[miningmx.com] – LONMIN extended job cuts by 2,500 taking total planned reductions to 6,000 positions since May in a response to criticism it had buried its head in the sand amid a heavily declining platinum price.
It would also reduce platinum output by 17%, equal to some 100,000 ounces over two years – all of which it said was loss-making and which included putting its first generation shafts on care and maintenance and stopping development at its Hossy and Newman shafts. Some 3,500 jobs cuts were unveiled by the company on May 7.
The output cuts would reduce concentrator capacity and extend to overhead and support service structures, it said.
“Our objective is to save the majority of the positions in the company and create a sustainable business by taking urgent action and maximising liquidity to protect the business,” Lonmin said in reference to analyst estimates that cash flow of the company was under severe pressure.
“All costs, not just labour costs, have to be reduced and productivity improved if the business is to be sustainable,” it said.
These comments come closest to the frankest admission yet by Lonmin management that its future liquidity is at stake at the current platinum price. It has been criticised by analysts for failing to disclose the cash generating or lossmaking status asset by asset.
“At spot commodity prices, and after reducing capex to $120m, and harvesting Hossy and Newman ore reserves, we believe Lonmin is likely to be marginally cashflow negative through 2016 with minimal EBITDA,” said Andrew Byrne, an analyst at Barclays Capital in a morning note.
The market didn’t seem overly impressed with shares in Lonmin falling 11.5% – equal to just under R1bn – on the Johannesburg Stock Exchange, and valuing the company at a record low of R7.6bn.
The UK-listed platinum producer also said it was seeking to refinance the balance sheet, although it declined to provide details of how it might address its capital structure, saying simply “all measures would be considered”.
Lonmin faces a potential refinancing in less than 10 months when a $400m revolving credit facility matures, and two months after that when three R660m facilities ($170m at $/R of approximately 12/1) fall due.
“We believe the company will have to have plans in place to refinance the business by early 2016 if metal prices remain at current levels,” said Macquarie Research today.
“We will reduce our high-cost loss-making production through the orderly closure of the Hossy and Newman shafts,” said Ben Magara, CEO of Lonmin. “These are tough decisions, but are done to ensure the future of the business,” he said in a conference call with media following the group’s third quarter production overview.
Refined platinum production came in at 241,170 ounces which included material that had been held in stockpile dating from last year’s five month platinum strike. Sales totalled 231,778 ounces in the quarter but Lonmin said dollar sales were “significantly weaker than prior year periods”.
Magara said the extension of its restructuring was in line with its view that the platinum price would continue to be weak for the next two years. “We are creating a stronger more sustainable company that reflect the realities of the market,” he said.
Macquarie Research said it remained neutral on Lonmin as “… the risks remain skewed to the downside as metal prices remain way below our assumptions for the current year as well as future years”.
Lonmin said in its third quarter announcement that it could no longer stave off the pressure of a relentlessly weakening platinum price down to $964/oz on July 22, a fall of 14.4% from the $1,126/oz recorded at its interim results in May.
“Management has worked tirelessly to contain cost increases and we remain confident that we will produce at a unit cost within our cost guidance for the full year which already includes anticipated savings,” it said.
