Platinum miner Lonmin Plc said on Monday that it was still financially constrained and unable to fund the significant investment to sustain the business and jobs despite returning to profit with an improved net cash position in the 2018 financial year.
This comes as Lonmin recorded a total revenue of US$1.3 billion for the year 2018, up by US$179 million on 2017, underpinned by a solid operational performance and improved metal prices, resulting in an operating profit of US$101 million.
Lonmin also benefited from the dollar platinum group metals (PGM) basket price, which was 20% higher in 2018 than 2017 as well as the stronger rand, which was on average 2% stronger against the US dollar in 2018.
During the year, Lonmin managed to contain capital expenditure to less than R1 billion, improving its immediately available ore reserves to an equivalent of 21 months.
Lonmin chairperson Brian Beamish told the annual meeting that as a result of its return to profitability, Lonmin was able to make its first payment to the employee profit sharing scheme, an important and motivating milestone for their workforce.
However, Beamish said the group’s liquidity was still insufficient to drive the new projects necessary to avoid shaft closures and job losses despite new and prudent measures to refinance the business with a US$200 million facility which were announced in October 2018.
“Year-on-year performance for the first quarter of the current financial year was down for several reasons. Poor production and correspondingly high unit costs have continued in our second quarter, largely offsetting the benefits of improved PGM prices,” Beamish said.
“We have improved the lost time injury frequency rate by 26% in the period 2015 to 2018, we have taken decisive actions, right-sized the business by reducing over 8,000 positions, improved productivity, applied rigorous cost containment measures, and kept unit cost increases below mining inflation.
“Despite these achievements, we continue to be financially constrained and unable to fund the significant investment required to sustain our business and associated employment in the future. The challenges facing Lonmin and the industry persist. The company is a single asset producer in a single geography and remains exposed to inflationary cost pressures as well as volatility in PGM pricing and exchange rates.”
Beamish said this, together with Lonmin’s current year performance, continued to underscore the vulnerability of the group’s business and the importance of a sustainable long-term solution for the company.
“This is why your board recommends the all-share offer from Sibanye-Stillwater, as announced in December 2017,” he said.
“We continue to believe that this transaction represents a comprehensive solution to the challenges facing Lonmin, offering the company and its stakeholders a more certain future. We believe that a combination of Sibanye-Stillwater and Lonmin will create a larger, more diversified and resilient company better able to withstand market volatility and business disruptions.”
In November 2018, Sibanye has offered to acquire Lonmin for R5.2 billion to create a diversified platinum metals group portfolio.
The matter is set to be heard next week at the Competition Appeal Court after an appeal filed by the Association of Mineworkers and Construction Union (Amcu).
– African News Agency