Flatlining platinum prices force new £28m cost-cutting drive at Lonmin

MINING group Lonmin is looking for ways to raise cash and cut costs as it struggles to cope with the flatlining price of platinum, its key product.

The South Africa-based miner has announced a scheme to save $37m (£28m) by September 2018 that could see the axe fall on mainly back-office roles.

The London-listed group will also look to sell space in its processing plant, which is estimated to be running at about 60pc capacity, to other platinum producers.

Elsewhere, it is seeking partners to help finance a pair of capital projects to extend the life of two of its mines. A failure to find a partner for these projects could put 5,000 jobs at risk.

Lonmin did not put a figure on how much it is hoping to raise from these latest measures.

The company has been badly hit by an ongoing downturn in the market for platinum, which is used in catalytic converters for cars and in jewellery. Spot prices for the metal, which is mostly mined in South Africa, are stuck at around $960 an ounce, compared to around $1,500 three years ago.

Lonmin has also seen its costs spiral due to the strengthening of the South African rand against the dollar. The company pays its workers in rand but reports its accounts in dollars.

Ben Magara, Lonmin’s boss, has said he wants the company to be “cash neutral” by the end of the year as it looks to stop its outgoings from exceeding its income. The steps outlined yesterday follow a lengthy restructuring that has resulted in Lonmin closing high-cost mining shafts in favour of lower-cost production. The miner cut more than 6,000 jobs at the end of 2015 but still has around 33,000 staff on payroll.

Last week Ivanhoe Mines indicated that it would press ahead with the construction of a large new automated platinum mine in South Africa, which analysts fear could undercut Lonmin’s operations as it would have lower overheads. Lonmin raised $400m in a rights issue in 2015, its third in six years, but speculation has mounted it will need to tap investors for cash once again.

“It seems to me a confession that despite the cost saving seen so far the business model is basically unsustainable at the current price deck,” said Paul Gait, an analyst at Bernstein.

Richard Hatch, an analyst at RBC, added: “We continue to believe that if spot prices and foreign exchange remain [unchanged], Lonmin will eventually need a further refinancing.”

Shares in Lonmin rose 5.3pc to close at 93.75p yesterday.