Charlotte Mathews
19 November 2008
Johannesburg — LONMIN, the world's third-biggest platinum producer, announced drastic steps yesterday, including retrenchment, suspending growth projects and passing its final dividend, to weather low platinum group metals (PGM) prices and the credit crunch.
CEO Ian Farmer, who replaced Brad Mills as CEO six weeks ago, said conditions were expected to remain challenging for at least 18 more months, and PGM prices would not recover until 2010. Spot platinum fell to $825/oz in Asian markets yesterday, almost a third of its peak of $2276/oz in March.
Lonmin is the first of the big three producers to post results since the collapse in credit markets and commodities prices began in mid-September. Angloplat's year-end is December and Implats' is June.
Lonmin headline earnings rose to 413,9 US cents per share for the year to September versus the previous year' s 206,4c on a 15% rise in revenue to $2,2bn. The interim dividend of 59c, announced this year, would be the only dividend paid; last year's total dividend was 115c. Farmer said he could not recall Lonmin previously passing its final dividend.
Numis Securities analyst Simon Toyne said the results were above consensus forecasts but the key to future performance would be Lonmin's ability to navigate market weakness, given its significant net debt of $303m.
The group's forecast costs and prevailing PGM prices and exchange rates suggested Lonmin would still post a small operating loss next year, Toyne said. Cost-cutting announced yesterday could be just a "first pass", with more drastic action necessary.
Although trade union Uasa expressed concern this week that Lonmin would use market conditions to excuse laying workers off when the real issue was platinum miners being used to "exorbitant profits", Farmer said the industry was not in good health at $800/oz. "We are looking at the long-term health of the business, and we need to be realistic."
Lonmin was in talks with unions on the future of its Limpopo operations, uneconomic at today's prices. About 1600 people worked at Limpopo, producing 25000oz of platinum last year. Open-cast operations at Marikana, where about 1000 contractors were employed, would stop at year's end. As mechanised mining productivity had not improved, Lonmin would switch to hybrid mining at Saffy shaft, but retain fully mechanised mining at Hossy shaft.
The group froze recruiting and would halve exploration spend. Capital spending would be cut to $250m from last year's $378m, and limited to mine development at Marikana and necessary process-division spending. All other growth projects were on care and maintenance, including Akanani, which Lonmin and empowerment partner Incwala bought last year.
Farmer said Lonmin had restructured management with a focus on SA, which would see a third of London staff cut and functions moved to SA. He would spend half his time in SA.
He expected group output for the next financial year would be similar to this year's.
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