It's grim at Lonmin

The glamour of platinum, a precious metal used in vehicle exhaust systems as well as jewellery, has always been questionable. Its appeal to investors is weakened further when they have to buy into a business such as Lonmin to gain exposure. The South African group, which made a pre-tax loss of $118m in the year to March 2015, has high costs and a history of bloody industrial unrest.

The loss represented an improvement on the same period of last year, when the group carried $165m in charges for a strike that in 2012 saw police kill 34 demonstrators. Ben Magara, chief executive, says industrial relations are much better now. They will need to be for him to shed 3,500 staff without difficulties.

Mr Magara plans to shrink Lonmin's costs to cope with a drop in the platinum price that he expects to persist for at least two years. Citi recently warned Lonmin's ratio of net debt to underlying earnings could spike to a steep 7.8 times if spot prices persisted.

Even Glencore wants no part of Lonmin. The usually intrepid commodities group plans to distribute a 23.9 per cent stake to its shareholders.

Lonmin said on Tuesday it would reduce forecast capital expenditure for 2015 from $185m to $160m. Whether this is enough for the company to avoid another rights issue or assets sales will depend on platinum prices and the pliability of a politicised workforce.

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