Brad Mills, CEO, Lonmin
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Smelter woes weigh on Lonmin
Allan Seccombe
Posted: Wed, 25 Oct 2006

[miningmx.com] -- LONMIN PLATINUM exceeded its target and notched up a record production of 1.017m oz of platinum-in-concentrate for the year to end-September, but warned that its costs were likely to be higher at its Marikana operation.

Analysts said the increased costs forecast and the sale of 20% of its platinum group metals in the lower-value concentrate form had caused them to lower their earnings expectations for the full 2006 financial year.

“In the last quarter of the year we achieved stable smelter operations and the Process Division recovered quickly from September's fire in the precious metal refinery,” CEO Brad Mills said of the group’s financial year production results.
require us to revisit our earnings forecast
Lonmin had an 11-day shutdown at its smelter in April when a slag leak was detected.

Lonmin had told the market after the fire that it would sell 940,000 to 950,000 oz of platinum in 2006, deferring some 10,000 oz to the next financial year. Platinum sales for the year were 952,682 oz compared to 913,000 the year before.

“During the year we sold approximately 20% of our full year's PGM sales as concentrate due to our Smelter rebuild programme and other processing outage issues,” Mills said. “These sales carry a lower margin than refined metal sales.”

Lonmin’s sales increased 7.4% to 1.82m oz of platinum, palladium and rhodium.

“This was more than we had expected and will require us to revisit our earnings forecast for financial year (FY) 2006,” said JP Morgan analyst Steve Shepherd, who will issue a revised forecast at a later stage.
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“As a result, Lonmin's top line will be lower than we currently forecast in FY 2006. Clearly, this is a once-off effect that would only be repeated if the group suffers further major metallurgical outages,” he said in a note.

Lonmin’s costs climbed in the second half of the year and it now expects full-year costs at Marikana net of by-product credits from nickel and copper revenue to be R2,400 to R2,450 per PGM oz sold. This compares to the R2,300 to R2,400 range the company had previously told the market.

“The net impact of slightly higher costs and production is a modest negative to forecasts. For FY06, we are likely to lower our EPS (earnings per share) estimate from 343c to 339c. For future years the assumption of a slightly higher cost trajectory will lower forecasts by 1-2%,” said Simon Toyne from Numis Securities in London, who has a 'hold' recommendation on the company’s shares.

Lonmin will release its final results on 15 November.