Lonmin still feeling the aftershock
Miner got into trouble partly due to early mechanisation drive
● The name Lonmin will forever be linked to the deaths of 44 people at Marikana in 2012, but the company itself could soon be consumed by Sibanye-Stillwater and the assets of the once-proud, third-largest global platinum miner will become just a reporting line. It didn’t have to be like this.
The 109-year-old Lonmin was one of the pioneers in trying to forge a mechanised mining strategy which has now become the holy grail for SA’s mining sector and the platinum industry in particular. The vision under then-CEO Brad Mills was ahead of its time and remarkably prescient. It was a strategy he steadfastly and clearly articulated since his appointment to the nascent platinum miner in 2004.
Mills said at the time: “With many of the projects advancing from the trial phase into that of fully fledged mining operations, we now have many people working in a safer, healthier environment who are highly skilled and hence better rewarded.”
The thinking was to have safe, low-cost, continuous mining and Mills pushed the strategy hard, rolling it out at the core Marikana mines as well as Lonmin’s illstarred Limpopo mine that was doomed by adverse geological conditions and a lack of underground development.
Mechanised mining, which was intended to account for 50% of production by 2010, was almost breathlessly extolled by Mills, who has been subsequently pilloried in a number of quarters for his efforts.
In 2006, he spoke of the new Hossy, Saffy and K4 deep-level mines as “an opportunity to create a new generation of mines” at which “we intend to set a new industry standard”. He said: “The new shafts will be much more employee-friendly with airport terminal-style facilities providing rest areas, work stations and catering on the employees’ way to or from their activities underground.”
By 2008, the dream was dead. Mills was gone and replaced by Ian Farmer as CEO, who immediately stopped the mechanisation strategy, citing the cost differences between conventional, labour-intensive, handheld drilling and mining compared to the more expensive mechanised operations.
That was the year in which the platinum price shot up to $2,200 an ounce on fears of supply disruptions from SA, the world’s largest source of the metal, because of electricity shortages.
Prices then plunged to around $1,000 an ounce as the global financial crisis struck. Meanwhile, input costs in SA soared in 2008, forcing a cold splash of reality for platinum companies, which until then had been planning unfettered growth.
“Brad was right, you know. If Lonmin had stuck to its guns and made mechanisation work they would be like Anglo American Platinum [Amplats] now,” said a senior industry figure, speaking on condition of anonymity. “Five or six years ago, conventional mining was cheaper than mechanised mining. Now that has switched around and mechanised mining delivers the lowest-cost ounces.”
Years of above-inflation wage increases and falling productivity have made conventional, labour-intensive mining, which comprises about half of companies’ costs, uncompetitive when compared to the cost of smaller workforces operating machines.
Amplats has since 2013 embarked on an aggressive strategy of selling its labour-intensive, deep-level mines to focus on shallow, mechanised operations, and has been by far the best-performing platinum mining company in terms of profits and share performance.
“Brad was doing exactly the right thing, but it was just too early. The capital spend was high and Lonmin couldn’t realise the efficiencies when compared to conventional mining at the time,” the industry figure said.
A second industry source had a different view. “Back in the day, Lonmin’s operations were the best in the industry. Then Brad Mills converted to mechanisation at ore bodies generally not suited for that type of mining. That was a very costly and disruptive process, and trying to repair it took a long time and put Lonmin on the back foot.”
Lonmin in recent years found itself with unsustainably high debt levels, labour and community problems that bedevilled production, strict debt covenants and evaporating investor confidence, which meant neither banks nor shareholders were willing to put any more money into the company.
Without the takeover bid from Sibanye, which persuaded lenders to hold back on demanding repayment of a $150m (about R2.2bn) loan after Lonmin breached its debt covenants in 2017, there was a good chance that the company would have gone out of business, taking 30,000 jobs with it.
At the heart of the Marikana protests in 2012 were the appalling living conditions around the mines, where Lonmin singularly failed to honour its housing commitments to build 5,500 houses, and squalid, unserviced informal settlements mushroomed around its operations.
The social mess around the mines is a problem that Sibanye will have to address if its shareholders approve the all-share takeover bid later this year.
It will also have to continue the process started by Lonmin of laying off 12,600 people over the next three years as it shuts down old, unprofitable mines. The ranks of unemployed miners will swell further over the next two years as neighbouring Impala Platinum lays off up to 13,000 employees as it shuts or sells five of its 11 shafts.
The growth in unemployment in communities around its operations will exacerbate tensions that continue to simmer because Lonmin has simply not had the money to meet its early commitments around housing and social development.
“We have a different approach in our engagements with communities, labour and stakeholders. We want to create superior value for all stakeholders. We know this is important if we want sustainable operations,” said Sibanye spokesperson James Wellsted. “We are fully aware that we are inheriting difficult relationships and promises that the company made before us. We have our plans that we can talk about once the deal is finalised.”
Brad was right, you know. [He] was doing exactly the right thing, but it was just too early Senior industry source