Johannesburg - World number three platinum producer Lonmin is looking at laying off workers because of weakened demand for platinum. South Africa's labour statistics show a sharp pull-back in the number of miners employed in the country during the third quarter of this year.
Trade union Solidarity said Lonmin has issued notices to unions related to possible retrenchments.
"According to this notice, Lonmin is experiencing an immense decrease in the need for platinum - especially due to the drop in new car sales and car production," Solidarity said in a statement.
"Lonmin now plans to cut back on expenses and is therefore considering retrenchments. The group also indicated that it would soon present a revised structure of a more effective and smaller Lonmin to its employees," it said.
Lonmin confirmed it was undergoing a review of its operations to improve their performance, particularly in this time of weak platinum prices, but spokesperson Alex Shorland-Ball declined to confirm whether Lonmin had issued notices to the unions.
"The review is ongoing and we can tell you more on November 18, when we issue our full-year results," she said.
The review was initiated by Lonmin's board when it appointed Ian Farmer as chief executive to replace Brad Mills in October.
"We are currently completing a review of our operations focused on improving performance and maximising value for Lonmin shareholders, with our emphasis being on achieving low-cost production rather than maximising volume." Farmer said in a production report last week.
Labour costs form a substantial portion of a mine's costs, running at between 40-50% of annual expenses.
Share price nosedive
"We expect substantial cuts to capex guidance (from Lonmin) but, especially given structural cost uptrends in power and labour costs in South Africa, we are sceptical on the extent to which operating costs can be reduced," said Numis analyst Simon Toyne.
Lonmin's share price has more than halved from its year high of R565. It hit a low of R169.24 at the end of October before recovering to R192.97 early on Monday afternoon.
The magnitude of decline in share price is not unique to Lonmin and has been experienced by nearly all mining companies as the effects of a global financial meltdown start feeding into economies, lowering demand for a wide range of products.
Statistics South Africa showed in a Quarterly Labour Force Survey on April 28 that the number of jobs in the mining sector fell by 32 000 in the September quarter, compared to the previous three months.
The number of people employed in mining fell to 314 000.
The province with the largest job losses was North West, home to the platinum mines exploiting the western limb of the Bushveld Igneous Complex, the world's richest known source of platinum.
Hostile takeover bid
Statistics South Africa showed 25 000 jobs were lost in North West and a further 11 000 in Mpumalanga, primarily known for its coal mines. This was offset by the creation of 7 000 mining jobs in Limpopo.
"The situation in especially the mining industry has now reached an extremely concerning level in which looming job losses are being discussed at various mine groups," Solidarity spokesperson Jaco Kleynhans said in a statement.
Lonmin started the financial year with a forecast production of 900 000 ounces of platinum for the year to end-September. That was revised to 775 000oz in April and then to 725 000 in early August.
The downward production revisions from the world's third-largest platinum producer, combined with its weak share price, sparked a hostile bid from diversified resources group Xstrata, which claimed it could restore the company to operational health.
The bid has fallen away because of the state of the markets, but Xstrata has taken a 24.9% stake in Lonmin.
Platinum shares have taken a pummelling in the latter part of 2008 as the price for the metal tumbled from a life high of about $2 300/oz in March to $830 on November 3.
The price has dropped because of concerns about falling demand. Platinum is predominantly an industrial metal used to make catalysts in vehicle exhausts. Slowing economies mean lower vehicle sales, and ultimately less demand for platinum.
- Miningmx.com
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