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Lonmin falls short yet again
Brendan Ryan
Posted: Wed, 23 Apr 2008
[miningmx.com] -- Lonmin’s long-running production problems continued in the March quarter and have resulted in yet another cut in the group’s forecast platinum output for the year to end-September.
Production shortfalls from Lonmin – and in particular from Anglo Platinum which is the world’s largest platinum producer – are the main reason underpinning sky-high platinum prices above $2,000/oz which could rise even higher.
A presentation on commodities given this week by Investec Asset Management said Investec was predicting a platinum supply shortfall for 2008 of 400,000oz but noted other forecasters were predicting shortages of up to 600,000oz.
Lonmin today revised its estimated platinum sales for financial 2008 to 775,000oz which is 14% down on the estimate of 900,000oz made by CEO Brad Mills in November last year.
In January last year Mills predicted that
Lonmin would produce about 1Moz during its 2007 financial year but, instead, production came in at 793,584oz.
Main reason for the latest production shortfall is that Lonmin’s mining operations are not producing at forecast volumes with total tonnes mined for the March quarter falling 16% compared with the comparable period of 2007. Grade has also fallen.
For the six months to end-March Lonmin mined a total of 6Mt which was 13% down on the comparable period of financial 2007.
Lonmin blamed this on a number of factors. The production report published today stated, “our mining operations were significantly affected by a combination of the four-day Eskom power outage at the end of January; a number of safety-related shutdowns as we continue our commitment to safe production and, as we highlighted in our first quarter production report, by high levels of absenteeism around Christmas and Easter, particularly among key skills groups.”
But that’s
not the full story according to platinum industry analysts who point to the negative impact of Mills’ management style and his insistence on forcing Lonmin to change over to mechanised mining methods.
That has resulted in an exodus of top Lonmin executives while the mechanised operations are battling to produce at forecast volumes of output as well as grade.
A number of former Lonmin executives now work for Ridge Mining – headed up by former Lonmin MD Terence Wilkinson . Others, most notably former mining operations executive Stompie Shiels, have moved to ARM.
While mechanised mining can be introduced successfully in some areas some analysts believe Lonmin is implementing it in areas which would be better mined by conventional mining methods.
One of Mills’ peers in the platinum industry has described him as a mechanisation “zealot.”
Significantly, the latest Lonmin production report said underground milled head grade was
4,8% lower than the previous year at 4,72g/t “as a result of the increased percentage of lower grade development ore from the Marikana mechanised shafts and other ore mix issues.”
Analysts also feel Lonmin was too optimistic in its forecasts for its Limpopo operations. This is the former Messina Platinum mine developed by Southern Era Resources which battled to get the mine intro production and eventually sold out to Lonmin.
The Lonmin production report stated that; “our Limpopo operations produced 126,000t for the quarter, a decline of 34% on the prior year period. The focus at this operation remains on development to build ore reserve flexibility.”
The detailed statistical breakdown shows that platinum production at Limpopo dropped 54% in the six months to March to 8,589oz from 18,759oz in the previous comparable period.
At the group’s flagship Marikana mines the production drop in platinum over the same period was 19,5% to 319,543oz
from 397,103oz.
In total, Lonmin’s production dropped 21,8% to 346,892oz for the six months from 444,136oz previously.
To meet its latest production forecast Lonmin must produce 428,108oz during the second half of its financial year.
According to Lonmin the guidance to reach 775,000oz is based on “a steady improvement in the underlying performance of our mines in the second half as the initiatives implemented by the new mining team gain traction. “
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