Lonmin chief doing his utmost to save sinking ship
JUST as Lonmin Plc chief executive Ben Magara puts out one fire, another one lights up.
After Lonmin spent 70 percent of its cash in the last three months of 2016 following a labour dispute at the platinum miner’s biggest shaft, Magara, 49, donned a hard hat and mining overalls to meet workers every day in February to ease tensions.
The efforts proved successful and he reported in March that production was back on track.
But this was short-lived. Violent community protests around the company’s Marikana operations forced it to temporarily close two smaller shafts last week, amid concerns for workers’ safety. A bus was later set on fire.
The protests are just the latest in a litany of social and labour disputes threatening to overshadow Magara’s turnaround efforts when Lonmin publishes half-year results on Monday.
The platinum producer, which last reported an annual profit in 2013 and has seen its share price decline about 97 percent since then, is under growing pressure to prove it can make money.
If we were going to turn this ship around we had to get to the hearts and minds of our people
“Lonmin appears to suffer from these kind of disruptions more than most,” said Marc Elliot, a London-based analyst at Investec Plc who has a sell rating on the stock.
“The effects perhaps seem worse because its operations are concentrated in one area and, given its cash burn, every ounce of production lost really hurts.”
Lonmin had lost about R40 million in output up until Wednesday since shutting its E2 and E3 shafts on May 3.
Protests continued despite a court order, and a community delegation presented demands including the creation of 1 000 permanent jobs and access to mine certain areas.
The requests aren’t realistic in the current economic climate, the company said on Thursday.
Spot platinum rose 0.3 percent to $921.43 an ounce at 10:51am in London.
Lonmin is not the only South African producer grappling with similar issues, as managements face employees’ demands for higher wages and communities seeking jobs in a country with 27 percent unemployment and marginal growth.
Impala Platinum Holdings Ltd said last month it may need to cut more than 1 000 jobs, in part due to prolonged protests.
As operational setbacks are compounded by a platinum price that’s dropped 36 percent in three years, Magara has made tackling social and labour problems a central part of his strategy.
The former Anglo American Plc executive, who grew up in rural Zimbabwe and worked his way up through the mining ranks, became Lonmin’s first black chief executive when he joined the company in 2013.
“We realised if we were going to turn this ship around, we were going to have to get to the hearts and minds of our people as quickly as we could,” he said in a March interview. “You need to make people see the benefits of keeping Lonmin alive.”
Tensions between management and Lonmin’s 30 000 workers run deep.
Five years ago, police shot and killed 34 striking workers near the Marikana operations.
A five-month strike in 2014 forced the company into a hugely dilutive share sale, and this year the stock plunged more than 20 percent in a single day in January, when the problems at the K3 shaft was announced.
Chief operating officer Ben Moolman quit less than three months later.
Proving that Lonmin’s finances have stabilised and it has resolved production problems will be the main focus for investors next week, said Richard Hatch, a London-based analyst at RBC Capital Markets.
“Investors will be looking at Lonmin’s net cash position to see how badly the operational problems that held it back in the previous quarter impacted the balance sheet and how much it has been able to recover,” he said.
The miner had $49 million of net cash at the end of December, even after raising about $400 million from shareholders a year earlier.
Magara said in the March interview he’s confident there’s enough liquidity to run the business.
“You will have cycles when you’re burning a bit of cash and creating a bit,” he said. – Bloomberg