Platinum producer Lonmin shines as cost-cutting strategy shrinks losses
The share price of platinum producer Lonmin jumped more than 15 per cent in morning trading after the company announced its losses had shrunk due to its cost-cutting measures, despite the global slump in metals prices.
The figures
Lonmin announced a total of 2.5m tonnes were mined in the quarter to 31 March, while its core, long-life Generation 2 shafts produced 1.9m tonnes, an increase of 1.1 per cent on the same period last year.
The company's Generation 1 shafts produced 0.6m tonnes, a decrease of 22.1 per cent on 2015, in line with the plan to close areas of high cost production.
The South Africa-based Marikana underground mining operations produced 2.5mn tonnes of platinum during the second quarter, a decrease of 6.2 per cent or 0.2m tonnes on the prior year period due to "the planned decrease in production from the Generation 1 shafts in-line with [Lonmin's] strategy to remove high cost production in a low price environment".
Refined platinum production of 177,444 ounces was 54,964 ounces, which was around 45 per cent higher year on year, as Lonmin's smelter complex operated well (unlike the second quarter of 2015, when Lonmin suffered smelter shutdowns).
Sales of 211,462 platinum ounces were 92,411 ounces, 77.6 per cent higher than in 2015.
The company also announced it had been fatality-free in the most recent quarter, although it acknowledgedthat two fatalities occurred after 31 March – one at Pandora in April and one at Rowland shaft in May.
The company's share price jumped by more than 15 per cent during morning trading after its results were announced.
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Why it's interesting
Lonmin's shares tumbled by more than 95 per cent last year, due to falling commodity prices amid a supply glut and slower growth in top consumer China.
Amid the global slump in metals prices, the firm has implemented a number of cost-cutting measures at lower-output facilities. It also axed 5,077 jobs as of 27 January in a bid to become a lower-cost operator, despite facing pressure from the South African government and labour unions to maintain jobs.
Chief executive Ben Magara has also said Lonmin would not shy away from a merger or takeover.
Lonmin's chief financial officer, Simon Scott, who was appointed to the board in 2010 and served as acting chief executive from August 2012 to July 2013, left the company in mid-April following a "challenging" fundraising round in 2015 to pursue "other interests".
What Lonmin said
The company said in a statement:
Since the second half of January the Platinum price has been steadily increasing and following the quarter end, in April, the platinum price has ranged between a high of $1,068 per ounce and a low of $952 per ounce compared to the price achieved in the second quarter of $918 per ounce. The impact of the increase in platinum price was only partly offset by the Rand strengthening against the US Dollar.
We are continuing to deliver on our Business Plan with the unit cost of production for the quarter at R10,390 per PGM ounce.
What others said
Analyst as AJ Bell Media Relations commented: "Lonmin was a strong early riser after its restructuring plans turned a $6m first half loss a year ago into earnings of $36m this time. The cost cutting programme is ahead of schedule with more than 5400 people leaving the group by the end of March and with nearly 1500 having been redeployed into more productive roles following reskilling."