Lonmin returns to profitability, but lowers 2017 sales guidance

JOHANNESBURG (miningweekly.com) – Embattled platinum miner Lonmin on Monday lowered its sales guidance for 2017 to between 650 000 oz and 680 000 oz, despite the increase in attributable ounces from the additional 42.5% stake in the Pandora joint venture it acquired from Anglo American Platinum last week.

The lower sales, CEO Ben Magara said, were a result of the company’s strategy not to supply a low-price environment, noting that the market – from the perspective of price – was oversupplied.

“This drop is also owing to the removal of high-cost production,” he added.

Lonmin had produced 735 747 oz in the financial year to September 30, exceeding the sales guidance of 700 000 oz. This, the company noted, was supported by its smelter clean-up and metal release from improved processing technology.

The miner, which has been undergoing a restructuring to reduce its losses, also swung to an underlying operating profit of $7-million for the full year, compared with the underlying operating loss of $134-million posted the year before.

During a conference call, Magara said that although the company had emerged from a difficult year, it was now well positioned to weather the challenges of the low platinum group metals (PGMs) environment.

He added that the company had started the new financial year with a strengthened balance sheet and would renew bank facilities in December.

“Many people forecast Lonmin’s demise . . .  but we restructured the business [and] reduced high production costs by closing unprofitable shafts, which enabled us to reduce costs and return to profitability,” he stated.

The company’s cash position also improved from $69-million at the end of the first quarter of the 2016 financial year to $173-million at year-end, while its liquidity improved from $422-million at the end of the first quarter to $537-million at year-end.

Further, Lonmin reduced costs by R1.3-billion. Cost savings were 86% higher than the targeted R700-million. Underlying costs also decreased by 3.2% to R14.1-billion; however, unit costs increased by 4% to R10 748/oz, ont the back of an 8.2% increase in labour costs.

The miner noted that unit costs would remain under pressure in the new year and were expected to be in the range of R10 800/oz to R11 300/oz, with capital expenditure for 2017 expected to increase to R1.8-billion, including the delayed R400-million related to its bulk tailings treatment project.

This project involves the remining of Lonmin's Eastern Tailings Dam and the reprocessing of 26-million tonnes of tailings material at a rate of 300 000 t/m.

Once at steady-state, the project is expected to deliver the lowest-cost ounces in the Lonmin portfolio, producing about 29 000 oz/y of platinum or some 55 000 oz of PGMs.

The project is expected to be mined by a contractor over a seven-year period and to be commissioned and ramped up to full production by the end of 2018.

The chrome is expected to be recovered in a new chrome spiral plant and the contained PGMs are expected to be recovered in the group's upper group 2 concentrator.

Further to this project, there are a number of additional tailings dams available for life extension in the Western Dam, for potential exploitation in the future.