Turning things around

The fall in the platinum price and the Marikana tragedy necessitated a turnaround strategy

Lonmin, with its mines concentrated in Marikana, was hit hard by the 58% fall in the platinum price over the past decade. While its income was sinking, costs were rising well ahead of inflation. It was not immune to currency fluctuations in SA and major economies. It had to survive a decade-long “perfect storm”.

Then, there was a catastrophe that continues to be felt throughout the company. In the summer of 2012, the tragedy of Marikana shook SA and brought Lonmin’s operations to a standstill. The immediate consequences had to be dealt with in the interests of all those concerned and remain a priority. Housing has been a key focus. Lonmin’s financial investment in housing alone since 2013 will have reached R500m by the end of 2018. At the centre of the Sixteen-eight Memorial Trust are the families of the employees who died in the 2012 Marikana tragedy. They have access to education up to and including at university level.

With the consequences of the tragedy weighing heavily on its balance sheet, Lonmin secured immediate financial support from its shareholders and succeeded in a rapid return to full production, but platinum prices continued to sink.

Compounding problems, platinum mines around Rustenburg were brought to a standstill in a five-month unprotected wage strike, depleting Lonmin’s financial reserves. Ben Magara had been appointed Lonmin’s CEO seven months before and, with the support of his senior management team, worked tirelessly to protect the company from pressure placed on it by the domestic and international financial environment, and the strike. Lonmin recorded a fatality-free, industry-leading ramp-up of production within two months from the end of the strike.

However, the loss of five months of production fundamentally damaged the company.

In 2015, profits were again knocked down by low metal prices. Operationally, Lonmin’s management did well, achieving solid production with unit costs below guidance. The combination of low prices together with maturing debt facilities resulted in another refinancing of the business.

Supported by Barrie van der Merwe, Lonmin’s recently appointed new CFO, Magara set management the task of creating a resilient, sustainable and viable business in the lower-for-longerpricing environment.

The structural and strategic changes undertaken during 2015 and 2016 stabilised the business and generated cash.

Productivity at the Generation 2 shafts increased 5.4% in 2017 to a five-year high of 5.9m² per person. Lonmin’s concentrators achieved their highest-ever levels of platinum group metals recoveries that year. However, it continued to be hamstrung by its capital structure and liquidity constraints.

At the end of 2017, the Lonmin board reached an agreement with the board of Sibanye-stillwater on the terms of an all-share offer for the company. Should this offer complete, the merger will create a larger and more resilient company, with greater geographical and commodity diversification, that is better able to withstand short-term commodity price and foreign exchange volatility.