Platinum major Lonmin has revealed it will carry out an “orderly closure” of certain shafts to help minimize the impact of the weakening platinum pricing market.
Low platinum prices
Although the company says it is highly geared to PGM prices, at current metal price levels, its EBITDA is negative. “Our cost minimisation plans are designed to improve this position as much as possible. Since our interim results in May, the platinum price has fallen by 14.4% from $1 126/oz at 31 March to $964 at 22 July,” the company declared in its Q3, 2015 financial results.
“Management has worked tirelessly to contain cost increases and we remain confident that we will produce at a unit cost within our cost guidance for the full year which already includes anticipated savings.”
To safeguard the long-term interests of its shareholders, employees and all key stakeholders Lonmin has taken the decision to approve decisive additional actions to reduce high cost production in an oversupplied market by carrying out the “orderly closure of Hossy and Newman shafts”.
This will be achieved by stopping development and capital work. Instead, only the immediately available ore reserves will be utilised, reducing the overall costs of production and enhancing cash generation and profitability.
In addition, the company has decided to put on care and maintenance a number of Generation 1 shafts, some of which are currently managed by contractors, namely W1, E1 and 1B shaft. This will include reducing the associated active concentrator capacity.
“We are also taking further measures to reduce our overhead and support service structures in-line with the closing of shafts and the resultant reduction in the size of our operations.
“The consequence of these decisions will be that the remaining shafts will allow for a smaller more sustainable and agile business.
“We expect normalised annual production over the next two fiscal years to be reduced by some 100 000 platinum ounces. These actions will protect the majority of the workforce but a total of 6 000 employees including contractors are likely to be affected by these closures.”
“Lonmin is defending value for all stakeholders in responding to the platinum pricing crisis by taking swift, decisive even though difficult measures. Losing jobs is not pleasant but everyone is having to take significant short term pain to preserve optionality for the long term. All costs have to be reduced including labour and I hope our formal consultation process will come up with mitigations to minimise job losses,” says Lonmin Chief Executive Ben Magara.