Lonmin wary of targets as stoppages bite

Cape Town - Lonmin [JSE:LON], the world’s third-largest primary platinum producer, could be forced to review its closely watched 2015 output target if safety stoppages and strikes continue to batter the South African-based industry, its chief executive said.

Ian Farmer said he expected the platinum market to be in slight surplus in 2012, set to be a challenging year for an industry under pressure in South Africa, which produces 70% of the world’s platinum, from increasingly militant labour, government crackdowns on safety, squeezed margins and an uncertain economic outlook.

He said significant hits to Lonmin’s output from safety and other production halts and a need to keep down unit costs could force it to cut its target of 950 000 ounces of platinum by 2015, from just over 720 000 ounces in its financial year to the end of September. It is targeting 750 000 ounces this year.

“At the moment we are sticking to that programme, but we have to really carefully watch the balance sheet because we cannot run a business in negative cashflow territory for long,” Farmer told Reuters. “It is possible we will have to review that, depending on how the near future unfolds.”

Farmer, who said Lonmin was selling everything it produced, expected platinum prices to remain driven by speculation in the short term, though problematic supply and growing automaker demand from 2013 would improve prices over the next 12 to 24 months.

Platinum spot prices tumbled last year and remain shy of their pre-crisis peak despite a recovery in 2012.

“It is a matter of when rather than if prices rebound,” he said, speaking on the sidelines of an industry gathering.

Lonmin, along with the entire South African platinum producing sector, has been battered by safety stoppages in the last months, and the miner alone has lost R100m a month in October to December as a result.

The South African government has said it is willing to review its implementation of “section 54” safety stoppages, which the industry says has been at times arbitrary and damaging in its blanket nature, meaning a whole complex is closed when there is a problem in one part of one shaft.

“To close an entire shaft is a huge issue - you are still incurring the costs of that entity,” Farmer said. “It is using a sledgehammer to crack a nut.”

The platinum industry is concentrated in a region north of Johannesburg and, though it does not have the worst safety record in South African mining, has seen stoppages soar after the Department of Mineral Resources opened an office in Rustenburg, the sector's centre.

The damage to margins, Farmer said, could hurt future investment in an industry where financing future growth is already under pressure from concerns over power capacity and political uncertainty.

Farmer declined to comment on the impact of the planned merger of Xstrata, its 25% shareholder, and Glencore, which is widely expected to result in the eventual, though not immediate, sale of the shares.