Lonmin losses grow as second quarter production disappoints

Although production improved over the second quarter, the year on year volume decline led to interim revenues falling 6% to $486m and an underlying loss of $35m.

However, an impairment of $146m led to a loss before tax of $199m and a loss per share of 64.4 cents.

Platinum production in the second quarter to the end of March of 2,356 tonnes was down 7.5% year-on-year, which raised the costs of production for the first half.

Production from Lonmin's second-generation shafts of 1.9m decreased 2.8% on the comparative period, as the overall performance was weighed down by the underperformance K3 shaft due to the stand-off between unions and management, while first-generation shafts were cut back as planned due to higher costs.

With two staff killed during mining accidents during the second quarter, there were also 137,000 tonnes lost due to safety stoppages, following another death in the first quarter and a fourth announced since the second half began.

Second-quarter costs rose to 11,836 rand per ounce compared to R10,390/oz in the quarter last year and above the average rand basket price of R11,250/oz.

Platinum sales of 172,042 ounces in the second quarter were down 18.6%.

Sales guidance for the full year was held steady at 650,000-680,000 platinum ounces thanks to the improved mining production in February and March and its smelter clean-up project.

But management increased unit costs guidance for the year to R11,300-11,800 per PGM ounce, up from R10,800-11,300.

Guidance for capital expenditure, funded from operating activities and third party funding, was reduced to R1.4-1.5bn from R1.8 bn.

Although the balance sheet remained relatively unstressed, Lonmin's said the impairment taken during the period reduced the headroom on its debt covenants, which state that consolidated tangible net worth cannot be less than $1.1bn. The headroom was $334m at the end of the period and the company said that any future adverse movements in key assumptions could result in further impairment that could impact this covenant.

Shares in Lonmin were little moved at 113p on Monday morning.

Analyst Yuen Low at Shore Capital said the interim results were "ugly" and that while the balance sheet remained "reasonably healthy for now, with US$625m of current assets versus US$153m of payables - but this could rapidly change for the worse if rand metal prices don’t soon improve significantly".