World number-three platinum-miner Lonmin said on Wednesday that it would once again miss the elusive one-million ounce production mark in 2008, after staff hassles and a fire at its smelter marred its results for the year ended September 30.

Its woes were compounded by gross costs of sales for each ounce of platinum-group metals that it produced rocketing by 38% in rand terms, compared with the 2006 figure.

CEO Brad Mills said that he expected costs of sales to continue their upward march, increasing by some 15% in 2008, but that this would not be unique to Lonmin.

A platinum analyst who asked not to be named said that this figure was "phenomenally high".

He said that he suspected that Lonmin had "kitchen sinked the future" with this forecast.

However, Mills said in a telephone interview with Mining Weekly Online that the firm had recently signed a double-digit wage hike deal with its workers, which, including add-ons and housing, was close to a 14% increase.

He also said that Lonmin's power and water costs would rise by around 20% in the 2008 fiscal year.

Mills said he believed the entire South African mining industry would suffer cost increases in the region of 14% over the next year.

900 000 oz target

Meanwhile, Lonmin believed that its restated production forecast of 900 000 oz in platinum sales for the 2008 financial year would be achievable.

Lonmin, which had a history of over promising and underdelivering, might now have chosen to "go the other way", and give significantly conservative forecasts, the analyst suggested in a telephone interview.

Mills hinted that this could be the case, saying that Lonmin had "obviously burned its fingers" with its forecasts for the 2007 year, adding that after having taken a very hard look, 900 000 oz of platinum sales for 2008 was what it was "comfortable" it could achieve.

However, he noted that there were risks associated with achieving this forecast, such as the possibility of having to close loss-making pits. Mills did have hopes that Lonmin would be able to offset this, though.

In contrast, Old Mutual Investment Group South Africa analyst/fund manager Heye Daun was sceptical.

"I would be surprised if Lonmin actually achieves that level of sold ounces," he commented.

"It is important to define the type of ounces in this context, as Lonmin likes to use ‘in process ounces' and declare them as production ounces. This is a stretch of my definition though, as unless you have actually smelted and refined the material, it cannot be sold, and, therefore, I prefer a narrower definition than the one Lonmin uses, and on my measure, I remain to be convinced that Lonmin will achieve the 900 000 oz," Daun detailed.

Mills, meanwhile, said that the firm had tackled the issues that had negatively impacted on it in the 2007 fiscal year.

Daun seemed to concur. "I think Lonmin has been going through considerable difficulty and, having established a new production base and outlook, have at last acknowledged these difficulties," he said in reply to emailed questions.

For example, Mills had moved to beef up his management team, he said in a conference call.

He put forward that the high rate in staff turnover had led to "a disconnect in short-term planning and long-term life-of-mine planning".

However, this statement did not convince the unnamed analyst.

"If there has been a disconnect in short-term planning and long-term life-of-mine planning, maybe there is a disconnect between London and Rustenburg," he quipped.

Mills, based in London, had previously come under heavy criticism from analysts who argued that he did not spend enough time in South Africa, where all of Lonmin's operations were located.

"I think that the effect of the new management team has not been proven yet and, for that reason, I reserve judgement and would like to see some consistent performances over more than one quarter in order to re-establish full faith in the production capacity of the company," concluded Daun.

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