JOHANNESBURG (miningweekly.com) – Embattled but resilient platinum company Lonmin, which is enthusiastically embracing Sibanye-Stillwater’s offer made to it, did all its stakeholders proud in the fatality-free first quarter of its new financial year by putting in a sturdy operational performance that saw sales rise 9%, refined production soar 17% and tailings retreatment generate hard cash.
The 33 000-employee Lonmin, which in recent years has had to stave off challenges ranging from police massacres to community protests and severe cash burn, has irrepressibly taken every possible step to keep itself financially liquid, including entering into synergistic and opportunistic transactions with rival producers.
Under the leadership of high-spirited CEO Ben Magara, who doubles as COO, production improvement has been consistently up since March 2017, with higher overall sales and good palladium and rhodium prices making positive contributions.
Bulk tailings retreatment, which is currently bringing in the lowest cost ounces in the portfolio, is providing near-term cash on minimal capital expenditure (capex), in what Magara described to Creamer Media’s Mining Weekly Online as “a very lucrative project”.
In addition, Lonmin has signed contracts with Jubilee Platinum and Tharisa Resources, which will contribute an additional 56 000 oz/y of platinum-group metals (PGMs) as concentrate into Lonmin’s processing facilities for toll refining, which will improve capacity utilisation and reduce unit costs.
Net cash at December 31 was $63-million, after first-quarter working capital and capex investment, and historical first-quarter cash burn of $120-million was forced down to $40-million.
In addition to the $63-million of net cash, Lonmin has access to a $150-million term loan in its bank account.
“Given our objective of remaining at least cash neutral, that provides us with adequate liquidity for the offer period,” Magara said in reference to the Sibanye-Stillwater overture.
From mining through processing to sales, Lonmin has gone all out to demonstrate to suitor Sibanye-Stillwater the strength of this mine-to-market capacity and the value of its relatively shallow underground mines business.
Production from its Generation 2 shafts rose 11.4%, with tonnage output from the biggest K3 shaft rising by a steep 17.9%.
Sales guidance for the full year is maintained at between 650 000 oz and 680 000 oz of platinum at a cost of up to R12 500 for every ounce of PGMs.
Capex guidance for the year stays at up to R1.5-billion.
An operational review is targeting a R500-million cost cut by the end of September, mainly from non-production central functions and the cessation of production in high-cost Generation 1 mines.
“It’s getting tougher to cut costs, but unfortunately, you have to cut your cloth to size and that’s what we’re continuing to do,” Magara told Mining Weekly Online.
Lonmin, which is listed on both the London Stock Exchange and the Johannesburg Stock Exchange, has a vertically integrated mining, refining and marketing structure, which will be a big plus for Sibanye-Stillwater if the proposed deal, which does not require Section 11 approval from the Department of Mineral Resources, is approved.
Magara describes Lonmin’s mine-to-market as “enviable” and a record of being the first mining company to monetise the single-block extraction of platinum from upper group two reef in modular fashion.
He also expresses great pride in the resilience of the company’s workforce and describes the company’s assets as the shallowest and most phenomenal in the platinum business.
“Our stakeholders now stand to benefit from the long-term upside potential that the share-for-share Sibanye-Stillwater offer presents,” Magara commented in response to Mining Weekly Online.
Common mine boundaries would also provide an abundance of synergies, which offer the potential of lower costs for the benefit of all stakeholders.
Lonmin achieved significant milestones in the journey towards zero harm at its Precious Metal Refinery, which has been lost-time-injury free for two years, Eastern Platinum Concentrator, and the Marikana mining operations.
It is really only the flat platinum price that has resulted in Lonmin finding itself with its back to the wall and having to deal with the extreme pressure it has placed on the company’s older Generation 1 shafts, which are reaching the end of their lives.
The lack of capital available for replacement of K4 in particular has resulted in a $1-billion-plus impairment to cater for their closure, which raises the spectre of further retrenchment of personnel in the short-term.
High unemployment and poverty continue to present risk from near-mine communities, which only a growing business will be able to mitigate.
“The Sibanye-Stillwater offer on the table is really in the best interests of everyone,” said Magara, who committed the company to a thorough sharing of all the information surrounding it.
PLATINUM INDUSTRY AS A WHOLE
South Africa's platinum-mining industry across the board is having to fund the cooling of deepening mines, which raises costs, Magara explained to journalists.
The industry in general, he pointed out, mined the best platinum grades decades ago and, as an industry, was having to contend with lower grades currently.
Metal prices had still not taken this into account, which had resulted in 65% to 70% of the platinum-mining industry being loss-making.
“The sentiment on platinum prices has not improved, therefore we all have to continue to cut costs,” he added.
However, PGMs remained the most advantaged metals for the “greening” of the world through vehicle emission control on the freeways of major cities.
As the world intensified its standards, more PGMs would be required, which offered robust long-term fundamentals.
The industry was also continuing to develop markets through innovation by participating in local as well as international initiatives.
Lonmin itself was funding two projects, one involving three-dimensional printing of platinum jewellery and the other the purification of its crude nickel by-product into a high-grade nickel sulphate required for lithium-ion batteries.