LONDON - Two important changes – one positive, the other negative - are affecting Lonmin (LSE:LMI), the only London listed platinum group metals producer. On the positive side the group is strengthening its board in a way that seems to ensure there will be smooth management succession in future and also will bring some much-needed platinum operations experience in at top level.
The negative involves the Muni Muni project near Dampier in Western Australia, which once seemed likely to become one of Australia’s first platinum-palladium producers. But, following the collapse in the price of palladium to the lowest level for ten years, development of Muni Muni has been halted and plans for a feasibility study leading to mining of the deposit have been dropped.
To deal with personalities first: the directorship changes importantly involve Peter Ledger, managing director of the platinum operations who is based in South Africa, joining the Lonmin board. The absence on the board of a director with hands-on experience of actually producing the metal was an obvious gap in a group that has been doing all it can to turn itself into a “pure” platinum producer. Ledger, who is 53, joined Lonmin in 1988, became operations director of the platinum division in 1997 and managing director two years ago.
At the same time, Roger Phillimore, who has been a non-executive director since 1997, is becoming deputy chairman, replacing Peter Harper who is retiring. Phillimore is probably best remembered in London as being the late Harry Oppenheimer’s godson and one of a trio of “young Turks” who attempted but failed to turn Minorco, then Anglo American’s vehicle for non-African assets, into a global mining group.
He, Hank Slack (who then was Oppenhemer’s son-in-law) and Tony Lea (apparently not an Oppenheimer relative), were appointed joint managing directors of Minorco at the end of the 1980s and immediately made a bitterly contested bid for Consolidated Goldfields, the London based mining group. When that bid failed, Minorco moved to a more conventional management set-up with Slack as sole managing director. Tony Lea disappeared back to work on a “special project” for Anglo – almost certainly aimed at preparing Anglo for its London listing some years later. Lea emerged as Anglo’s finance director when the listing eventually took place.
During this shake-up Phillimore left Minorco and the Anglo group to do some consultancy work before making his public reappearance at Lonmin. He is also a director of Aber, the Canadian diamond company that is part-owner of the soon-to-be-producing Diavik mine where Rio Tinto is its partner. As someone steeped in mining industry and top management experience, Phillimore has been an asset to the Lonmin board. He was the obvious choice to replace Harper. Analysts see Phillimore, who seems in pole position to replace the 62-year-old chairman Sir John Craven when he retires, as someone who steers with a steady hand rather than as a “mover and shaker.” So don’t expect any big changes of direction if Phillimore takes over.
As part of its strategy, Lonmin decided it was not big enough to justify spending on exploration and decided instead to back junior companies with promising projects. Until relatively recently Muni Muni looked more than promising. A 24m tonne resource of platinum group metals (PGMs) and gold containing 2.1m ounces of precious metal with an in-ground value of US$1.6bn at today’s prices has been established. The resource is the biggest PGM bearing layered intrusion in Australia. It has characteristics similar to South Africa’s Bushveld complex where most of the world’s PGMs are mined.
Muni Muni is owned by Helix Resources [ASX:HLX]. The original intention was for Lonmin to earn a direct 50 percent interest in Munni Munni by spending at least A$8m on a bankable feasibility study. The UK company also has an 11.8 percent shareholding in Helix that could be increased to a maximum of 19.9 percent.
So far A$12m has been spent on Muni Muni of which Lonmin has contributed A$8.7m.
Ewen Tyler, Helix’s chairman, says that, in spite of the amount of precious metal in the Muni Muni deposit, “it is not immediately mineable because of the predominance of palladium and its present low price, and the volatility of prices in its group of metals.” He adds: “Today the world relies on southern Africa and Russia for the supply of these metals. Neither region seems very stable and rising costs are accommodated by serious currency depreciation. It is only a matter of time before metal prices rise or their currencies become worthless.”
He points out that Helix has some other targets to explore and is on the look-out for an advanced project to acquire. It has more than A$6m of cash. Nevertheless, setting an example that some other companies might well follow, the Helix directors are taking a pay cut of 25 percent. “Without a major project under development the rewards for the executives and the board of the company have been set too high,” says Tyler.
Lonmin’s best bet in Australia now is the Panton Sill platinum-palladium project in the Kimberley region of Western Australia. There a start has been made on a bankable feasibility study on a resource of 4.5m ounces of PGMs and gold. This project is owned by Platinum Australia (ASX:PLA) where Lonmin is a 25 percent shareholder and has the right to acquire a further 31 percent.
Platinum Australia has developed a new metallurgical process to recover PGMs that is based on leaching technology long used in a number of Western Australian gold mines. This new process aims to produce a high grade PGM concentrate suitable for delivery direct to the precious metal refinery. Such a breakthrough has the potential to increase the project’s revenue by up to 15 percent by eliminating the smelting stage and reducing concentrate transport costs. It would also significantly reduce the time to deliver product to market and therefore to receive payment.
As Mineweb previously noted, Chris Davies, Lonmin’s group technical director and the company’s representative on the Platinum Australia board, stresses: “To make Panton viable, we need the process to work.” Although the Australian company completed a pre-feasibility study that was favourable, that study assumed a price of US$600 an ounce for both platinum and palladium whereas prices are about US$595 and US$280 respectively.
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