Lonmin softens full-year output target and raises cost outlook
Miner reports an operating profit but warns the full year will be less rosy after delay in Sibanye-Stillwater’s takeover bid
Lonmin, the world’s third-largest platinum miner, has warned of softening full-year production and rapidly rising costs after a difficult first half because of disruptions to its operations stemming from a delay in Sibanye-Stillwater’s takeover of the company.
Lonmin said total platinum production as measured by metal in concentrate fell 10% to 276,020oz in the six months to end-March. The drop was due to fewer tons mined, reduced grades and lower recoveries.
“We caution that first half 2019 might be a more accurate reflection of normalised operating levels for Lonmin, as financial year 2018 might have involved some short-term measures to make the deal with Sibanye look appealing,” Johann Steyn, MD of Citi Research, said in a note. “With the deal closure taking longer than expected, Lonmin might have run out of road for short-term attractive results,” he said.
The takeover of Lonmin by Sibanye to create one of the world’s largest producers of platinum group metals (PGMs) has been delayed by an appeal by the Association of Mineworkers and Construction Union (Amcu) after the Competition Tribunal conditionally approved the transaction.
“This year, our operational performance for the first six months was heavily impacted by, inter alia, low morale and high management turnover due to the extended timeline to close the Sibanye-Stillwater transaction,” Lonmin said. It added that it had two fatalities as safety was negatively affected by the low morale.
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Lonmin warned that its traditionally stronger performance in the second half of its financial year is unlikely to materialise in 2019 and guided the market to expect full-year platinum sales at the lower end of its 640,000oz-670,000oz forecast.
It said the “extent of production losses” in the first half of its financial year and the finalisation of the Sibanye all-share transaction, which the Lonmin board has recommended investors approve, means PGM production will remain subdued.
“Ordinarily the stronger performance of the second half would assist in containing unit cost increases on a full-year basis,” Lonmin said, noting the lower output and high costs in the first half meant it had bumped up its cost guidance to R13,600-R14,400 per PGM ounce from R12,900-R13,400.
Lonmin reported first-half costs of R14,994 per PGM ounce, a 15.5% increase from the same period a year ago. Lonmin’s headcount fell to 29,812 by end-March from 31,040 a year earlier and it is continuing a retrenchment process it started in March 2019.
As tough as the first half of the year was, Lonmin posted an operating profit of $70m against a $32m loss the year before due to higher palladium and rhodium prices, a weaker rand and flat refined metal output for the period.
Despite the return to profit and the cancellation of a $150m loan by putting in place a $200m forward sales of metal agreement, Lonmin CEO Ben Magara stressed the company cannot remain as a standalone entity, again backing the Sibanye takeover.
“However, despite the progress made, this does not provide a long-term solution to the capital structure challenges faced by Lonmin, as it is still inadequate to invest in the new projects necessary to avoid shaft closures and job losses and maintain our production profile,” he said.
“The company’s available liquidity is also still vulnerable when considering its working capital requirements and continuing exposure to volatile currency and metal markets.”
Lonmin had net cash of $71m at end-March compared with $17m at the same time a year ago. It reported first-half platinum sales of 286,947oz, roughly the same as a year earlier. Refined output was similarly flat at 286,911oz.