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Johannesburg - Lonmin, the world’s third largest platinum producer rallied on the JSE on Monday strengthen more than 10 percent in early trade at R12.36 a share on the news of improved mining production in the third quarter to June, which resulted in it cutting costs.

The stock firmed as the market also warmed up to the 10.8percent increase of platinum ounce sales on the prior year, the higher net cash levels, and the decision by the company to maintain its production guidance for the full year.

The shares closed 14.82percent higher at R12.86 on the JSE on Monday.

The up-tick came despite the 3percent decline in the average rand platinum group metals (PGM) on the prior year to R11506 an ounce, Lonmin chief executive Ben Magara said.

“We had a pleasing operational performance all round and continue with our decisive work and aim to be at least cash neutral, even at current low PGM prices and a strong rand,” Magara said.

“We continue to find levers to pull, in this “lower prices for longer” environment and to make the improvement of our performance a priority. I am particularly pleased that our net cash has improved.”

Lonmin also recorded a 4.7percent drop in unit costs quarter-on-quarter to R11278 an ounce while maintaining its full-year sales guidance of 650000 ounces to 680000 ounces.

Net cash during the period also improved to $86million, up from $75m recorded during the end of the second quarter.

Lonmin, which was the scene of the Marikana massacre in mid-August 2012, continued to be rocked by community unrest in May, when youth of the area demanded jobs.

Relations

Magara said the company was working with community leaders to rebuild relations. He also said Lonmin had help from labour and other key stakeholders to assist to create a stable operating environment.

“Contractors have also been engaged, where possible, to make opportunities for job creation for community members.

"Generally the community relations around the operations are improving,” he said.

Rene Hochreiter, a mining analyst, Noah Capital Markets, said yesterday that the results were testament that Lonmin was able to manage its costs and respond well to to the low platinum price environment.

“Most people have said that Lonmin is going to be the first casualty to succumb to the low platinum price - these results have proved them wrong,” said Hochreiter.

“Up to now it did not seem possible that South African producers can reduce their input costs, and Lonmin has shown that it can cut its costs.”

Read also: Lonmin sees shares jump

Hochreiter also said that Lonmin’s management changes at 4B shaft helped improve the company’s fortunes.

He said he remained optimistic that Lonmin would meet its annual production guidance.

Lonmin bought the remaining 7.5percent stake in the Pandora platinum operation from Northam Platinum.

Full ownership of Pandora would allow Lonmin to extend the mining at Saffy shaft further on strike east and west of the shaft, and it also allowed it to defer more than R2.6 billion of allocated capital expenditure required for the further deepening of Saffy shaft, of which R1.6bn would be over the next four years.

BUSINESS REPORT ONLINE