Lonmin buys remaining Pandora stake

JOHANNESBURG (miningweekly.com) – Platinum mining company Lonmin has bought the remaining 7.5% stake in Pandora platinum operation from Northam Platinum.

In November last year, Lonmin entered into a sale and purchase agreement to acquire Anglo American Platinum’s 42.5% stake in Pandora, taking ownership to 92.5% of an asset with long-term development potential.

The London- and Johannesburg-listed company, which is headed up by CEO and acting COO Ben Magara, said on Monday that it was buying the stake from Northam’s Mvelaphanda Resources for R45.5-million cash and refunding the value of any cash calls paid by Mvelaphanda to the Pandora JV during the period from January 1 and completion of the deal, which are expected to total between R6-million and R8-million.

Lonmin is in the process of obtaining regulatory approvals for the transfer from Anglo American Platinum of the 42.5% equity interest in Pandora, which it anticipates will be completed this year.

Completion of the two transactions will result in Lonmin increasing its ownership in the Pandora JV to 100% from its current 50% holding through its Eastern Platinum subsidiary.

The rationale of the deal is to consolidate its position in what is a relatively shallow and high-grade mineral resource, providing an attractive option for development by Eastern Platinum.

“This has immense capex benefits to Lonmin,” Magara told journalists in a conference call in which Mining Weekly Online participated.

Lonmin will be able to access a portion of the Pandora mining right from its adjacent Saffy shaft, allowing it to defer R1.6-billion of capital expenditure (capex) at the Saffy shaft from 2018 to 2020 while maintaining full production at that shaft.

It will also be able to defer a further R1-billion capex thereafter.

In the longer term, Lonmin will also have the option to optimally develop this shallow, high-grade resource as and when supported by market conditions.

The E3 shaft acquired in the Pandora deal is the shallowest and thickest of the company’s UG2 reefs, the chrome content of which Lonmin is particularly adept at extracting and monetising.

Other initiatives include the bulk tailings retreatment project, which is on schedule to deliver profitable ounces, and the smelter clean-up project, which releases ounces locked up in the processing passage.

The company is served by sound downstream processing insight that achieves impressive concentrator, smelting and refinery recoveries.

At mining level, its 600-m-below-surface average mining depth  provides a cost advantage over the industry’s 900 m to 1 000 m average.

When Lonmin announced its interim results for the six months to March 31 as well as its second-quarter production report, it disclosed that South African headquarters were being moved from Melrose Arch in Johannesburg to the company’s mines in Marikana against the background of a half-year operating loss $181-million, including an impairment charge.

Magara said the company was determined to remain at least cash neutral after capex in the current environment.

Excluding the impairment charge, the loss would have been $35-million, up on the operating loss of $15-million for the corresponding period last year.

The impairment of $146-million has reduced headroom on the tangible net worth lending covenant to $334-million.

Total tonnes mined in the half year were down 7.6%  to 387 000 t owing to the planned removal of 258 000 t  of high-cost production from its old Generation 1 shafts as well as the poor mining production from K3, its biggest shaft, which was down by 145 000 t in the first four months.

Decisive action taken to deliver mining improvement has resulted in the best March production for four years.

A flatter management structure with the GMs now reporting directly to Magara and by leveraging off its relationship with the union to address the management/union impasse at K3 has resulted in a step change in production at all shafts.

Improving production underpins maintenance of sales guidance of 650 000 oz to 680 000 oz of platinum for the full 12 months.

Unit costs in March were R9 695/oz of platinum group metals (PGM), on the back of improved mining production.

Unit costs guidance for the full year is being lifted to between R11 300/oz of PGMs and R11 800/oz of PGMs.

Net cash at March 31 improved to $75-million from $49-million at December 31, compared with $114-million as at March 31, 2016. Total liquidity was $447-million.

Revenue of $486-million was down 6% compared with prior year revenue of $515-million as a result of lower production, offset by an 8% increase in revenue per ounce.

“While the improvement in mining performance since March is pleasing, I'm not yet satisfied that we've delivered all that I know we can,” Magara said during a conference call in which Mining Weekly Online participated.

Three employees – Giji Mxesibe, Joao Fernando Macamo and Letlhohonolo Rakotsoane – were fatally injured during the half year.