11th May 2015 10:54
LONDON (Alliance News) - Lonmin PLC Monday said its pretax loss narrowed in the first half of the financial year despite revenue being hurt by lower commodity prices, as the company focuses on reducing its workforce, lowering costs and limiting expenditure in preparation for prices to remain low for at least the next two years.
The FTSE 250-listed miner reported a pretax loss of USD118 million for the six months ended March 31, narrower than the USD278 million loss it reported for the first half of the 2014 financial year, as a decline in revenue was offset by fewer impairments.
A year earlier the miner recorded a USD160 million impairment of financing provided to Lexshell 806 Investments (Proprietary) Ltd in relation to the acquisition of Incwala Resources (Proprietary) Ltd, something that didn't repeat in the recent period.
Revenue fell to USD508 million from USD578 million due to lower commodity prices, as the company continued to focus on reducing costs to make its operations more profitable.
Lonmin's loss before interest, tax, depreciation and amortisation in the half year was USD6 million, compared with a USD62 million loss a year earlier. The company's Ebitda before impairment of goodwill, intangibles and property came in at USD8 million, falling from USD103 million.
Lonmin said refined platinum production in the second quarter was 122,480 ounces whilst sales came to 119,051 ounces. Refined production in the first half as a whole was 262,303 ounces, up 2% year on year, with platinum sales up 0.9% to 265,940 ounces.
Platinum group metal contained costs came in at ZAR10,516 per ounce compared with the company's full year guidance of ZAR10,800 per ounce. However, this is still over 8% higher than a year ago.
Lonmin said labour prices increased in the first half of the financial year by 12.9%, and are up 8.8% over the last two years. Lonmin has identified labour costs as a prime area to reduce but said the increases over the last two years have been offset by the cost-saving initiatives put in place. It said it has achieved ZAR376 million of savings to date from its ZAR600 million target over the next three years.
The increase in costs is partnered with lower prices, which averaged USD988 per ounce in dollar terms, 6.5% lower than a year earlier. In South African Rand terms the average price rose 1.9% to ZAR11,263 per ounce due to the Rand's weakness against the dollar.
"Persistently low platinum group metal prices and lower volumes sold due to the smelter outages have resulted in much reduced revenue, partially offset by a weaker Rand/US Dollar exchange rate. In order to protect the long term value of the business we have started the process of reorganising our business," said Lonmin.
The company recently announced it will look to cut 3,500 jobs to reduce labour costs by 10%. It is hoping to conduct the downsizing on a voluntary basis, but said it is preparing for lower commodity prices for a minimum of two years.
Between September and March, Lonmin cut 432 jobs and since March 2014, the company has slashed a total of 1,128 jobs.
"We have continued to make good progress in a tough platinum group metal pricing environment. I am encouraged by our ongoing efforts to manage the controllables including the constructive dialogue through engagement with the unions to reduce costs including labour costs," said Chief Executive Ben Magara.
As a result of the job cuts, Lonmin is expecting to incur costs of ZAR400 million in the current financial year, but said it expects to experience cost savings worth ZAR840 million per year thereafter.
In addition, the company said it will reduce its capital expenditure budget to around USD150 million per year over the next two financial years, whilst maintaining sales of around 750,000 platinum ounces per year. For 2015 the company will reduce its capital expenditure to USD160 million from the previous guidance of USD185 million.
All of the company's production comes from the Bushveld complex in South Africa. Lonmin said that as a result of the reduced capital expenditure, the development of K4, one of its shafts, will be delayed. The K4 shaft was supposed to have gone into production to replace output from other exhausted shafts. As a result, the replacement ounces meant to be offered by the K4 shaft will also be delayed.
"We have been, and will continue to use the operational and capital expenditure levers within our control to reduce costs and preserve cash to navigate the effects of a low platinum group metal price environment," said Magara.
Lonmin reiterated its full-year guidance to produce 750,000 platinum ounces in the full year with sales expected to total around 730,000 ounces, alongside maintaining its current cash cost guidance.
For the rest of 2015, Lonmin said it expects to see increased demand for platinum in the automotive industry, estimating sales growth of 3.7%, whilst jewellery demand is expected to remain flat, accounting for around 38% of the company's platinum production.
Lonmin's level of borrowing was higher at the end of March as a direct result of the lower sales volumes in the first half, which will unwind in second, said the miner. Net debt stood at USD282 million from its total available debt facilities of USD563 million.
"Sales for 2015 are anticipated to be back-end loaded and the debt position is expected to unwind in the second half of the financial year as our stock levels reduce. This combined with our cash conservation measures and capital discipline, gives us confidence that we continue to manage the business within our debt covenants and within our committed debt facilities," said Lonmin.
Lonmin shares were up 2% to 144.90 pence per share on Monday morning.
By Joshua Warner; [email protected]; @JoshAlliance
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