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Lonmin to shut, idle high-cost operations

Lonmin CEO Ben Magara

Lonmin CEO Ben Magara

Photo by Duane Daws

24th July 2015

By: Natasha Odendaal

Creamer Media Senior Deputy Editor

  

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JOHANNESBURG (miningweekly.com) – As platinum prices fall to decades-low levels, Lonmin is shaking up its business strategy to ride out the storm with minimal damage – a move that would impact 6 000 employees and cut up to 20% of production as shafts are shuttered.

The platinum price plunged by 14.4% from $1 126/oz in March to $964/oz in July, pushing the London- and Johannesburg-listed platinum producer’s earnings before interest, taxes, depreciation and amortisation (Ebitda) into negative territory.

“Lonmin is defending value for all stakeholders in responding to the platinum pricing crisis by taking swift and decisive . . .  difficult measures [to place the company in a position of sustainability],” Lonmin CEO Ben Magara told investors during a conference call on Friday.

Unpacking the company’s third-quarter performance and providing a business update for shareholders, Magara said formal Section 189 consultation processes with trade unions had started this week as the third-largest platinum producer planned to close and idle some of its lossmaking shafts to reduce high-cost production in an oversupplied market.

The planned closure of the Hossy and Newman shafts and the placement of the W1, E1 and 1B shaft on care and maintenance would cut Lonmin’s normalised yearly platinum output by some 100 000 oz over the next two financial years.

The newly initiated consultation process would consider redeployment, reskilling, alternative working arrangements and further cost reduction opportunities before touching on the last-resort forced retrenchments for the 6 000 employees and contractors that are expected to be impacted.

Around 1 355 of these hard-hit workers had already accepted the voluntary separation packages (VSPs) offered by Lonmin in May, saving the company around R325-million a year upon their exit at the end of July.

“Losing jobs is not pleasant, but everyone is having to take significant short-term pain to preserve optionality for the long term. All costs have to be reduced, including labour, and I hope our formal consultation process will come up with mitigations to minimise job losses,” Magara commented.

The VSPs formed part of plans to reduce Lonmin’s employee headcount by 3 500. Over 4 500 enquiries were processed, while 2 299 employees had applied for VSPs.

“The board is taking firm action to further reduce Lonmin’s cost base in the current pricing environment so that it will be able to sustain a viable operation even if the current metal pricing environment continues for some time,” said Magara.

“All costs, not just labour costs, have to be reduced and productivity improved if the business is to be sustainable.”

PRODUCTION
During the third quarter of the year, platinum sales increased to 231 778 oz – a 206 039 oz rise on the 25 740 oz delivered in the comparative period the year before.

Total platinum-group metals (PGMs) sales for the three months to June 30, reached 437 160 oz, compared with the 79 691 oz sold in the three months to June 2014.

During the period under review, Lonmin’s total PGM output was 450 885 oz, while refined platinum production reached 241 170 oz.

Magara noted that the fourth quarter’s output started well.

“Absent any material Section 54 safety stoppages, we expect to achieve our platinum saleable metal-in-concentrate [target] of 750 000 oz and sales guidance of 730 000 oz for the year,” he concluded.

Lonmin's shareprice on the Johannesburg and London stock exchanges tumbled 10% by mid-afternoon on Friday.

Edited by Creamer Media Reporter

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