JOHANNESBURG (miningweekly.com) – The overwhelming wish of employees to return to work should be upheld, Lonmin CEO Ben Magara pleaded on Monday as the massive strike in the platinum belt entered its sixteenth week.

Magara said that the immediate focus was to get the business back up and operational but that this was predicated on employees returning to work in significant numbers.

Lonmin expected to be able to assess the return-to-work programme later this month with a view to safely ramping up production from June, supported by the company’s relatively strong balance sheet.

But the length of the strike, led by the Association of Mineworkers and Construction Union (AMCU), has made job losses inevitable and the settling price of the salaries and the prevailing platinum price would determines what remained viable, Magara said, adding that the company had been “quite surprised” by the failure of the platinum price to rise given the hefty fall in production by the three biggest miners.

Cash flow requirements on resumption of operations may put the business in a net debt position.

“Our aim would be to minimise retrenchment, but retrenchment has become inevitable as a result of AMCU’s actions,” he said, adding that the company was currently operating at a cost of some $3-million a day in a 20- to 22-day month.

The company has not fully depleted its pipeline stocks, but refineries have been shut and furnaces idled to save power and costs.

The processing plant will be restarted in anticipation of the May 14 return to work and to realise working capital into revenue.

Delivering the second-quarter results to March 31 – which saw strike-hit platinum group metal (PGM) production fall 57% to 158 462 oz – the head of the world’s third-largest platinum mining company was full of praise for the loyal 12% of employees who were at work and lamented the killing of an employee who was reportedly on his way to work on Monday.

All three platinum majors have strongly condemned the recent acts of violence against employees attempting to return to work and the National Union of Mineworkers said in a release that two of its members had been killed.

Twenty cases of assault have been reported as well as a number of serious incidents of intimidation against employees and bus operators providing transport to employees.

All producers have also noted the "alarming" AMCU statements that employers risk "something else" if they continue engaging workers directly, to which the employers have countered that they have a duty to go direct and that employees have made it clear that they want to return to work.

“Those who are not at work, I appeal to you for peace and tolerance and to exercise your right in our democratic country,” was Magara’s message to Lonmin’s 38 000 employees, made up of 28 000 permanent employees and 10 000 contracting personnel.

The company is anticipating a significant return to work on Wednesday, but Magara warned that if that failed to materialise, Lonmin would consider other options to protect the business, which might include measures to reduce capital expenditure (capex) still further and to review the business operations.

“It would appear that restructuring has become inevitable, with consequences on job losses,” he said.

Magara said in response to Mining Weekly Online that the longer the strike took, the more jobs were at risk and the depth of restructuring would be determined by the return-to-work date and the pace of ramp-up.

“When the business went into this strike, 40% to 60% of the shafts were not making money, so the prolonged strike is only making restructuring inevitable.

“We will know the numbers as we ramp up and come back to production,” he said, adding that there had been an overwhelming support for a return to work.

On security for returning workers in view of the ongoing intimidation, he said that the company’s security resources had been stepped up and discussion had taken place with government to ensure law enforcement on May 14.

“Hopefully, our employees will be able to exercise their right to return to work in a peaceful environment,” he said.

Production from Lonmin’s Marikana operations had been minimal since January 23, when the strike started.

London analyst Liberum Mining, which is recommending shareholders to sell their Lonmin stock, said that the strike-hit company had come in “well below even our own bearish estimates at the bottom of consensus”.

Strike-related costs from ongoing fixed overheads of $164-million were greater than the $138-million that Liberum had estimated.

Liberum said that the intention of management to restart processing operations on May 14 to process remaining stockpiles was raising the risk of incidents between the striking and nonstriking parts of the workforce.

“We remain very cautious on the platinum miners and see little improvement in the longer term profitability of the business,” Liberum added.

Also recommending shareholders to sell their Lonmin shares is Investec Global, which noted that Lonmin had pulled on its credit lines to ensure healthy liquidity and added that substantial PGM inventories of $351-million would ensure a quick restart of production from processing operations that would probably take two weeks to ramp back up, while mines would take from six weeks to eight weeks to do so.

The length of the strike has put enormous pressure on Lonmin, which has defended itself by reducing cash outflow by 60% in a sector suffering low PGM prices and high-cost inflation to an extent that the viability of marginal operating shafts are being challenged in the industry as a whole.

Force majeure notices had been issued to customers, suppliers and contractors during strike period.

After the unyielding AMCU rejected Lonmin’s revised offer, the company approached its employees directly and expects to have a better sense of the take-up and the mix of returning skills towards the end of May.

In the event that it does not have sufficient take-up of its revised offer, plans already in place to protect the integrity of the business will focus on further cash conservation.

“If we can agree to work together and to get behind our great assets, we will provide a platform for a sustainable future and enable the creation of long-term value for all our stakeholders,” Magara said.

Underlying earnings before interest and taxation for the six months to March 31 were $34-million, compared with $58-million for the comparative period last year.

Capex, which has been scaled back to $46-million, has found it difficult to generate cash and the rights issue has enabled the company to settle debts and absorb the operational disruption caused by the strike.

Lonmin has a net cash position of $71-million as well as $589-million debt facilities and remains confident about the fundamentals of PGMs, which are tough to replace and essential for modern living.

Emission-reduction legislation continues to tighten in established markets and there are plans to do the same in emerging ones.

Markets continue to open up and while the industry is going through a very onerous period labour unrest and muted demand, the protracted strike may have brought the expected improved PGM future even nearer.

Three transactions under way to increase the company’s black economic-empowerment (BEE) ownership to 26% involve the local community and employee ownership plans.

Black management and BEE procurement targets have been met but the women-in-mining imperative is proving arduous.

Unit costs are likely to exceed wage inflation and capex is heading below the R210-million previously guided, which will be communicated in detail once the strike has ended.

Minimal operations during the striking period had seen only 3.2-million tons produced, which was down 43%, and 155 720 oz of equivalent saleable platinum had been lost as result of the strike.

Saleable metal in concentrate of 215 117 oz of platinum was down 41% and platinum sales of 263 675 oz were down 19% on the prior year period.

The basket price was down 16% to $1 056/PGM ounce, despite supply-side concerns around the strike action, and rand unit cost of R13 058/PGM ounce was up 46% on the prior year period.

Concentrator recoveries were up to 87.7% from 86.8% previously.

The ore reserve of 3.7 million centares provides for flexibility.

AMCU has been engaged in wage negotiations on increases, which would be effective from October 1, 2013, with AMCU seeking a basic wage of R12 500 a month for the lowest level employee.

The protected strike involves 70 000 AMCU members across Lonmin, Impala Platinum and Anglo American Platinum, which have come together in seeking resolution to the impasse.

Although unsuccessful in gaining resolution, the companies have expressed their gratitude to the South African government for intervening early on in the process, through the Commission for Conciliation, Mediation and Arbitration, and more recently through the Department of Labour, but state that more law enforcement is essential to allow employees the freedom to come to work should they so wish.

Lonmin has been asking its employees through text messages and radio broadcasts in labour-sending areas to indicate if they want to accept the latest offer and return to work and the company remains confident of this week’s restart.

"If we have sufficient take-up, a reminder SMS will be sent and logistics will be arranged in terms of transport and security provisions around return to work," Lonmin has said in an internal memorandum.