Johannesburg - South African platinum producer Lonmin will lift production to 80 percent of normal levels by the end of its financial year in September as it recovers from a five-month strike, the company said on Friday.
The longest and costliest strike in South Africa's history, which ended in June, has already cost Lonmin $322 million due to lost production, security costs and forfeited contracts, the company said in its quarterly production report.
Lonmin, and larger rivals Anglo American Platinum and Impala Platinum signed a three-year wage agreement in June with the Amcu union amounting to 20 percent wage rises.
“Ramp up to full production has started and we are making good and steady progress in terms of our plans to return to full production,” chief executive Ben Magara said.
A return to full production for the world's number three platinum producer, which produced 751,000 ounces in 2013, is expected in the first quarter of its next financial year, the company said.
Lonmin said output for its 2014 financial year was expected to be around 340,000 ounces, less than half of what it produced the previous year.
That lost output - over 400,000 ounces - is worth close to $600 million at current spot prices for the metal used for emissions-capping catalytic converters in vehicles.
Lonmin said it expects sales for the financial year to be 420,000 ounces, disappointing some in the market.
Citi said in a note that it had assumed the reboot of the company's operations would deliver sales of 480,000 ounces.
“These numbers were always going to make tough reading after the long strike but they make even tougher reading than we expected,” it said.
Still, the recovery was welcomed by some investors and the company's share price roared 6 percent higher.
“The key positive is that the balance sheet appears in reasonable shape at zero net cash with the company having drawn down its credit facilities of $586 million,” Investec said in a note to clients.
Challenges clearly remain.
The world's top producers were already struggling with rising costs and depressed prices when they were slammed by the strike, which was at times violent.
Magara told a conference call that Lonmin was considering buying Amplats' share of the joint venture Pandora mine as it felt it was “the most fitting business to be operating Pandora”.
Amplats said this week it was one of the operations it planned to sell in the wake of the strike as it follows its long-term strategy of pivoting to more mechanised mining.
Lonmin said it would need to increase its working capital during the ramping up process but did not provide a figure.
“The company has significant headroom available in its banking facilities to fund the debt levels which will rise as we fund the production ramp up, and re-build the stock pipeline over the coming months.” - Reuters