[miningmx.com] — PLATINUM producer Lonmin has said its growth investment strategy was not set in stone, saying it would rethink plans to build towards a production profile of 950,000oz per year should market conditions deteriorate.
Releasing annual results to end-September on Monday, CEO Ian Farmer said the group remained committed to invest $450m in 2012 – part of a $2bn five-year capex program to lift production from the current 720,000oz to 950,000oz – but that the company could decide to “moderate’ the pace of expansion should the environment dictate.
“I believe absolutely in the medium and long term fundamentals of the PGM market,’ Farmer told Miningmx. “But we are flagging these (short term volatility) issues now.’
In commentary accompanying the results, Farmer said the fundamentals which underpinned future demand were tightening emission legislation as well as an expected increase in the uptake of diesel cars.
He added: “The stationary fuel cell market is real and growing, while jewellery is set to remain a price equaliser in times of slack demand.’
Lonmin’s production target for 2012 is 750,000oz, the same as its original guidance for 2011 prior to a revision. “For ten of the twelve months of the year our business delivered according to plan,’ said Farmer. “In the two months where it did not, we saw factors around safety and illegal industrial action at Karee affect performance.’
Farmer said the group has the operational capacity to produce 800,000oz this year, but that it remains cautious due to the “disruptive’ effect of possible safety shutdowns and labour related work stoppages.
Lonmin and unions have started discussions on wage increases on October 1.
Farmer said Lonmin expected that its unit cost in 2012 would rise in line with salary hikes, expected to be more or less similar to the 8% to 10% negotiated by Implats and Anglo American Platinum. The group’s cost increase of 11.2% in 2011 (to R7,534/oz) met earlier guidance.
An encouraging aspect of Lonmin’s performance in 2011 was the continued reliability of its number 1 furnace, which has now operated for about a year without a hitch, following a rebuild. Farmer said the furnace continued to behave as anticipated, while its number 2 furnace – which would function as a future backup – was on track to be commissioned in May.
Also, the group now has the equivalent of 19 months of developed ore reserves, up more than 50% from 12 months in 2008, allowing Lonmin more production flexibility in the event of stoppages or bottlenecks.
CHANGING SA LANDSCAPE
Farmer also flagged transformation as an increasingly important business imperative.
“.against the backdrop of a fast changing South African environment the year has not been without its difficulties,’ he said. “Social issues are increasingly coming to the fore in the public consciousness, in the media and amongst policy makers.
“I expect this trend to continue and grow, presenting fresh challenges in the years ahead.’
Lonmin in 2011 spent R309m on community projects, hostel conversions, adult learning schemes, healthcare delivery as well as training.
“Some of the industry transformation targets are challenging,’ Farmer said. “However, I believe Lonmin’s performance to be ahead of industry average in most areas.’
