Lonmin to sell excess processing capacity, implement other measures to ensure sustainability

JOHANNESBURG (miningweekly.com) – Despite “pleasing” third-quarter production results, which showed an improved mining performance, reduced unit costs and increased net cash in July, platinum mining major Lonmin remains concerned by the persistent adverse macroeconomic conditions, as well as the inflationary cost pressures confronting the platinum mining industry.

The company, which is headed up by CEO and COO Ben Magara, will, therefore, implement further measures to ensure that its operations generate sufficient cash to support a sustainable business, it noted in a statement on Monday.

This follows the initial conclusion of an ongoing review of Lonmin’s operations, which has the primary objective of preserving value for shareholders and safeguarding the long-term interests of employees and all key stakeholders.

The operational review is focused on enhancing the cash produced by the business – 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 review is also designed to position the company to benefit from any future improvement in the platinum-group metals (PGM) pricing environment,” Lonmin stated.

The immediate results of the operational review include initiatives to generate cash through the monetisation of select Lonmin assets and to preserve cash by reducing fixed costs.

Lonmin plans to implement several measures, which will be subject to receiving the necessary consents and approvals.

The measures include pursuing all options to maximise cash from Lonmin’s high-quality downstream processing operations. Lonmin plans to achieve this through the sale of excess processing capacity of up to 500 000 oz/y of platinum.

“This would have the benefit not only of releasing capital for Lonmin, but would also allow other South African PGM producers who currently operate on a sale of concentrate basis to access the profit margin benefits of an integrated beneficiation model,” the company stated.

Lonmin will further implement a review of the company’s major development capital requirements over the next few years. In this regard, Lonmin will consider selling for cash or introducing joint venture partners into Limpopo and Akanani, together with exploring options to introduce funding partners into K4.

Meanwhile, despite a consistent strong performance from the Rowland shaft, Lonmin notes that its current capital position makes it challenging to fund the MK2 project, which is necessary to extend Rowland’s economic life.

While Lonmin believes that the MK2 project will be value-accretive, the company will explore options to introduce funding partners and preserve about 5 000 jobs.

Lonmin also aims to implement a reduction in yearly overhead costs by a minimum of R500-million by the end of the 2018 financial year. The substantial majority of overhead reductions will come from nonproduction central functions as the company seeks to right-size its overheads to its operations.

Lonmin will also continue to identify further overhead and cost savings.

While it is too early to define the ultimate effect of the operational review on the company, the overall aim remains for the business to be cash positive after capital investment.

Lonmin noted that further announcements will be made “as and when appropriate”.