platinum was at $1,440/oz around the time the Association of Mineworkers & Construction Union (AMCU) called its strike in a bid to force platinum producers to accept a basic R12,500/oz for all entry-level workers. It rose to $1,480/oz in mid-March but has since retreated to $1,430/oz, albeit nearly 4% higher than the level at which it started the year.
Lonmin said it had idled production in order to conserve cash, but the precarious nature of the business is for everyone to see. Cash burn was $133m in the period which was funded through short-term and long-term debt (cash actually improved). Net cash, however, declined from $201m to $71m and the company said it would rely on its undrawn facilities while it restarts processing.
Ben Magara, Lonmin CEO, said in the results presentation that the company was on a firm footing, however he added “… a delayed resolution of the strike action would require the group to take other operational measures to ensure that it has sufficient
funds to facilitate all ongoing operations on start up”.
Restructuring – and job losses – were imminent, even though there was some evidence that AMCU members were starting to return to work following Lonmin’s efforts to appeal directly to employees.
The strike was also impacting other areas of the business.
Lonmin said that the longer the strike continued, the greater the risk that irreparable damage would be sustained at the firm’s assets. The operations would become unsafe and “… more costly for us to rehabilitate and safely re-start,” Lonmin said.
From a capital project point of view, Lonmin also announced that its K4 shaft would not be returned from care and maintenance in the 2015 financial year as planned. This would mean production from K4 would provide replacement ounces rather than production growth as first planned.
In addition, the interruption created by the strike was delaying efforts to conclude the group’s empowerment structure which is required to be complete by the end of 2014 in terms of the mining charter.
Lonmin also announced it had impaired the loan to partner Shanduka Resources by $160m, after making a downward revision on PGM prices which had the effect of reducing the value of Incwala Resources, its empowerment vehicle.
