JOHANNESBURG (miningweekly.com) – Platinum miner Lonmin, which is currently producing at 30% of normal monthly capacity following the end of the five-month-long strike by members of the Association of Mineworkers and Construction Union (AMCU), expects to increase output to 80% of normal capacity by the end of the financial year.

Operations would return to normal steady-state production during the first quarter of 2015, Lonmin CEO Ben Magara said on Friday.

Lonmin’s third-quarter production was severely impacted on by the industrial action, as 82% of its employees were AMCU members, with the company having lost 3.1-million tonnes of ore containing an estimated 192 700 saleable platinum ounces during the quarter.

Magara added that, over the course of the strike, Lonmin had also lost $322-million as a result of idle production costs, security costs and services to contractors.

“This figure is set to be higher when taking into account the ramp-up cost likely to be incurred in the fourth quarter,” he told the media during a conference call on Friday.

For the three months ended June 30, Lonmin’s Marikana underground operations only produced 200 000 t, a decrease of 2.5-million tonnes, or 92.3%, compared with the prior corresponding period.

Production from the Merensky opencast operations was 38.2% lower than the prior year period, at 78 000 t, while production at the Pandora project decreased by 132 000 t, or 89.2% on the prior period.

Magara further pointed out that the restart of Lonmin’s processing division in May enabled the achievement of platinum metal-in-concentrate production of 23 618 oz and 36 255 oz of refined platinum in June.

For the nine months ended June, Lonmin produced platinum metal-in-concentrate of 238 735 oz, down 56.8% on the prior corresponding period, while sales amounted to 289 414 oz, down 29%.

Magara noted that the company was looking forward to lifting the force majeure on its customers once normal levels of production were achieved.

He added that Lonmin’s metal-in-concentrate production for the 2014 financial year was expected to be around 340 000 oz, with the company also having revised its sales guidance to 420 000 saleable ounces for the period.

Capital expenditure guidance for the year had also been revised downwards from $210-million to around $100-million.

Lonmin’s unaudited net cash as at June 30 was zero, comprising gross debt of $586-million and surplus cash of $586-million. Compared with the $71-million cash position at the end of March, this reflected the series of cash conservation measures the company instituted during the strike and a continued reduction in cash flows.

“[While] we will require increased working capital during the ramp-up process, we have significant headroom left in our banking facilities to fund the increased headroom levels as a result of the ramp-up and rebuilding of our stock pipeline over the coming months,” Magara said, adding that it was expected that Lonmin would repay the drawn facilities to the extent of surplus cash in quarter four.

Research analysts at Liberum Capital said on Friday that, while Lonmin’s net debt was currently zero, this would continue to rise as the company ramped up and rebuilt its stock pipeline.

They added that even once the miner had ramped up production, as a result of the increased wage hikes adding 12.9% to the company’s labour costs in 2014, and 8.8% and 8.2% in 2015 and 2016 respectively, Lonmin would remain cash destructive at today’s prices.

“If prices do not rise, we would expect a third rights issue from Lonmin in the next 18 months,” Liberum said.

However, Magara reiterated that Lonmin had enough money available for the ramp-up and to rebuild its stock and would, therefore, not have to go back to the market for additional cash.

Meanwhile, in light of platinum miner Anglo American Platinum (Amplats) earlier this week announcing its intention to dispose of its share in the Pandora joint venture (JV) operations, in which Lonmin subsidiary Eastern Platinum held 42.5%, Magara said Lonmin would potentially consider acquiring Amplats’ share in the project.

“We always consider our options. We are the most fitting business to be operating Pandora. It is indeed an important operation within Lonmin and we will be considering our options as things unfold,” he said.

EMPLOYEE RELATIONS
Magara, meanwhile, emphasised that Lonmin was making concerted efforts to rebuild and improve the relationships it had established with its employees and communities, adding that employee levels were back to normal following the end of the strike.

“We are reviewing how we can work better together. We are also undertaking a number of initiatives geared towards rebuilding and improving our relationship with our employees and the communities where we operate,” he said.

These included discussions with the Bapo-Ba-Mogale Mining Company to swop their historic royalty, and their interest in Pandora, for shares in Lonmin, Magara noted. 

“We are also in the process of establishing community trusts and employee share ownership programmes to ensure that they can own equity in Lonmin,” he added.

Magara said further details regarding these transactions would be announced once consultations had been completed, but added that, in light of these initiatives, Lonmin was confident that it would meet the required black economic-empowerment targets by the end of 2014.