Lonmin to cut capital spending as platinum price fall bites

Lonmin warned on Monday that weak platinum prices could persist for two more years after the UK-listed miner slumped to an underlying pre-tax loss in the first half of its financial year.

After revealing plans for a possible 3,500 job cuts last week, Lonmin said on Monday it would cut capital spending because it had to "spend within our means" while low platinum prices persisted. The job losses would aim to cut labour costs by 10 per cent and imply the loss of about one in eight of the miner's full-time employees

Following a damaging five-month strike at Lonmin and two other platinum miners last year, Ben Magara, chief executive, said labour unions at the company "realise that it's time to save the goose".

"The union's willingness to recognise the need to act to save the highest number of jobs, and engage us in this process, is something that would have been unthinkable a year ago," he added.

The planned job cuts, which Lonmin hopes will be voluntary, would lead to costs of about R400m ($33m) this year, with savings of R840m annually thereafter, the company said.

Lonmin's underlying earnings before interest, tax, depreciation and amortisation fell more than 90 per cent in the six months to March 31, to $8m, from $103m one year ago.

Stripping out the costs of the 2014 strike, the group swung to an underlying pre-tax loss of $77m in the first half, compared with a profit of $26m one year ago.

Lonmin said its unit costs of production had risen more than 8 per cent a year over the past two years, while the dollar price of the metals it produces fell 6.5 per cent compared with one year ago.

The company also had smelter shutdowns in the first half of the year, reducing its capacity to process metals even though its mined output improved.

Lonmin is to cut capital spending further, from $185m to $160m this year compared with original guidance of $250m. It said it could do so while keeping its aim of selling 730,000 ounces of platinum.

"We have no plans as we speak to you now for shaft closures and we believe with the efforts of all our unions to encourage voluntary and early separation it should give us the cost reductions necessary at current spot prices to weather the storm," Mr Magara said.

But Lonmin will delay development at K4, one of its shafts, because of plans to reduce capital expenditure to about $150m a year in 2016 and 2017. The cuts would "result in a delay in K4 shaft and its eventual production of replacement ounces", Lonmin said.

Mr Magara said there was robust demand for platinum, particularly for jewellery, but added Lonmin was seeing a rapid drawdown of above-ground stocks of metal.

"Financial markets have not caught up with the physical supply and demand dynamics that we are seeing, which gives a confidence we should see these persisting prices lower for longer," he said.

© The Financial Times Limited 2015. All rights reserved.
FT and Financial Times are trademarks of the Financial Times Ltd.
Not to be redistributed, copied or modified in any way.
Euro2day.gr is solely responsible for providing this translation and the Financial Times Limited does not accept any liability for the accuracy or quality of the translation