[miningmx.com] – LONMIN today unveiled plans to trade out of the current depressed platinum price, a strategy that would see it harvest old shafts, optimise newer ones, and re-deploy many of its 28,000 staff as it sought to save R2bn over the next three years.
The plan is a far cry from the ‘imminent restructuring’ that Lonmin said was inevitable during the teeth of the five-month platinum strike earlier this year. Instead the company aims to sell more platinum in 2015.
It forecast sales of 730,000 platinum ounces during its 2015 financial year which, in the view of Investec Securities, was a politically-charged decision because lowering output would mean job cuts and possible strike action. In 2014, Lonmin sold 441,684 oz and 696,000 oz in 2013.
Ben Magara, CEO of Lonmin, said he had intended to close the firm’s Hossy shaft as this was among the most high cost sections of the business. It had also suffered from deferred capital spend as Lonmin trimmed its balance sheet over the years.
In the end, however, Magara said he had been encouraged by the response of labour to the shaft’s plight after it lifted productivity.
“We have seen a massive improvement [at Hossy]. It is mining 110,000 tonnes/month (ktpm) to 115ktpm [against capacity of 120ktpm] so we have put our plans on hold,” said Magara in a conference call this morning.
He was commenting following the publication of Lonmin’s full-year operating and financial results ended September 30, 2014 in which it posted a taxed loss of $203m representing a $400m reversal in the bottom line against its $198m profit in 2013.
For shareholders, this was a 33 cents per share loss for the 2014 financial year compared to a 31.2c/share profit previously. The financial performance was largely owing to the strike in which some 391,000 ounces of production were lost, it said.
“We had hoped to see more cutting of capital spend and perhaps curbing of output, although to do so would be challenging politically as it would require reducing the work force at certain shafts that could trigger strike action,” said Investec.
The market liked the announcement, however. Shares in Lonmin were 5.7% higher on the Johannesburg Stock Exchange. In comparison, shares in Anglo American Platinum and Impala Platinum were 2.83% and 2.38% higher respectively.
RESTRUCTURING
In essence, Lonmin’s restructuring consists of milking cash from its old shafts deemed to be in decline whilst optimising the cost structure of “shafts of the future” which were identified as K3, 4B/1B, Rowland, Saffy and Hossy.
It would also bring K4 out of mothballs which would also mop up employees deemed surplus to requirements at the old shafts.
Lonmin’s open-cast mine would continue to be operated although it was expected to have depleted reserves in about 12 months time at current rates.
On the process side, Lonmin’s UG2 smelter restart has been deferred in line with the firm’s view that its mining activities are insufficient to fill its smelter capacity.
As a result of these activities, Magara said his company had not issued notice of imminent restructuring. “We’re not there yet,” he said and added that employees were on board with the company’s cost-saving and productivity drive.
Of the R2bn in savings, about R600m would be through redeploying staff to areas of the business where an increase in mining activity had been pinpointed whilst some 15% and 5% improvement in efficiencies in the mining and processing facilities had been targeted respectively, said Magara.
“We believe that having looked at our set-up, the most sensible is to ramp-up to generate more cash,” said Magara. “We are utilising natural attrition, and we have frozen recruitment while there are a number of contracts … where we will be putting our own employees in instead,” he said. Lonmin employs about 28,000 people.
From a balance sheet perspective, Lonmin had net debt of about $29m after being in a net cash position at the end of its 2013 financial year. There was a cash outflow of $116m during the year and a decline in net cash of $71m to $143m.
However, Lonmin drew down on bank debt in the weeks before the strike such that it has $575m in facilities available.
The company has budgeted for capital expenditure of between $250m to $300m in the 2015 financial year but said capital projects had to be financed out of profits. Debt would be kept aside for working capital fluctuations, it said.
