Johannesburg - Lonmin shares jumped 20.44 percent on the JSE to R43.60 yesterday as the market warmed to the news it had turned the corner and is in better financial health in the six months to March.
The world’s third-largest platinum producer said it had delivered on its promise to reign in costs in an oversupplied market, that its turnaround had come as a surprise and that it was in a better financial position having improved liquidity, generated more cash and kept safety stoppages in check compared to its counterparts in the period under review.
Read: Lonmin turns cash-positive on cost cuts
The company said it had retrenched 5 433 employees by March and that 1 428 employees would be reskilled and redeployed into vacant, more productive roles, as part of the company’s business plan.
No further job cuts
Lonmin chief executive Ben Magara said there were no plans for further job cuts in the current environment.
He said that with the planned closure of the Newman shaft and Hossy shaft, 2 000 employees would be affected. Magara added that he was “cautiously optimistic” about the upcoming wage negotiations.
“Negotiations as we have engaged continuously with our employees and unions on the economic realities that our company has gone through, including the inevitable 5 433 colleagues that we had to sacrifice and lost their jobs.”
Last year, Lonmin was on the brink of a collapse, which was averted by the successful completion of its R5.7 billion rights offer aimed at cutting production from 700 000 ounces in the 2016 financial year, to 650 000 in 2017 and 2018.
The plan aimed to ensure Lonmin was able to operate despite the low platinum price which had declined 25.4 percent and was offset by the weaker rand against the dollar.
Lonmin said it had saved R469 million in the period under review, which represented 67 percent of its full-year target of R700m through cutting its workforce and letting go of contractors.
Labour relations have been rocky in the platinum industry with the Marikana massacre in August 2012 in which mineworkers were shot dead in a confrontation with the police.
Lonmin and its peers Anglo American Platinum and Impala Platinum were crippled by a five-month wage strike in 2014.
Lonmin announced half-year platinum group metals (PGM) unit costs were R10 668 an ounce, with PGM unit cost contained to R10 390 a PGM ounce in the second quarter. Full-year production guidance was maintained at R10 400 an ounce.
Net cash
Net cash was $114m (R1.78bn) at the end of March compared with $185m net debt at the end of September last year.
Magara said in an earlier statement that the results reflected the positive momentum in Lonmin. “We have delivered on our promise to restructure and cut high-cost production in this oversupplied market while simultaneously reducing costs and improving cash flows.”
“Quarter on quarter, Lonmin has reduced unit costs to R10 390 a PGM ounce and improved the net cash to $114m; thus delivering on our promise at the time of the rights issue to be cash-positive after capital in this subdued PGM pricing environment.” Magara said.
Rene Hochreiter, a mining analyst at NOAH Capital Markets, said Lonmin was in a much better position than before.
“They are in a net cash position of $114m. They have instituted efficiencies in their production, for example, they introduced the square-metres-a-person mining method measure again and are using the Theory of Constraints to improve productivity and rolling out those high efficiencies from 4B shaft to K3 and Rowland shafts.
“They have paid off their debt to banks and are in a good position. They did not have the same smelter run-out they had last year, and they had fewer section 54 stoppages than their peers,” said Hochreiter.
Lonmin cut capex guidance from $132m to $105m during the financial year in review.
BUSINESS REPORT