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Cape Town - Lonmin [JSE:LON] announced on Monday that it is taking further action to ensure a sustainable business in what it calls a continuing adverse macroeconomic environment.
On 17 July 2017, Lonmin announced its third quarter production results and business update, which reported improved mining performance, reduced unit costs and increased net cash.
Despite what it calls a "pleasing performance", the company said it continues to be concerned by the persistent adverse macroeconomic conditions and the inflationary cost pressures confronting the platinum mining industry in SA.
Therefore, despite having already taken significant measures to reduce costs, Lonmin has decided to implement further measures to ensure that its operations generate sufficient cash to support a sustainable business.
READ: Lonmin surges as cash improves after cost cuts
Immediate results
The immediate results of the operational review include initiatives to generate cash through the monetisation of select Lonmin assets and to preserve cash by reducing fixed costs.
Subject to receiving the necessary consents and approvals, Lonmin plans to pursue all options to maximise cash from its high quality downstream processing operations.
It intends to implement this through the sale of excess processing capacity of up to 500 000 platinum ounces per annum. This would have the benefit not only of releasing capital for Lonmin, but would also allow other South African PGM producers, who currently operate on a sale of concentrate basis, to access the profit margin benefits of an integrated beneficiation model.
The company also plans - subject to the necessary approvals - to review its major development capital requirements over the next few years. Lonmin will consider selling for cash or introducing joint venture partners into Limpopo and Akanani, together with exploring options to introduce funding partners into K4.
READ: Shorts pile into cash-strapped Lonmin as platinum flounders
Rowland
As for Rowland, the company said that, despite consistent strong performance, Lonmin’s current capital position makes it challenging to fund the MK2 project which is necessary to extend Rowland’s economic life.
Lonmin believes the MK2 project will be value accretive and the company will explore options to introduce funding partners and preserve approximately 5 000 jobs.
Furthermore, Lonmin will aim to reduce annual overhead costs by a minimum of R500m by the end of the year ending September 30 2018.
The substantial majority of overhead reductions will come from non-production central functions as the company seeks to right-size its overheads to its operations, it explained. In addition, Lonmin will continue to identify further overhead and cost savings.
"It is too early to define the ultimate effect of the operational review on the company, but the overall aim remains for the business to be cash positive after capital investment," said Lonmin.
Further announcements will be made in due course and Lonmin will engage with all appropriate stakeholders in relation to these initiatives.
Lonmin also announced the approval by the Department of Mineral Resources (DMR) of its S11 application to acquire the Pandora JV from Anglo Platinum, which will defer R2.6bn of capital expenditure and contribute to the sustainability of the business by potentially preserving jobs at E3 shaft.
Lonmin has already received approval from the Competition Tribunal and is in the process of obtaining lender consent.
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