JOHANNESBURG (miningweekly.com) – Low morale and high management turnover hit the operational performance of Lonmin heavily in the six months to March 31.

In reporting a 4%-reduced workforce to 29 812, Lonmin CEO Ben Magara reiterated his conviction that the consolidation of the company through the all-share Sibanye-Stillwater transaction remained the best way forward.

Although, in the short term, the London- and Johannesburg-listed company 's return to profitability and its forward sale of $200-million worth of metal has improved financial liquidity, these do not provide the company with a long-term capital structure solution to avoid shaft closure and job loss.

Lonmin’s strategy of minimising capital expenditure was also making it increasingly difficult to maintain its production profile and keep shafts open.

Helped by higher platinum group metals (PGMs) prices and a weaker rand-dollar exchange rate, operating profit for the first six months of the company’s financial year to March 31, was $70-million, compared with an operating loss of $32-million in the corresponding period of last year.

Earnings before interest, tax and depreciation (Ebitda) were $78-million, compared with a loss of $26-million, and net cash was $71-million, compared with $17-million last year.

The 25.9%-higher rand basket price of R16 268/oz was hit by a 15.5%-higher unit cost of R14 994/ PGM ounce, on the back of the reduced mining output, lower grades and a poorer recovery rate.

Mining production was 7.7% down at 4.3-million tonnes and total metals-in-concentrate platinum production was 10.3% down at 276 020 oz.

Capital expenditure (capex) was held at R377-million ($27-million), compared with R411-million ($33-million) in the prior year period, as the company continues to use capex as a cash management lever. Even stay-in-business capital, which is considered low risk, was deferred.

Capex and working capital requirements were funded from Ebitda, as well as funding repayments, interest of $38-million and proceeds from sale of Wallbridge and Petrozim of $13-million, which explains the company’s gross cash position of $247-million at March 31 being $17-million lower than last year’s September 30 balance of $264-million. Gross cash was $167-million at March 31 last year. Capital was spent on a new stormwater dam and air emissions’ compliance at the concentrators, and also on the Rowland Merensky project and the fourth phase of the building of infill apartments but capex at the Rowland MK2 project was slowed and design and supplier delays held up capex at the smelter and refinery.

The first-half production setback means that Lonmin expects to achieve platinum sales at the lower end of its 640 000 oz and 670 000 oz guidance range for the year.

Ordinarily, the stronger traditional second-half performance would assist in containing unit cost increases on a full-year basis but I the circumstances, unit cost guidance range has had to be lifted to R13 600/ PGM ounce and R14 400/ PGM ounce produced.

Capital expenditure guidance for the year was given as R1.4-billion to R1.5-billion.