End of the road for Lonmin
The producer pulled every possible lever to improve cash flow in the year to-end September
Lonmin had reached the end of the road, its executives said on Wednesday when it announced a rare annual profit and increased levels of cash that were simply not enough to justify its continued existence as the world’s third-largest platinum producer.
Lonmin is the subject of a friendly all-share takeover bid by Sibanye-Stillwater, which will create the world’s second-largest platinum producer and a leading source of platinum group metals in a deal which should close early in 2019.
Lonmin CEO Ben Magara said once shareholders voted in favour of the deal early in 2019 then these were the last results the board would present.
“Lonmin and its predecessor Lonrho have a long history in this part of the world. They started producing platinum from 1968 and it’s a painful thought that it’s coming to an end,” he said.
Lonmin pulled every possible lever to improve cash flow in the year to-end September, draining as much metal from its processing pipeline as it could, taking advantage of a 17% improvement in prices for the basket of metals it produces.
Lonmin reported pre-tax profit of $68m compared with a $1.17bn loss the previous year, including $1.05bn of impairments against its assets.
By the end of its financial year, it had net cash of $114m compared with $103m. However, after the end of September, Lonmin has put in a metal-sales transaction that allowed it to repay $150m in debt, boosting its cash to more than $260m.
Since 2015, Lonmin has reduced the amount of metal in its smelting and refining pipeline, liberating $246m.
Lonmin chief financial officer Barrie van der Merwe was unequivocal in his assessment of the company’s financial position and its future despite the improved cash position.
“This is not adequate to curb shaft ore reserve depletion and we will have to continue to place high-cost shafts on care and maintenance as the end of their lives approach,” he said.
While Lonmin had more than R2bn in cash, there was still a “material threat” to the company, which was vulnerable to uncontrollable changes in metal prices and foreign exchange movements, he said.
If for some reason revenue was stopped, like it did during a five-month strike in 2014, the cash wouldn’t last two months. “Then it is game over,” Van der Merwe said. “We don’t have access to the capital to reinvest to ensure the company doesn’t shrink and shrink and fall off a cliff.”
While Lonmin had about $260m at the end of the year, the first quarter of its financial year usually entailed cash outflows of between $60m and $100m as processing pipelines were restocked after being scoured for every saleable ounce ahead of year-end.
Magara emphasised the need for the protection of Lonmin's assets within a larger, more diversified company such as Sibanye, which has mines in SA, Zimbabwe and the US.
Lonmin has laid off 8,000 people since 2014 as it put high-cost mines on care and maintenance and would continue to cut jobs as it shut unprofitable shafts.
Lonmin sold 681,580oz of platinum for the 2018 financial year, realising revenue of $1.345bn, up $179m on the year before as the increases in prices of palladium, rhodium and other metals in its production basket offset a sharp fall in the platinum price.
Lonmin said its 2019 platinum sales were forecast at between 640,000oz and 670,000z as it continued removing high-cost production.