Cash-strapped Lonmin plans sales and partnerships
Shareholders are tapped out, so the platinum miner is looking at partnerships in some operations, and sales of excess refining capacity
Lonmin will sell or seek partners for its Limpopo and Akanani projects, sell excess capacity in its smelting and refining business, and bring funding partners into its K4 and Rowland mines as the company continues to battle with the difficult economics besetting the platinum industry.
Lonmin, which has exhausted the capacity of its shareholders for injecting capital into the business, has undertaken a business review despite having just come through a process to shut unprofitable mines and cut thousands of jobs.
"The operational review is focused on optimising the cash produced by the business, both from its operations and through releasing capital from those activities where the company is currently bearing the cost of excess capacity and unrealised development potential," Lonmin said.
Lonmin will sell processing capacity of 500,000oz that it is not using at its plants as the company scaled back production to 650,000oz-680,000oz of platinum this year as it shut old mines and cut jobs.
"This would have the benefit not only of releasing capital for Lonmin, but would also allow other South African PGM [platinum group metals] producers who currently operate on a sale of concentrate basis to access the profit margin benefits of an integrated beneficiation model," Lonmin said.
How exactly this would work is not yet clear. It is not certain whether this plan entails the entire processing facility, ranging from smelting to refining of platinum group metals. A number of mining companies are locked into contracts with major platinum producers to supply concentrate for refining.
Lonmin CEO Ben Magara has recently spoken of revisiting studies at the company’s Limpopo mine, which was a mechanised operation, as well as its partially built K4 mine.
Lonmin has now thrown open the Limpopo and undeveloped Akanani property for a cash sale or for funding partners to mine them.
It wants to retain K4 and bring in a funding partner to bring the mine to completion. Management has described K4 as a potential jewel in the Lonmin suite of assets.
Lonmin will also bring a partner in to complete a project to extend the life of the Rowland mine. In the interim period Lonmin spent R111m on the mine, which employs 5,000 people and the company said it wanted to preserve those jobs.
A further R500m will be cut from overhead costs by the end of the 2018 financial year. Lonmin is moving its corporate offices to its Marikana operations, leaving its office in Melrose Arch.
"It is too early to define the ultimate effect of the operational review on the company, but the overall aim remains for the business to be cash positive after capital investment," it said.
Lonmin has bought the remaining stakes in the Pandora joint venture from Anglo American Platinum and Northam Platinum, giving it the ability to mine laterally from its E3 shaft into the Pandora ground and defer R2.6bn of development expenditure at its mine.