Lonmin trims spending to weather price slump

LONMIN has scaled back spending plans to weather a platinum price slump that may last two more years.

The world’s third-biggest producer of the metal cut its capital expenditure forecast for this financial year to $160 million (R2 billion) from $185m. It also capped annual spending through September 2017.

“We should possibly see these persistent prices lower for longer,” chief executive Ben Magara said yesterday on a conference call.

The company did not expect prices to recover for about two years, Lonmin said in an earlier statement.

The producer said it was also delaying the development of the K4 shaft at its Marikana mine, as it focused on conserving cash.

“This isn’t something anyone takes with pleasure and we don’t take it lightly, but we need to react to the persistently low prices,” Magara said. “We have not shied away from taking the tough decisions.”

Lonmin and larger competitors Anglo American Platinum and Impala Platinum are battling prices that have tumbled 36 percent since 2011 while salaries and operating costs have climbed. The company will spend no more than $150m a year in the next two financial years, according to the statement. That compares with a November forecast of $250m to $350m.

Forecasts

Lonmin posted an underlying loss of $77m, or 10.5 cents a share, for the financial first half through March, compared with profit of $26m, or 3.5c, a year earlier.

Results were buoyed by an increase in platinum-concentrate output to 381 984 ounces, the most since 2007.

The shares gained as much as 3.27 percent, before closing 0.77 percent higher at R26.20 on the JSE.

Lonmin kept forecasts for full-year metal-in-concentrate output of about 750 000 platinum ounces and sales of 730 000 platinum ounces.

“It is encouraging that guidance remains intact,” Investec wrote in a note to clients. Meanwhile, Lonmin’s Marikana operations near Rustenberg were “performing well.”

The company operates in the North West province, which has more than 70 percent of the world’s platinum reserves. The job-cut plan, which will cost it about R400m this financial year, follows a five-month strike over pay in 2014.

“The capex (capital expenditure) cuts and pressure on the balance sheet that may be exacerbated by the restructuring costs could add to burdens down the road,” Investec said. “Management likely has little choice.”

Lonmin reported net debt of $282m, saying smelter shutdowns had forced it to set aside output that would have cut borrowings by about $170m.

To try to turn around its fortunes, the company announced last week a plan to cut 3 500 jobs to reduce costs following a devastating strike at its local mines last year.

Yesterday it said it would target employees from its unsuccessful mechanisation programme, while others could leave because of medical incapacity.

Magara said he was encouraged by talks held with unions on job cuts, adding such discussions would not have been possible a year ago when relationships with labour were particularly tense.

The National Union of Mineworkers, which is generally seen as a moderate union, said on Friday that it was shocked by the plan and that it would fight back.

Majority union Association of Mineworkers and Construction Union, which is generally more militant, was not available for comment.

Lonmin has also come under pressure from Glencore’s plan to dispose of its 23.9 percent stake by distributing shares to its shareholders.