[miningmx.com] — PREVAILING price volatility in the platinum market and an overhang in supply will not sway PGM producer Lonmin to abandon its $2bn five-year growth program, for now, but further price and production headwinds may influence the company to change its mind.
Releasing interim results on Monday, Lonmin said it remained confident of the medium-term price environment for PGMs and would stay the course to increase capacity to 950,000 platinum ounces per year by 2016, from the current 750,000oz.
The company has already spent or committed the bulk of its $450m capex budgeted for 2012. However, the commitment to growth came with the disclaimer that Lonmin was “not immune to the effect on cash flow from short term prices’.
“Given our stated intent to manage the balance sheet prudently and produce profitable ounces, we will defer this capital investment to the extent deemed necessary,’ the company said. “We are watching the situation carefully and as we have demonstrated in the past, we will react if we deem it prudent to do so.’
Platinum initially showed some strength during the first few weeks of 2012, gaining more than 20% up until the third week of February, but has since lost most of these gains. On Monday, it was trading at $1,451 per ounce, compared to levels around $1,420 at the beginning of January. The metal was trading in excess of $1,900/oz in August.
This volatility translated into a 11.8% decrease in the average US dollar price received for platinum of $1,568/oz, for Lonmin, during its interim period. Similarly, the PGM basket price received was also 10.5% lower at $1,155, although the weaker rand compensated for this, with the basket price gaining 0.8% to R9,070.
Still, Lonmin suffered an interim loss and cash outflows which saw its net debt increase from $296m to $356m, with gearing up from 9% to 11%.
CEO Ian Farmer told journalists that changes in Lonmin’s capex plans would be determined by the company’s net debt position, as well as a combination of platinum prices and operational performance. He said Lonmin traditionally generated 60% of its revenue in the second half of the financial year and this would maintain debt at acceptable levels.
During the first half of the 2012, platinum sales totalled 318,402oz, broadly flat on 2011’s interim figures with management saying the production target of 750,000 ounces remained on track “absent any further abnormal production interruptions from safety stoppages, labour and community unrest’.
SECTION 54
Lonmin lost 347,000 tonnes in mining production as a result of Section 54 stoppages, which reached a peak in January when around 100,000 tonnes were lost. Comparative losses during the previous period were 70,000 tonnes.
“The frequency of stoppages and losses in tonnage was quite marked,’ the company said. “Following some high level dialogue across all levels of the Department of Mineral Resources around the end of January, losses have subsequently fallen to lower levels.’
Lonmin incurred an additional 48,000 and 69,000 tonnes of production losses respectively due to management-induced safety stoppages, as well as community and labour unrest at operations. Production at all operations totalled 5.8 million tonnes (5.9Mt in 2011), of which Marikana contributed 5.5Mt.
Revenue decreased 19.5% to $751m, with pre-tax profits down 88% to $18m. Losses per share amounted to 6.9 US cents, compared to a 45c/share interim profit in 2011.
The loss did not include the effect of exceptional items.
Unit costs increased by 10.9% to R8,172 per PGM ounce. Adjusted for the effect of safety and labour stoppages, the increase was 9.2%.
The company also flagged labour relations as its biggest challenge to the effective operation of mines.
“Labour dynamics are going through a sea change, with the emergence of an alternative trade union in the PGM mining industry in the form of the Association of Mineworkers and Construction Union (Amcu), to rival the dominance of NUM,’ said Farmer.
“The rivalry for membership could be a feature for the foreseeable future with a corresponding increase in the risk of escalation of costs and disruptions to production.’
