Lonmin cuts expenditure plans due to lower prices

Dineo Faku

LONMIN, the third-largest producer of platinum, will cut its capital expenditure guidance for the year by $20 million (R170m) to about $430m due to the challenging environment in the platinum group metals (PGMs) sector.

05/07/2012 William Mvala driller at the Lonmin platinum mine during a media visit at their mine at Marikane in Rustenburg Limpopo.Photo: Leon Nicholas. Credit: INLSA

The JSE-listed firm said yesterday that it had also decided to reduce the capital spend in the 2013 and 2014 financial years to about $250m a year.

This would be achieved mainly by delaying capital spend on its Hossy, K4 and Saffy shafts and “optimising” some of the processing projects, it said.

Lonmin had a $450m capital budget this year to develop new mines that will allow it to produce 950 000 ounces of platinum group metals from 2015.

“The consequence of the decision to reduce capital expenditure is that the increase in production capacity previously announced will now take place more slowly and, in light of the current surplus market, the company will cut production growth and contain platinum sales in 2013 to the current 750 000 platinum ounces level,” Lonmin said.

According to UK-based semi-fabricator and market consultancy Johnson Matthey, the platinum market swung into a surplus of 430 000 ounces last year. The South African mining industry has been affected by a number of labour disruptions and stoppages, including a three-week strike at Lonmin’s Karee mine.

In addition, the cost of production has continued to increase faster than inflation, and there has also been a drop in the price of platinum.

Lonmin said its priority was to address costs. “We continue to identify and implement other cost-saving measures that can be taken while retaining sufficient flexibility to enable us to respond to improved market conditions when these occur,” it said.

In its third-quarter production and interim management statement, released yesterday, the company said ore reserves boosted operational performance. Total PGMs produced in the three months to March increased 16.7 percent to 351 935 ounces, compared with the corresponding period last year.

Marikana processed 2.9 million tons in the third quarter, 18.5 percent more than the same period a year ago.

Lonmin said the increase reflected the unprotected strike at Karee in the third quarter of last year in which 258 000 tons of production was lost.

It said total tons mined during the first nine months of the financial year increased 4.1 percent to 8.8 million tons from the corresponding period in the previous year.

“The increase was tapered by the 387 000 tons of production lost to section 54 stoppages in the first nine months of the 2012 financial year. These stoppages moderated in the third quarter, which also benefited from the absence of the illegal industrial action experienced at Karee in the corresponding prior year period.”

Production at Karee was up 19.8 percent to 3.7 million tons compared with a year ago. Middelkraal increased production by 7.3 percent to 1.5 million tons, while Westerns and Easterns were down 10.1 percent and 1.5 percent, respectively, for the nine-month period.

The dollar basket price was at $1 155 an ounce during the nine months of the 2012 financial year, which was 10.7 percent lower than a year earlier.

Lonmin shares rose 2.72 percent to close at R90.10 yesterday, while the JSE’s platinum index rose by 0.89 percent.