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Lonmin plunges as miner delays full-year accounts while it finishes operational review

Published: 08:41 03 Nov 2017 GMT

south african mine
Lonmin has cited concerns about adverse macroeconomic conditions and cost pressures facing platinum miners in South Africa

Lonmin PLC (LON:LMI) shares dived on Friday after the platinum miner said it would delay publishing its annual results while it finishes carrying out an operational review.

Back in August Lonmin announced plans to slash costs amid concerns about the platinum mining industry in South Africa.

READ: Lonmin announces plans to slash costs amid struggles in South African platinum mining

Given that the review “continues to demand management’s undivided” attention, the group said it would “not be appropriate” to publish its annual results on November 13 as previously planned.

Although the preparation of the accounts is ongoing, Lonmin said initial indications are that its tangible net worth at the financial year-end would be around US$1.1bn, which would potentially leave it in breach of one of its covenants.

The company managed to get its lenders to postpone testing the covenant on September 30, although talks are ongoing about what will happen further down the line.

The outcome of those discussions could have a “material bearing” on the preparation of the full-year report.

Net cash improves again in Q4

One of the purposes of the operational review is to “ensure that its operations generate sufficient cash to support a sustainable business”.

That didn’t look too much of a concern in the final quarter of the year, with net cash once again improving to US$103mln as of September 30 (30 June 2017: US$86mln; 31 March 2017: US$75mln).

By its own admission, Lonmin had a slow start to the year but things picked up from an operational perspective as the year wore on.

Total tonnes mined during the full 12 months were broadly flat year-on-year at 10.1mln tonnes, compared to 10.3mln in 2015/16.

Platinum sales were stronger-than-expected as well, with Lonmin selling 706,030 ounces – comfortably above its guidance of between 650,000 and 680,000 ounces.

Unit costs came “under pressure” during the year with the cost of production per PGM (platinum group metal) ounce jumping to US$831 (11,701 rand).

Still not easy for South African platinum miners

In terms of the outlook for 2018, Lonmin told investors that the “operating environment remains tough” and that it expects the “foreseeable future” to stay the same.

Unit costs are expected to rise once again next year, with Lonmin guiding for somewhere between US$852 and US$887 (12,000 rand to 12,500 rand).

Lonmin is forecasting platinum sales of 650,000 to 680,000 ounces next year.

Operational review remains “primary objective”

“Given the slow start to the year, we are pleased with the way our mining operations have performed throughout the last three successive quarters to compensate for the poor performance in the first four months of the financial year up to 31 January 2017,” said chief executive Ben Magara.

“We have succeeded in making meaningful progress in this tough operating environment, by improving our production performance reducing capital expenditure to the minimum required for the safe and efficient running of operations, and maintaining operational and strategic flexibility.

“Lonmin's Operational Review continues with the primary objective of preserving value for shareholders and safeguarding the long-term interests of employees and all key stakeholders.”

Lonmin shares dived 15% to 88.55p in early morning trade on Friday. 

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