CAPE TOWN - Lonmin, the world’s third largest platinum producer, yesterday announced the sale of up to 5 000 000 platinum ounces a year of refined platinum to buffer the impact of the depressed commodity price environment and to preserve jobs.
The company said it was taking steps following a review of its operations to ensure that the business was cash positive after capital investment.
It said it was taking decisive action to ensure a sustainable business in a continuing adverse macroeconomic environment.”
“The operational review is focused on optimising the cash produced by the business, both from its operations and through releasing capital from those activities where the company is currently bearing the cost of excess capacity and unrealised development potential,” the company said.
Lonmin said the sale of excess processing capacity or refined platinum would allow other South African platinum producers who sold concentrate to sell more highly process ore for bigger profit margins.
The company, however, did not name any buyers, but said it planned to cut its overhead costs of R500 million by September 30, 2018.
“The substantial majority of overhead reductions will come from non-production central functions as the company seeks to right-size its overheads to its operations,” Lonmin said. “In addition, Lonmin will continue to identify further overhead and cost savings.”
Lonmin said it planned to sell for cash or introduce joint venture partners into its Limpopo and Akanani operations.
Options
It said it would also explore options to introduce funding partners into its K4 shaft, adding that it needed to fund the MK2 project which was necessary to extend the life of its Rowland mine and preserve 5000 jobs.
The announcement comes as Anglo American Platinum, the world’s biggest platinum producer, became the only miner to post a cash positive report, despite the drop in the rand basket price of platinum and high input costs.
Seleho Tsatsi, an investment researcher at Anchor Capital, said that Lonmin had done all it could to keep afloat.
“Lonmin ultimately needs a higher rand platinum price,” Tsatsi said.
“Today’s announcement is an attempt to buy time. They need further rand weakness or a recovery in Platinum Group Metals (PGM) prices. In the absence of that, drastic measures must be taken.”
Last month Lonmin reported that the average unit cost were 4.7% lower than the previous quarter, but 6.4% higher than the previous year for the quarter to June.
The company said that the volume of PGM sold grew by 10.8% to help gross cash grow to $236m at June 30 from $225m at March 31.
Tsatsi said the cutting of R500m of overheads may not be sufficient.
“It is not a huge number in the grand scheme of things, because Lonmin’s cash costs is $1bn a year.
“Lonmin has tried to cut as close to the bone as they can, but they are still burning a lot of cash,” he said.
“They are expected to burn about $100m in the year to September.
“Lonmin has previously gone to the market to raise funds, and last month it demonstrated that it was managing the low platinum price environment when it announced that it had improved production and cut costs in the quarter to June.”
Lonmin shares rose 1.19% on the JSE yesterday to close at R16.11.