Brad Mills, CEO, Lonmin
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Lonmin sets 2m oz platinum target
Allan Seccombe
Posted: Wed, 15 Nov 2006

[miningmx.com] -- LONMIN has made an offer to buy TSX-listed AfriOre and its Akanani platinum project for $441m as part of its plans to grow output to two million ounces beyond 2012 by which time it will be producing 1.4m oz of refined platinum.

Lonmin had record mine production of one million oz of platinum in concentrate and sales of 952,682 oz of platinum and total PGM sales of 1.8m oz in the year to end-September. The company paid a final dividend of $0.50, bringing the total dividend for the year to $1 a share.

"Beyond 2012 we are developing further growth options of a high quality investment portfolio and an exploration programme. We have set ourselves a target of capturing growth options that would allow our mine production to reach two million ounces of platinum a year," Lonmin CEO Brad Mills told reporters on a results conference call.

"The acquisition of Akanani represents the first step in achieving this target," he said.

to reach two million ounces of platinum
Lonmin will spend $148m over the next two years to raise capacity at its process division to 1.4m oz of refined platinum. The acquisition of AfriOre and building a mine and concentrator at its Akanani platinum prospect will total between $1bn and $1.14bn.

Mills did not comment on the cost to raise capacity to 2m oz or the precise timing. However, if all goes well, AfriOre's Akanani will be brought into production from 2013 after a two-year feasibility study and a four-year construction phase.

"It's a significant step up in capacity (at the process division) and it will take significant capital to do that next step," Mills said.

Lonmin said at its interim results in May this year that it had set itself a target of 1.3m oz by 2010.

The concentrate for the 1.4m oz target will come from raising production at the Marikana project to 1.175m platinum oz from its 1m oz target by 2008. The Limpopo mine will produce 87,000 oz from 2009, up from a steady state base case of 75,000 oz, and the Limpopo Phase Two project will produce 93,000 oz from 2012.

Pandora, at full production, can add another 55,000 attributable oz from 2012.

Lonmin is on track to have 50% mechanisation at its operations by 2010.

As part of its plans to grow to 2m oz, Lonmin has started a scoping study at its Loskop project, in which it holds a 50% stake. It will look for additional ounces from exploration projects and possibly acquisitions.

Asked if there were an acquisitions in the pipeline, Mills said the company has its hands full at the moment and its attention was more or less solely focussed on projects on the Bushveld Igneous Complex, the richest known platinum province in the world.

Lonmin had a difficult year with its smelter and precious metal refinery at its process division. Its base metal refinery has proved to be bit of a bottleneck in the division. The Merensky furnace is being re-commissioned to provide more stability in the division.
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"We are spending a lot of money on the process division... We are going to spend a fair bit of capital on the smelter and base metal refinery to resolve bottleneck issues in the current year. We are committed to resolving all the processing issues so we can process 100% of our own concentrate and hopefully get ahead of that a little bit in the next several years," Mills said.

Part of the work is switching the precious metals refinery to an automated process from a manual one by the end of 2007.

"We certainly hope that we will be able to put behind us issues we have faced over the last several years with the processing division," he added.

The division's problems with unplanned outages for the smelter and precious metals refinery meant refined metal sells fell below those of the previous year at 952,682 platinum oz and 1.8m oz total PGMS.

AfriOre has three early-stage gold projects in Africa. Lonmin will evaluate them to see if it is worth developing them or selling them to someone else.

Numis Securities analyst Simon Toyne said Lonmin's cost were a little higher and its volumes a little lower than expected.

"We expect to need to upgrade cost and capex assumptions given results for FY06 and guidance going forward and therefore see downgrades in profits in our DCF (discounted cash flow) calculation for the next few years," Toyne said in a note.

"Longer term value uplift if AfriOre is acquired and the project executed could limit the DCF impact but the value case on Lonmin is still much less attractive than for the other large UK miners in our view. Our relatively cautious view of Lonmin is unchanged," he said.