Lonmin recovering, but Magara elusive on after-capex cash

THERE had been less safety-related stoppages at Lonmin’s platinum shafts in the fourth quarter, and that the benefits of its restructuring had gained traction, said the R10bn firm’s CEO, Ben Magara.

However, he stopped short of confirming the group was producing cash after capital expenditure, adding only that his firm could survive at a rand basket price of R11,400/oz.

By way of illustration, the rand price of platinum today is about R13,414 per ounce which represents a slight R400 per ounce deterioration compared to the rand price of the metal at the beginning of the year.

Lonmin said in its third quarter report that competing and complex themes – including work stoppages, wage talks and the occurrence of holidays might interrupt normally smooth progress in fourth quarter production. Lonmin is due to report its fourth quarter and full-year figures in November.

In an interview on the sidelines of the Joburg Indaba conference, Magara said there had been less stoppages in the quarter and that he was optimistic the firm would meet its 700,000 oz production target.

“We have worked very hard on relationships with DMR [Department of Mineral Resources], and hard on safety first. We have seen an acceptable level of section 54s,” he said.

Section 54s entitle the DMR’s local office to shut mines or sections of mines in the event of a serious accident or safety transgression.

“We have been making sure that we share in the economic realities with the inspectorate,” said Magara. Lonmin reported a total of some 243,000 tonnes in lost third quarter production due to Section 54 safety stoppages compared to 260,000 tonnes in the third quarter of the previous financial year.

However, Magara said there had been progress in terms of benefits derived from the restructuring of 6,000 employees at its operations – a process was not lost on the Association of Mineworkers & Construction Union (AMCU).

“After losing 6,000 jobs, employees have a strong understanding of economics. We have a sense that this is also being reflected in union discussions,” he said.

Joseph Mathunjwa, president of AMCU, told Bloomberg News on October 6 that wage talks that began in July had not been “as hostile as it was in 2013” when he led a five-and-a-half month strike.

“There’s a sense of understanding where the unions are coming from and also there’s a realization in terms of the price of platinum,” Mathunjwa told the newswire service. AMCU membership on Lonmin’s operations comprised 80% of all employees and about 90.7% of category four to mine employees.

Less clear, however, was if Lonmin was free cash flow positive at the current platinum price, even with improvements in costs. “We are committed to be cash positive after capex,” said Magara.

“The high cost reduction and retrenchment programme has gone well and that has given us confidence that this cash [generation] is getting better,” he said.

Net cash fell $23m to $91m as of end-June owing to to $51m in capital expenditure and working capital spent. As a result, available liquidity position fell to $451m.

“Despite management’s best efforts, Lonmin remains free cash flow negative,” said BMO Capital Markets on August 1. “Although Lonmin continues to have access to significant liquidity in undrawn credit facilities, the longer term outlook for the company remains challenging,” it added.