Brad Mills, CEO, Lonmin
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» Lonmin studies potential 650,000 oz mine
» Lonmin to build third furnace
» Lonmin plan draws scepticism
» Lonmin to lose 40,000 oz in burnout

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Lonmin's operations ague worsens
Allan Seccombe
Posted: Mon, 16 Jul 2007

[miningmx.com] -- A LOSS of key managers, decreasing grades, reduced recoveries at its plants forced Lonmin to revise its full-year platinum sales expectations to between 820,000 and 840,000 ounces, a big fall from its previous forecast of up to a million ounces.

Lonmin, the world’s third largest platinum producer, came in for a pounding from the market and analysts for its third quarter performance, which reflected the difficulties the London and Johannesburg-listed company is experiencing.

Commenting on forecast share earnings, Simon Toyne, an analyst for Numis Securities said: "All else being equal, we believe the change in guidance implies FY07 downgrades of 20-25%". Lonmin’s London-based CEO Brad Mills has been criticised for not spending enough time in South Africa. He said he spends a week to ten days a month in the country, but the loss of senior leadership had been felt. He felt his time in South Africa was “more than adequate” time spent overseeing the operations.
left an awful lot to be desired
Until Mohamed Seedat joins Lonmin as president of the South African operations in September, that position will have been empty for six months. Its executive vice-president role has also fallen vacant.

"We note that the top management of the group (and its “head office” function) resides in London, almost 6000 miles from all the core operations," said Steve Shepherd, an analyst for JP Morgan. "The other London-listed platinum producers keep their key management in South Africa," he said. Said Mills: “We had two key roles that have been vacant over the period of these changes and that impacted overall communications and guidance to the guys on the ground". It was proving difficult to change the mindset of engineers and production crews that while tonnes are important the ounces they contain are even more so, he added.

In the third quarter of its financial year, Lonmin said the poor recoveries at its concentrators stemmed from a 10% change in grades coming from increased production from the Eastern side of its Marikana operation. This less-than-ideal ore will continue until the new K4 shaft comes into production in 2009.

"Of particular concern are the unexpected issues in mining the (eastern) side of Marikana which may point to a more deep rooted communication problem within the company,” Cazenove said in a report after the results were released.

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The hold up in saleable ounces for the full year is now with the base and precious metals refineries, which will be unable to process the full waiting inventory of material. Lonmin is holding back up to 90,000 ounces for processing in 2008 because it wants to realise full margin on those ounces.

Charles Kernot from Seymour Pierce said Lonmin had once again missed its targets. “The overall performance has left an awful lot to be desired,” he said. “Quarter on quarter we seem to be getting yet another excuse for the company missing targets.”

Lonmin’s shares were last down eight percent in London at 3,943 pence each, while in Johannesburg the shares were down eight percent at R561.60 on thin volumes.

Mills declined all requests on a conference call to forecast 2008 production and costs, saying those would be available when the full-year to end-September results are released.

Lonmin returned the Number One smelter to full production during the third quarter, which was run alongside the Merensky smelter, handling 63,000 tonnes of concentrate.

Platinum sales for the nine months were 477,639 ounces and 897,661 oz of total platinum group metals. By running the two smelters together, the stockpile built up when the Number One smelter was refitted reduced by two thirds.

Mills said the combined smelters have a capacity in excess of what Lonmin expects to mine and concentrate from its own operations and there could be an opportunity to toll treat material from other companies.

"Lonmin-of-old used to be known as a company that under-promised and over-delivered – things seem to us to have radically changed," said Shepherd.