Bus-Burning Protesters Are Latest Threat to Lonmin Comeback

  • Miner has closed two shafts on concern for workers’ safety
  • ‘Every ounce of production lost really hurts,’ Investec says

Just as Lonmin Plc Chief Executive Ben Magara puts out one fire, another one lights up.

After Lonmin spent 70 percent of its cash in the last three months of 2016 following a labor dispute at the platinum miner’s biggest shaft, Magara, 49, donned a hard hat and mining overalls to meet workers every day in February to ease tensions. The efforts proved successful and he reported in March that production was back on track.

But the relief was shortlived. Violent community protests around the company’s Marikana operations forced it to temporarily close two smaller shafts last week, amid concerns for workers’ safety. A bus was later set on fire.

The protests are just the latest in a litany of social and labor disputes threatening to overshadow Magara’s turnaround efforts when Lonmin publishes half-year results on Monday. The South African platinum producer, which last reported an annual profit in 2013 and has seen its share price decline about 97 percent since then, is under growing pressure to prove it can make money.

“Lonmin appears to suffer from these kind of disruptions more than most,” said Marc Elliot, a London-based analyst at Investec Plc who has a sell rating on the stock. “The effects perhaps seem worse because its operations are concentrated in one area and, given its cash burn, every ounce of production lost really hurts.”

Lonmin had lost the equivalent of about 40 million rand ($3 million) in output through Wednesday since shutting its E2 and E3 shafts on May 3. Protests continued despite a court order, and a community delegation presented demands including the creation of 1,000 permanent jobs and access to mine certain areas. The requests aren’t realistic in the current economic climate, the company said Thursday.

Spot platinum rose 0.3 percent to $921.43 an ounce at 10:51 a.m. in London.

Hearts and Minds

Lonmin’s not the only South African producer grappling with similar issues, as managements face employees’ demands for higher wages and communities seeking jobs in a country with 27 percent unemployment and marginal growth. Impala Platinum Holdings Ltd. said last month it may need to cut more than 1,000 jobs, in part due to prolonged protests.

As operational setbacks are compounded by a platinum price that’s dropped 36 percent in three years, Magara has made tackling social and labor problems a central part of his strategy. The former Anglo American Plc executive, who grew up in rural Zimbabwe and worked his way up through the mining ranks, became Lonmin’s first black CEO when he joined the company in 2013.

“We realized if we were going to turn this ship around, we were going to have to get to the hearts and minds of our people as quickly as we could,” he said in a March interview. “You need to make people see the benefits of keeping Lonmin alive.”

Read: Mining’s biggest loser Lonmin is burning cash to stay alive

Tensions between management and Lonmin’s 30,000 workers run deep.

Five years ago, South African police shot and killed 34 striking workers near the Marikana operations in a massacre that garnered worldwide attention. A record five-month strike in 2014 forced the company into a hugely dilutive share sale, and this year the stock plunged more than 20 percent in a single day in January, when the problems at the K3 shaft was announced. Chief Operating Officer Ben Moolman quit less than three months later.

Proving that Lonmin’s finances have stabilized and it has resolved production problems will be the main focus for investors next week, said Richard Hatch, a London-based analyst at RBC Capital Markets.

“Investors will be looking at Lonmin’s net cash position to see how badly the operational problems that held it back in the previous quarter impacted the balance sheet and how much it has been able to recover,” he said.

The miner had $49 million of net cash at the end of December, even after raising about $400 million from shareholders a year earlier.

Magara said in the March interview he’s confident there’s enough liquidity to run the business.

“You will have cycles when you’re burning a bit of cash and creating a bit,” he said.

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