JOHANNESBURG (miningweekly.com) – There would be no platinum price rebound before 2011/2012, a defensive Lonmin CEO Ian Farmer warned on Monday as he set out to raise $457-million in a rights issue and cut rand-based gross operating costs still further in South Africa, where 6 400 jobs have already been shed and 600 more are expected to go.

Lonmin's demeanour prompted Evolution Securities analyst Charles Kernot to put out a "sell" recommendation on the defensive company: "We believe the group needs to cut costs by a lot more than it currently targets."

The smallest of the big-three platinum miners and the first to report in the current period, the London- and JSE-listed Lonmin sees demand for platinum from the automotive industry remaining weak, with the negatives outweighing the positives in the short term and stocks in the system delaying recovery.

The company was battening down the hatches further in the face of the ownership and the structure of the motor industry continuing to “cast a cloud of uncertainty” over platinum group metals (PGMs) mining, with ongoing consumer credit availability remaining problematic.

“We are anticipating a move to smaller, palladium-rich gasoline vehicles as consumers downsize their cars. The gap is also closing on fuel efficiency between gas and diesel engines,” a sombre Farmer warned, with the palladium price only a fraction of the platinum price.

He commented that supply cuts by the PGM-mining sector had not been sufficiently bold and expected supply to exceed non-investment demand by 200 000 oz to 300 000 oz in 2009.

He sees little relief in 2010, which he expects to remain weak: “Only in 2011 and 2012 do we expect to see a market rebound, with prices expected to recover during those years,” he forecast, with Lonmin’s profitability and cash flows remaining highly geared to movements in the rand-dollar exchange rate.

“Given potential financial impact to factors beyond our control, combined with the ongoing economic uncertainty and difficulties in credit markets, the key priority has been the strengthening of our financial position and seeking to adopt a more-robust capital structure.

“With this background in mind, we have launched an underwritten rights issue to raise a net $457-million, which will be used to reduce borrowings under existing credit facilities.

“We have received irrevocable undertakings from our major shareholders, representing 36% of the new shares to be issued, while the remainder is fully underwritten,’ Farmer said.

The rights issue is designed to give the company a more conservative capital structure by improving its ability to withstand potentially adverse movements in prices and rand-dollar exchange rates.

It reduces borrowings and interest charges and provides headroom to accommodate financial covenants in the company’s credit facility.

“A strong balance sheet is important at a time when we want to move the business further down the cost curve though a number of ongoing cost-saving initiatives,” Farmer said, his comments not boding well for an already ravaged South African workforce.

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