JOHANNESBURG (miningweekly.com) – The shares of platinum major Lonmin rose 6% in Johannesburg on Monday following the company’s presentation of expectation-exceeding production ramp-up, worker help in preventing the closure of a troubled shaft and the company going all out to keep all excess workers busy as it reaped the benefit of improving efficiencies and initiated a plan to cut costs by R2-billion over three years.

The share price hit R34.80 on the JSE before 14.00 with Liberum Capital’s mining analysts recommending that shareholders hold on to the stock and those at Investec Securities noting that the post-strike ramp-up had outperformed plans, resulting in platinum sales of 441 684 oz.

An upbeat Lonmin CEO Ben Magara said in response to Mining Weekly Online that job cuts were no longer inevitable, as previously stated, as a result of well-attending employees throwing their weight behind productivity improvement, which was helping the London- and Johannesburg-listed company generate more cash to step up asset utilisation.

“We’ve not wasted a good crisis,” said Magara, who outlined how management and operating changes have been merged to take Lonmin to the next level of cost capital efficiency.

“Most importantly, we’re rebuilding our bridges,” said the head of a company that has sufficient funds to recreate a stable, profitable and sustainable business, assisted by the redeployment of excess labour to increase output in better margin areas.

Twenty-one months of immediately available ore reserves are providing the critical operational flexibility required by the company, which has taken its 28 000 employees into its confidence on its plans to cut costs by R2-billion in three years, promising that all employees will succeed if the company succeeds.

Of the R2-billion targeted for cutting, R600-million will come from operational efficiencies, including 15%-better crew efficiencies and 5%-better process recoveries.

The company’s K4 shaft is the next shaft that is expected to benefit from the targeted approach that delivered improvements at Saffy and Hossy, the latter earmarked earlier this year for care and maintenance.

A dedicated team is being placed into K4 to prepare the shaft for ramp-up, using the excess labour from all the other shafts.

“We’ve put a top team in place and expect a step change,” said Magara, who has put a COO in place to ensure the unlocking of mining and processing synergies and to implement standardisation.

In preventing job loss, Lonmin is also going all out to be a positive force in South Africa and to play its part with government to deliver change, the end of the strike having energised relationship rebuilding.

Also stepping out to improve asset utilisation, it has already seen the utilisation of the hoisting capacity of the Saffy shaft improve from 48% to 81%.

“The unions and our employees came on board at Hossy and we can see green shoots in our preparation at K4 - but obviously it takes two to tango,” Magara added in response to Mining Weekly Online.

Marginal Hossy went from 90 000 t a month last year to nudging 120 000 t a month capacity now.

Marginal opencast operations, with a year’s life left, are likely to be allowed to run their course, as the company’s constructive engagement with its employees has achieved an impressive fourth-quarter performance, with 2.8-million tons mined.

Magara predicted that 2014 platinum supply would be in significant deficit and said the company’s strategy of mining for value would position it well.

“We believe efficiency and cash are king,” he said, adding that capital was being allocated to projects that provided the best cash generation.

Capital expenditure for 2015 had been slashed from the $400-million of 2012 to $250-million, while maintaining production at 750 000 oz of platinum at a below-inflation unit cost of production of R10 800/oz.

Post strike, Lonmin prioritised shafts that would generate cash early, and decisive cash conservation measures and use of stock resulted in the improved financial flexibility.

Early planning and cash conservation during the strike and quick production thereafter has resulted in underlying profit before tax of $46-million, net debt at $29-million and available bank facilities at $575-million, providing the company with significant headroom.

Overall, however, platinum sales were down 254 000 oz, which reduced revenue by $442-million compared with the prior year.

Total underlying profits for the year decreased by $443-million, mainly due to the impact of decreased production levels, causing a reduction of underlying earnings before interest, taxation, depreciation and amortisation (Ebitda) of $127-million in 2013, to $194-million, and a reduction in the underlying Ebit of $112-million to $52-million.

Including the impact of all costs, the company reported a before-tax loss of $255-million in the 12 months to September 30, compared with a before-tax profit of $147-million in 2013.

Underlying earnings a share and the basic loss a share for 2014 are 5.4c and 33c.

The total of these strike-induced costs amounted to $307-million, made up of idle fixed production costs of $287-million.