Lonmin Returns to Profit as Miner Clamps Down on Costs

  • Platinum ounces sold will be as much as 12% lower next year
  • Miner has $173 million of cash, more than double first quarter

Lonmin Plc returned to profit on the back of cost cutting this year, but spending hurdles still remain.

Lonmin, the world’s third-largest platinum producer, reported underlying operating profit of $7 million for the year ending Sept. 30, compared with a loss of $134 million a year earlier, according to a statement on Monday. The stock rose 7.3 percent to 209.25 pence as of 9:44 a.m. in London, reversing some of Friday’s loss.

With the highest costs among the three major platinum producers, Lonmin is restructuring operations to stay profitable after shareholders rescued the company with a $400 million share sale last year. However, some of the company’s longer-life shafts need capital, which may weigh on the producer, according to Peter Mallin-Jones, a London-based analyst at Peel Hunt LLP with a sell rating on the stock.

“Without a pickup in platinum-group metal pricing, 2017 is going to look a lot like 2016,” he said. “You’ve got a building capex program, which you can only really finance if prices pick up.”

Lonmin said it will fund capital spending in the coming year from cash from operations and third parties.

Chief Executive Officer Ben Magara said the company is looking at “innovative” funding methods, such as getting cash up front from partners on its bulk tailings treatment project. The purchase of a bigger stake in the Pandora mine will be paid over six years and will save 2 billion rand ($138.6 million) in spending at its nearby Saffy shaft over the next five years, Magara said.

Platinum sales will be 650,000 to 680,000 ounces in 2017, compared with 735,747 ounces sold this year, the Johannesburg-based company said. Costs will probably increase to 10,800 rand to 11,300 rand per ounce of platinum-group metals, higher than this year’s 10,748 rand an ounce.

“We are not prepared to supply an oversupplied market,” Magara said.

Platinum dropped 0.4 percent to $941.80 an ounce, compared to this year’s high of $1,194.64.

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