Platinum miners face a “very difficult” six months, Lonmin has warned, as production stoppages, rising costs and falling prices dented first-half results from the world’s third-largest producer of the metal by sales. Ian Farmer, Lonmin’s chief executive, said industrial users had built up platinum inventories as the metal fell to a two year-low around the turn of the year, with stocks close to six months rather than the usual three.
But Mr Farmer pledged to press ahead with the company’s planned capital investment of $450m this year, arguing that an expected pick-up in demand next year would outstrip supply growth, boosting prices.
Lonmin’s London-listed shares fell 5.28 per cent to 852.92p after the miner reported pre-tax profit for the six months to March of $18m, down from $159m the previous year. With cost inflation biting throughout the mining industry, Lonmin said its unit costs in South African rands had risen 10.9 per cent in the first half, against a full-year target of 8.5 per cent. Meanwhile, the miner lost about 464,000 tonnes of production through so-called “section 54” stoppages, approaching three times the lost output in the first half of 2011.
The South African government – through section 54 – can order the compulsory shutdown of mines to investigate safety concerns, a measure that has been widely used in the platinum mining industry, where deep mines mean fatalities are not uncommon.
However, Lonmin, which makes about 60 per cent of its money in the second half, maintained its guidance for costs and production for 2012, adding that the impact of stoppages in South Africa had lessened in the second quarter, an improvement continuing into April and May.
Some analysts had argued that Lonmin could scale back its expenditure programme, after the company last year outlined a $2bn spending plan over five years. The company aims to increase production from 750,000 ounces to 950,000 ounces, lowering its per unit production costs.
Mr Farmer said the company was monitoring its balance sheet capacity and could defer spending if the market failed to improve. Lonmin also in March raised $107m to reduce debt levels through a sale of its future gold production – a byproduct for the miner.
At the end of March, Lonmin had net debt of $356m, or about 11 per cent of its equity capital. Lonmin said it was seeing a gradual recovery in demand from industrial users and the automotive industry, which uses the metal in catalytic converters. But analysts at Credit Suisse emphasised a tough short-term outlook for the metal on Monday. “Auto demand is likely to remain weak with EU production ... falling sequentially over the next two quarters, platinum supply increasing and the rand forecast to remain strong,” they wrote. Shares in Aquarius Platinum, the fourth-largest producer globally, fell sharply last month when the miner announced disappointing production levels and warned the market about “unabated on-mine cost inflation”.
