JOHANNESBURG – Lonmin's liquidity will continue to haunt it, despite the platinum producer swinging to a $70 million (R990m) interim operating profit, which was hampered by low staff morale and high management turnover.

Lonmin chief executive Ben Magara said on Friday that the company had rebounded to an operating profit in the first six months to March, from an operating loss of $32m in the prior year, buoyed by the higher metal basket price and the weaker rand, which have helped to lift the fortunes of South Africa's platinum group metal (PGM) producers so far this year.

Lonmin’s liquidity was also reaping the fruit of its decision to refinance its debt arrangements through the $200m Pangaea Metal Purchase Agreement, but the company was not out of the woods yet, Magara said.

“Despite the progress made, this does not provide a long-term solution to the capital structure challenges faced by Lonmin, as it is still inadequate to invest in the new projects necessary to avoid shaft closures and job losses and maintain our production profile,” Magara said.

Liquidity or gross cash increased to $247m at the end of March from $167m in March last year, on the back of the metal sale agreement, with net cash at $71m compared to $17m.

The company's available liquidity is also still vulnerable, when considering its working capital requirements and continuing exposure to volatile currency and metal markets.

“We remain convinced that consolidation through the announced offer from Sibanye-Stillwater creates the best way forward for our shareholders and all our stakeholders,” he said. Lonmin said sales would be at the lower end of its range, between 640 000 and 670 000 platinum ounces. It hiked unit costs for the first half of the year to between R13 600 and R14 400 a PGM ounce produced, from between R12 900 and R13 400 per PGM ounce.

Lonmin’s mining production was 4.3 million tons, a 7.7 percent decline. Production for the quarter ended March dropped 8.4 percent to 2.1 million tons.

“Our performance has been impacted by low morale and high management turnover, instability and uncertainty, due to the extended timeline to close the Sibanye-Stillwater transaction caused by Association of Mineworkers and Construction Union’s (Amcu) appeal to the Competition Appeal Court , which affected safety and production,” Magara said.

Lonmin shares closed 1.99 percent lower at R11.84 on the JSE on Friday.

BUSINESS REPORT