Fighting the good fight

Lonmin continues to implement its business plan as it outlined to investors ahead of last years’ capital raise. And the market also did its part in giving the company breathing room as it attempts to regain its foothold and return to profitability.

The company provided an operational update on Monday for the third quarter ending June that saw unit costs reduce by 2.2% to R10 596 per platinum group metal (PGM) ounce versus the corresponding period in 2015. Owing largely to the performance of the rand, the basket price the company received rose by 9.2% to R11 864 per PGM ounce. This means that on a cash cost basis (excluding capital expenditure) Lonmin earns R1 268 per PGM ounce sold.

The company sold 162 725 ounces in the third quarter, which was lower than mined production of 166 581 ounces. As the company starkly pointed out, mined production rose by 3.3% despite the company having a 19% smaller workforce.

Mining production rose despite mining volumes staying level at 2.5 million tonnes. What was clear from the update was the continued shift in mining activity from the older Generation 1 shafts to the newer Generation 2 shafts. Generation 2 accounted for 80% of total mining volumes, up from 72% a year ago.

One negative in the update was the 243 000 tonnes lost due to Section 54 stoppages, which is equivalent to almost 10% of mining activity. Two employees lost their lives during the period, and this prompted Lonmin to call a Tripartite Safety Day on July 14, attended by Amcu President Joseph Mathunjwa and officials from the Department of Mineral Resources (DMR). It is for this reason Lonmin announced: “We have yet to fully harness the associated benefits and productivity gains [from the implementation of the business plan]”.

The company also realised the fruits of investment into the other precious metals plant which was commissioned earlier in the year. This has significantly increased the production of rhodium and iridium due to improved recoveries and pipeline shortening.  For the quarter, the company produced 35 120 ounces of refined rhodium and 10 459 ounces of refined iridium.

The cost control and sharp reduction in capex means that Lonmin is in a much improved financial position with net cash of $91 million at the end of June.

The company can now look ahead to the final quarter of the year, one which is typically the strongest as it has the most uninterrupted working days. Full year sales guidance of 700 000 ounces has been maintained, with capex of $105 million and unit costs of between R10 400–R10 700 per PGM ounce.

Things are looking up.