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Resilient Lonmin beats guidance, ups cash

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Resilient Lonmin beats guidance, ups cash

Lonmin CEO Ben Magara

3rd November 2017

By: Martin Creamer
Creamer Media Editor

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JOHANNESBURG (miningweekly.com) – The board of platinum mining company Lonmin has decided to extend the date of the publication of its 2017 financial results to afford management the opportunity to give undivided attention to the group’s operational review, which is targeting a viable business plan based on the possible raising of new debt capital, continued lender support and the potential disposal of assets.

The company’s decision to extend its reporting date to beyond November 13 coincides with an improved production performance by the resilient London- and Johannesburg-listed company, which has lifted sales for the financial year to September 30 to 706 030 oz, well above guidance of between 650 000 oz and 680 000 oz.

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“We’re pleased with the progress,” Lonmin CEO Ben Magara, who is doubling as COO, said on Friday, his comment arising at a time of a higher rand basket price for the company than when it made its operational review announcement on August 7.

During his days as COO of New Denmark Colliery in the 2000s, Magara saved the coal mine from closure, doubled employment and was appointed CEO of Anglo Coal South Africa at the age of 38.

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At Lonmin, he has wound down high cost production and extracted cost benefits from the company’s mines, which are 600 m below surface on average, compared with the industry’s 900 m to 1 000 m average depth.

Currently, the board believes that the company’s growing net cash position, which rose to $103-million at the end of September from $75-million in March, provides adequate liquidity to fund the business through the review process, which witnessed Lonmin’s three core Generation 3 shafts K3, Rowland and Saffy delivering 13.4% more ore in the three months to the end of September.

K3 was up 20.3% for the fourth quarter, with its August production of 293 000 t the highest since 2013. Saffy’s fourth-quarter production was the highest in its history, and Rowland’s third-quarter production was the highest since 2011.

Fourth-quarter unit costs were held at R11 524/platinum group metal (PGM) ounce on a six element basis, and the fatality-free quarter was supported by a 9.1% better safety performance figure.

The company has a long horizon ahead of it. The South African government has granted its core operations a new-order mining licence that extends to 2037 and which is renewable to 2067.

A year ago, it 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.

Overall, it has a 181-million-ounce resource base and a 32-million-ounce reserve base.

In the longer term, the company has a number of attractive brownfield expansion opportunities that could potentially be developed when the platinum price improves and its processing plants have a knack of achieving industry-leading PGM recoveries.

The promising K4 shaft has been put on care and maintenance. When this shaft ramps up, it will be the lowest-cost operation on the western limb because it will co-extract both Merensky and upper group two (UG2) reefs.

Lonmin 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.

The company is going to have to fight itself out of the current impasse and decide how the held-back K4 shaft can be brought back into service, because it provides real opportunity for return on capital.

Ideal would be to time its steady state to coincide with a better platinum price.

Lonmin will have to think out of the box on how to fund K4, because there appears to be general consensus that it is a potentially lucrative project.

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