BEN MAGARA
JOHANNESBURG (miningweekly.com) – Platinum group metals (PGMs) miner Lonmin on Thursday announced a return to profit for the 2018 financial year, with revenue up 6.3% year-on-year to $1.3-billion and an operating profit amounting $101-million, compared with a loss of $1-billion in 2017.
Lonmin CEO Ben Magara commented that the company had managed to navigate a difficult period, by continuing to implement its 2015 Business Plan, namely rightsizing, cost cuts, disposing of noncore assets and restricting capital expenditure.
CFO Barrie van der Merwe commented that these initiatives assisted in the improvement in earnings before interest, taxes, depreciation and amortisation to $115-millon.
Van der Merwe noted that Lonmin achieved improved revenue contributions from all segments bar platinum, with the platinum price down an average of 7% this year, while rhodium and palladium prices increased by 117% and 22%, respectively.
The average rand full basket price (including base metals) was up 19.7% on the prior year, at R13 447/PGM ounce.
He added that Generation 2 shaft production increased by 1.6% to 7.6-million tonnes, while Lonmin continued to reduced high-cost production from Generation 1 shafts.
Earnings a share were up to 14.9c, compared with a loss a share of 352.7c in 2017, and Magara was pleased to note that this enabled the first payment of Employee Profit Sharing scheme. He added that the payment would likely be made in early 2019.
Normalised costs only increased by 1.3%, which Van der Merwe described as excellent. Capital expenditure (capex) was restricted to below its guidance of R1.1-billion at R967-million.
In terms of the company’s guidance for 2019, platinum sales are expected to range between 640 000 oz and 670 000 oz, per Lonmin’s low-cost production strategy. Unit costs are expected to be in the range of R12 900 to R13 400 a PGM ounce, and capex will be limited to between R1.4-billion and R1.5-billion, excluding any external funding for the MK2 project.
Magara noted that he was proud to have presided over Lonmin’s turnaround in market conditions that have remained challenging. However, he agreed with Van der Merwe that the improved performance and the “reprieve” offered by a relatively weak rand and improved PGM prices was not enough to “curb reserve depletion”.
Van der Merwe added that Lonmin remained vulnerable because of its lack of asset diversification and its dependence on favourable platinum prices and exchange rates. He noted that the company lacked the necessary capital to continue to reinvest in its assets or to develop new assets, which had poor implications for Lonmin’s long-term outlook.
“We recognise that Lonmin would be better placed as part of a stronger, enlarged and diversified group. We, therefore, remain focused on completing the transaction with Sibanye-Stillwater, which will provide a stronger platform for Lonmin's shareholders and other stakeholders, and a more sustainable business better able to withstand uncontrollable conditions," Magara noted.
However, he explained that, should the merger fall through, Sibanye had committed to a "Plan B" cooperation agreement with Lonmin, which stipulates that it will enter into negotiations to acquire assets outlined in Lonmin’s Operational Review to ensure that Lonmin has sufficient liquidity in the medium term.
Additionally, Magara noted that the metal-sales transaction with Pangaea Investments Management injected $200-million into the company which, combined with the net cash figure of $114-million, meant that Lonmin effectively had $314-million to sustain the business.
Therefore, with the current basket price of R14 800 per PGM ounce, and costs budgeted at R12 900 per PGM ounce, Magara noted that the company could continue to sustain itself in the short term.
With regard to the 12 600 potential job losses, he noted that, given the improved basket price as well as the Competition Tribunal’s suggested moratorium on job cuts, Lonmin will review merger-specific job losses.
However, he also noted that, as Lonmin is still a standalone company, and because the merger is still subject to stakeholder approval, Lonmin will also review its staff complement relative to its improved position, on a standalone basis.