Lonmin Cuts Spending Plan on Feeble Platinum Price Outlook

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Platinum Set for Worst Year Since 2006
An ounce of platinum bought 2.58 ounces of palladium as of Nov. 5, the lowest ratio since January 2003. Photographer: Tomohiro Ohsumi/Bloomberg

Lonmin Plc scaled back spending plans to weather a platinum price slump that may last two more years.

The world’s third-biggest producer of the metal cut its capital expenditure forecast for this fiscal year to $160 million from $185 million. It also capped annual spending through September 2017.

“We should possibly see these persistent prices lower for longer,” Chief Executive Officer Ben Magara said Monday on a conference call. Lonmin doesn’t expect prices to recover for about two years, the Johannesburg-based company said in an earlier statement.

Lonmin and larger competitors Anglo American Platinum Ltd. and Impala Platinum Holdings Ltd. are battling prices that have tumbled 36 percent since 2011 while salaries and operating costs have climbed. Lonmin plans to cut about 3,500 jobs, or 10 percent of its wage bill, to save cash.

The company will also spend no more than $150 million in each of the following two fiscal years, according to the statement. That compares with a November forecast of $250 million to $350 million.

Lonmin posted an underlying loss of $77 million, or 10.5 cents a share, for the fiscal first half through March, compared with profit of $26 million, or 3.5 cents, a year earlier. Results were buoyed by an increase in platinum-concentrate output to 381,984 ounces, the most since 2007.

The shares dropped 1.1 percent to 140.50 pence in London, the lowest close since April 22. The stock has declined 21 percent this year, making it the worst performer on the 14-company FTSE 350 Mining Index.

Forecasts Maintained

Lonmin kept forecasts for full-year metal-in-concentrate output of about 750,000 platinum ounces and sales of 730,000 platinum ounces.

“It is encouraging that guidance remains intact,” Investec Plc wrote in a note to clients. Lonmin’s Marikana operations near Rustenberg are “performing well,” it said.

The company operates in the North West province of South Africa, which has more than 70 percent of the world’s platinum reserves. The job-cut plan, which will cost it about 400 million rand ($33 million) this fiscal year, follows a five-month strike over pay in 2014.

“The capex cuts and pressure on the balance sheet that may be exacerbated by the restructuring costs could add to burdens down the road,” Investec said. “Management likely has little choice.”

Lonmin reported net debt of $282 million, saying smelter shutdowns had forced it to set aside output that would have cut borrowings by about $170 million.

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