Lonmin plc (LON:LMI) shares tanked after the South-Africa-focused platinum reported a drop in first half production and wider pre-tax losses.
Shares fell 4.23% to 107.50p around noon.
Production fell 7.6% to 387,000 tonnes in the six months ended 31 March, reflecting the planned removal of particularly high-cost production and labour problems at its Karee 3 shaft in Marikana in Rustenburg. The K3 shaft, the company’s biggest, was hit by safety stoppages and union disputes after a worker died in an accident.
Pre-tax losses grew to US$199mln from US$21mln in the same period last year, in part due to an impairment charge of US$146mln as a stronger rand drove up costs in US dollar terms. Unit costs rose 13% to R12,059 per ounce.
Revenue dropped 6% to US $486mln.
Lonmin in danger of breaking debt covenants...
Lonmin also warned lenders that it is in danger of breaching a rule on its debt facilities that means its consolidated tangible net worth (TNW) cannot fall below US$1.1mln.
The company’s TNW fell to US$1.4mln at 31 March. Lonmin said further adverse movements could result in an additional impairment, which could push TNW lower.
“This risk has been flagged to the group's lenders and is being managed proactively through regular engagements with them,” the company said.
The miner has been restructuring its operations with more than 5,000 job cuts last year after shareholders approved a US$407mln rights issue in 2015 to keep the company afloat during a slump in commodity prices.
Since then platinum prices have improved, rising 6% to US$960 a tonne in the first half compared to the same period a year ago.
Best March production in four years...
Lonmin also said it had ended the period with the best March production in four years after resolving issues at K3. However, chief executive Ben Magara said there was plenty of work to be done.
“While the improvement in mining performance since March is pleasing, I am not yet satisfied that we have delivered all that I know we can, and all of us at Lonmin recognise that this improvement needs to be sustained,” he said.
“We are operating in a volatile and challenging environment, but we have the right team in place to manage these challenges. Further, to enable maximum focus on production, and in line with our hands-on approach, we are moving Lonmin's South African headquarters from Johannesburg to our operations in Marikana."
Lonmin hikes guidance on full year production costs...
Lonmin maintained its full-year sales guidance of 650,000 to 680,000 platinum ounces. It also raised its estimates for full-year production costs from between R10,800 and R11,300 per platinum ounce to between R11,300 to R11,800 per platinum ounce.
Following a difficult start to the year, Lonmin’s chief operating officer resigned in April citing personal reasons. Ben Moolman left two years after taking on the job.
Shore Capital analyst Yuen Low said: “Remember how we suspected that then-COO Ben Moolman’s resignation in April 2017 “for personal reasons” likely presaged bad news? Well, this has come to pass, with the result that full-year cost guidance has been upped while capex has been cut again.”
On the bright side, Low said its balance sheet remained “reasonably healthy for now” with US$625mln of current assets versus US$153mln of payable. But the analyst warned this could rapidly change for the worse if rand metal prices fail to improve significantly.