Warning knocks Lonmin shares
World number three platinum miner Lonmin’s share price took a battering on the JSE on Thursday, down 22.56% to R23.31 at the close, after it warned of losses at its operations in the first quarter of its financial year.
The firm blamed continued low metal prices that were also forcing it to review plans for capital expenditure.
Lonmin CEO Ben Magara said recently that the past eight years of a stagnant platinum price would irreparably damage platinum mining in SA, the world’s single largest source of primary platinum.
Analysts said Lonmin burned through $124m in the quarter, leaving it with $49m in net cash to see out the year. Total liquidity with undrawn facilities rose to $414m.
Lonmin maintained its fullyear platinum production target of between 650,000oz and 680,000oz despite the disappointing first quarter.
“Lonmin is highly geared to platinum group metal prices and, at current levels, would not be cash neutral. We continue to manage our cash flows and balance sheet through initiatives such as seeking ways of
containing our capital spend,” it said. Its costs rose 12% to R12,296/oz, spurred by higher wages and “weak mining performance”. Its biggest shaft, K3, was hit by labour issues and unsettled labour relations, dragging output down 14%.
Platinum sales in the quarter fell 10% to 134,954oz and the price for the basket of metals Lonmin produced in the quarter was 4.5% lower than a year ago at R10,372/oz.
Lonmin seemed “to be struggling with a plethora of challenges and the need for capex cuts to better manage the balance sheet will affect the production profile”, said an Investec analyst. “It needs a much stronger pricing environment.”
JP Morgan Cazenove analysts said, while there was net cash of $49m on the balance sheet, they estimated net debt would rise to $260m by financial 2018 if prices stayed at prevailing levels.
Lonmin has completed a restructuring exercise to close high-cost areas, shedding 5,000 jobs and cutting its production by about 100,000oz. This means its processing division, particularly its smelting and refining businesses, are running well below capacity and need to be filled with third-party material to restore cost efficiencies.