Lonmin Raises Full-Year Output Forecast After Profit Return

Lonmin Plc (LMI) raised its full-year output forecast after the third-largest platinum producer returned to profit in the first half as sales increased.

Lonmin plans to exceed 700,000 ounces of platinum metals in concentrate this year, it said in a statement today. That’s more than the 680,000 ounces it projected Jan. 31. Profit of 13.3 cents a share in the six months ended March, compared with a loss of 6.3 cents a year earlier, beat the median estimate in a Bloomberg survey of five analysts for a loss of 4 cents.

South African platinum producers are seeking to rebound from 2012 pay strikes that cut output and raised costs. At stake for Johannesburg-based Lonmin is a recovery from its $698 million annual loss, which prompted spending cuts and debt renegotiations as stagnating prices capped profit. The company will soon start wage talks with unions, with pay increases set for Oct. 1, Acting Chief Executive Officer Simon Scott said.

“Further shrinkage of the industry” would follow if there is a substantial increase in costs, combined with the current pressure on producers’ margins, Scott said on a call.

Platinum producers are seeking to centralize wage talks through the Chamber of Mines, as is done in the gold and coal industries. The Association of Mineworkers and Construction Union, now the biggest representatives of employees in the industry, doesn’t want to participate in such combined negotiations.

Wage Negotiations

“The introduction of centralized wage bargaining in the platinum industry is unlikely this year,” Scott said. “That’s not to say it won’t ever be on the table. It makes a whole lot of sense.”

Lonmin’s platinum sales climbed 2.4 percent to 326,142 ounces in the six months through March from a year earlier. Lonmin produced 366,059 ounces of platinum in concentrate, 0.6 percent less than a year earlier, it said. Costs rose 5.8 percent to 8,648 rand ($951) per platinum-group metal ounce. Platinum prices rose 2.7 percent to an average $1,615.02 an ounce in the period from a year earlier.

The stock gained 2.6 percent to 286 pence by the close in London, with more than double the three-month daily average of shares traded.

Anglo American Platinum Ltd. (AMS), the world’s biggest producer, on May 10 sought to appease the South African government’s anger about its proposal to cut as many as 14,000 jobs by scaling back the reductions at its mines in the country to about 6,000 positions. The revised plans would trim about 350,000 ounces of annual production.

Platinum Deficit

“It’s still a relatively significant number of ounces out of the market,” Scott said of Anglo Platinum’s plans in a telephone interview.

Lonmin expects a platinum deficit of about 200,000 ounces in 2013 because of last year’s disruptions. This may deepen in subsequent years as supply constraints persist, it said. The metal is used in catalytic converters to help reduce harmful emissions.

While there are “difficulties in the operating environment,” prices will change during the next one to two years as stocks of the metal are used up, Scott said in the interview. “Until that time, we need to manage our costs very carefully and that’s what we’re doing.”

South African platinum supply dropped by almost 400,000 ounces in 2012 and is expected to grow by 2 percent to 3 percent annually in “the next few years,” Lonmin said in today’s statement.

Recycled Platinum

While recycling is expected to partially fill that gap, with growth of as much as 10 percent a year, that may not be enough to cover lost supplies, it said.

Competition between the National Union of Mineworkers and AMCU, which is seeking recognition from companies after increasing its membership, is intensifying before wage negotiations. Miners at Lonmin’s Marikana operations refused to go underground in March, demanding the NUM close its office.

The AMCU, with a total membership of about 120,000 workers, wants a threshold for recognition of 30 percent, while Lonmin is seeking a level of 10 percent. The union has referred recognition talks with Lonmin to South Africa’s Commission for Conciliation, Mediation and Arbitration.

“We communicate as needed and on a daily basis with our workforce and we’ve made our intentions clear that we want to reach a negotiated agreement,” Lonmin’s Scott said. “We need to recognize those majority unions and give them the recognition they need, but if there are significant portions of our workforce that are in smaller unions, there needs to be a mechanism of recognizing those unions as well.”

To contact the reporter on this story: Paul Burkhardt in Johannesburg at pburkhardt@bloomberg.net

To contact the editor responsible for this story: John Viljoen at jviljoen@bloomberg.net

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