JOHANNESBURG (miningweekly.com) – Advancing its efforts to ride out the low platinum price environment, dual-listed platinum miner Lonmin has announced plans to raise $400-million through a rights issue and has reiterated plans to mothball the high-cost Newman and Hossy shafts and cut some 6 000 jobs.

The company’s share price on the JSE was trading 5% higher at R6.12 a share at 09:57, while its share price on the LSE was trading 3.42% higher following the announcement.

The group’s 7% shareholder, the Public Investment Corporation (PIC), had indicated its intention to take up its entitlement in full in the proposed rights issue.

Further boosting its balance sheet, the platinum major also planned to enter into amended debt facilities with its lending banks for a total of $370-million,
replacing the existing debt facilities commitments, which, at the end of September, stood at $543-million and which would mature in May and June 2016.

“Development and capital work on the Hossy and Newman shafts will be stopped and only immediately available ore reserves will be mined. The group also plans to close and place the 1B shaft on care and maintenance as soon as possible.

“Following renegotiation of ore purchase agreements between the group and contractor management on more favourable terms and, subject to a favourable outcome of the Section 189 consultation process, mining at E1 and W1 shafts will continue for the year ending September 30, 2016.

“These shafts will not be placed on care and maintenance, as previously announced in July, while the K4 shaft will remain on care and maintenance,” Lonmin outlined in a statement.

The company would reassess the viability of continuing to mine these shafts at the end of September 2016.

Banking group Investec believed a successful rights issue and concurrent renegotiation of the debt should ensure the company survived, although it cautioned that, should the funds not be raised, the company remained in “serious difficulty”, with current facilities expiring in mid-2016.

“Clearly, the production profile is shrinking to adapt to the pricing environment and, if platinum pricing remains unchanged, the company will likely continue to struggle. A renegotiation of debt and raising of cash could make Lonmin a more attractive target for buyers,” it said in a statement.

Lonmin expected its sales profile for the year ending September 30, 2016, to be in the region of 700 000 oz, with around 650 000 oz for each of the years ending September 2017 and 2018.

Noting that it employed some 38 000 people, including contractors, it cautioned that, as a consequence of the restructuring plan, some 6 000 employees and contractors would be affected.

“Lonmin’s reduced production profile may lead to job losses.

“In this regard, the PIC and Lonmin will collaborate with government and unions on alternatives to minimise the impact of job losses by finding alternative economic participation for some of the retrenched employees, for example, through agricultural projects in labour sending areas,” it stated.

Lonmin added that “good” progress was being made with the Section 189 consultation process.

In the interest of ensuring timely consultations, it was currently running two concurrent consultation processes with majority union, the Association of Mineworkers and Construction Union and the remaining unions and nonunionised employees respectively.

The group aimed to complete the business restructuring process by the end of September 2016.

“The board believes the implementation of the business plan will result in a cost reduction of around R700-million in the 2016 financial year and a further cost reduction of R1.6-billion in the 2017 financial year,” it held.

Cost savings would be further achieved through a reduction in capital project expenditure to $132-million in the 2016 fiscal year, $110-million in the 2017 financial year and $188-million in the 2018 financial period.

Meanwhile, new measures identified as part of the business plan for overhead and support services would remove associated overhead costs, including the decommissioning of a concentrator and the revision of all incentive schemes to encourage production efficiencies and ensure that bonus and incentives schemes were self-funding.

Yearly bonuses to management-level employees for the 2015 year had been waived, while no salary increases had been granted to management for the 2016 financial year, it added.

SALES OVERSHOOT
Providing a trading update for the year ended September 30, 2015, Lonmin said it had exceeded its platinum sales guidance for the 12 months, offloading 751 560 oz, compared with guidance of 730 000 oz.

The group achieved mined production of some 704 000 oz, after taking into account around 48 000 oz of production lost as a result of Section 54 safety stoppages.

Total platinum metal-in-concentrate for the year was 740 315 oz.

Lonmin, meanwhile, asserted that the “early, decisive” action it had taken to reduce costs and capital expenditure (capex) to preserve cash would result in unit cost of production of about R10 339/oz – well within the original guidance of R10 800/oz.

On an unaudited basis, capex for the year amounted to $136-million, compared with the original guidance of $250-million, while the company closed the period with net debt of $185-million.

Lonmin expected to release its fourth-quarter production report on November 2 and its full-year audited results on November 9.