[miningmx.com] – LONMIN shares were untroubled by the release of the group’s first quarter 2016 production statistics in which it reported an 11% drop in mined output to 2.5 million tonnes (mt) owing to a sharp increase in Section 54 safety stoppages.
According to the Lonmin management report, Section 54 stoppages increased “significantly” and were linked partly to the fatality at Rowland shaft in October last year. Production lost due to the stoppages in the first quarter of 2016 amounted to 197,000t (Q1 2015: 7,000t).
Lonmin said a safety improvement plan had been developed to “curb the increase in lost time injuries and Section 5 stoppages” and that “each mine has a 90-day safety turnaround action plan in place to address site-specific safety challenges.”
The main reason for the positive investor response appears to be that Lonmin has maintained its production guidance for the year to end-September at 700,000 ounces of platinum, and there were no unexpected surprises from the on-going implementation of the group’s restructuring plan.
As of January 27, some 5,077 workers had left the group representing 84.6% of the planned head count reduction with no adverse industrial relations repercussions, so far.
Refined platinum production was also 22% higher at 171,441 oz for the December quarter as “the smelter complex operated well, unlike December 2014 which had smelter shutdowns”, according to Lonmin.
On the negative side, the group was still EBITDA (earnings before interest, tax, depreciation and amortisation) negative for the quarter on its disclosed unit costs and revenue numbers as JP Morgan Cazenove analysts Allan Cooke and Abishek Tiwari pointed out.
Unit costs were held to a 5.5% increase reaching R10,949 per platinum group metal (pgm) ounce which was still above the average rand basket price received of R10,859 per pgm ounce.
The analysts remain positive overall, commenting: “On the operating costs front, the December costs were adversely impacted by the Christmas break and management expects costs to decline over the year.
“Costs will also be helped over the rest of this year as the full effects of the restructuring are realised, in our view.”
Cooke and Tiwari said that net cash at end-December was $69m with $203m in available debt facilities after the group raised a net $373m through its rights issue in December.
“At end-FY 2015 net debt was $185m, so we estimate that the group had negative free cash flow of around $120m for the December quarter. Some of this cash movement likely relates to an around $100m pipeline stock rebuild in October, in our view, which management expects to unwind over the remainder of the year.
“Right sizing remains on plan according to it and most of the cash flow impact of restructuring has been incurred.”
A research note from Goldman Sachs described the Lonmin results as neutral and likely to have “limited impact on the stock post today’s announcement”.
“While Lonmin remains on the right track the key issue remains that the market is oversupplied. With Lonmin having successfully raised equity and refinanced its debt we believe the market remains in a structural surplus,” said Goldman Sachs.
