Still not enough credit on the platinum card for dividends
LABOUR TROUBLES: A rock drill operator working underground at a Lonmin mine. The platinum company has announced a profit for the first time in many years AFTER Lonmin’s third rights issue late last year, restructuring and the loss of more than 5 000 jobs, has the platinum miner finally come back to life?
After struggling with technical and labour issues, including the Marikana massacre in 2012, the company has reported a profit for the first time in years.
The figure of $7-million (about R100-million) for the year to the end of September compared with a loss of $134-million in the previous year. Lonmin said it had net cash of $173-million and overall, including bank facilities, liquidity of $537million.
However, analysts said that even though the company was now cash positive it still had a long way to go, especially in terms of considering dividends again.
The analysts pointed out that the profits arose from the stock that Lonmin did not mine in the current financial year. So the company had sold more platinum than it had mined, and the profits might be short-lived.
Asked about when the company would pay dividends, CEO Ben Magara said that although Lonmin now had cash, the board was conscious of the volatility in the commodities market.
But shareholders were benefiting from the share price, which year to date had risen by 80%.
“As we start generating more cash, I think it’s most likely we would start paying more dividends based on price changes more than based on cost reduction,” Magara said.
“You want to make sure that the platinum price is on the upturn.”
He said the long-term sustainability of the company was more important than paying dividends and an uptick in the platinum price would help provide immediate benefits for shareholders.
Hurbey Geldenhuys, a platinum analyst at Vunani Securities, said that if the basket price remained at current levels for the next two years, Lonmin would be back to where it was a year ago, when it had had to approach shareholders for a bail-out.
“[Lonmin would be] in a position where they have to come back to shareholders in order to stay a going concern, he said.
“If the platinum group metals basket price increases, they will obviously be in a good position.
“So the basket price would need to rise at a rate of more than 8% a year for them to get into a position where they are more comfortable,” Geldenhuys said.
Asked whether investors had forgiven Lonmin for past mistakes and recovered from the last rights issue, Magara said: “It is important to know that it was a third rights issue and for sustainability, you don’t want to go back there.”
Setendra Naidoo, a fund manager at Capricorn Fund Managers, said Lonmin knew that in the next two years it had to focus on improving capital expenditure levels.
“They are unlikely to have dividends this year and next year because of the platinum price, and also they need to service their debt prior to paying a dividend,” he said.
Lonmin lowered its guidance on sales for the 2017 financial year to between 650 000 and 680 000 ounces because it was cutting production from high-cost operations and because it would not sell into an environment of low prices and oversupply.
However, Geldenhuys said that even if there had not been oversupply in the market, Lonmin would have struggled to boost production.
“What they should be focusing on is really looking at costs because at the current basket price they are very close to the level where they would not be profitable — they have limited options in terms of increasing production. For them it would be just the focus on costs,” he said.
All three major platinum producers have been restructuring in the past three years to cope with low prices.
Some platinum group metals such as rhodium and palladium have been performing slightly better than platinum.
Naidoo said platinum equities were offering a bit of value but of the three leading platinum producers — Amplats, Implats and Lonmin — Anglo was in the best position to pay dividends.
“They [Anglo] have brought their debt down materially in the last few years, they have sold assets which were of lower value to them and now they have lucrative assets, like Magalokwena [in Limpopo].
If the market comes back for platinum, Anglo will pay dividends first ahead of everyone else,” he said.