JOHANNESBURG--Lonmin PLC (LMI.LN) warned Monday that it would
miss full-year production targets after it was forced to close a
shaft at its Marikana mine in an effort to save cash, making it
more likely the miner will have to tap equity markets to avoid
breaching its debt obligations.
As strikes at the mine run into a sixth week, the world's third
largest platinum producer said it would put its K4 shaft, which
hadn't yet ramped up to full production, on "care and maintenance"
and said it would terminate a contract to staff the mine with
Murray & Roberts Holding Ltd. that employs about 1,200
workers.
As a result of the move, Lonmin expects to sell between 685,000
and 700,000 troy ounces of platinum in 2012, down from the 750,000
ounces it forecast in July. The company also said that the cost of
production per unit of platinum would increase by more than 8.5%
due to the lower output.
Several analysts said the lower than expected output makes it
almost certain that Lonmin will have to raise equity in order to
shore up its balance sheet.
Lonmin has been battling to get workers to return to Marikana,
its main source of production, since 3,000 rock drillers downed
tools Aug. 10. Workers are demanding a salary increase to 12,500
rand ($1,520) a month, a near tripling of what many on the ground
say they make now, amid widespread industrial unrest in the key
South African mining sector.
Lonmin's Acting Chief Executive Officer Simon Scott, said at the
weekend that the company can't afford to meet the demand, which
would cost ZAR2.3 billion to implement.
"We have to acknowledge that we are running a platinum mine in
the most difficult trading conditions our industry has faced," Mr.
Scott said in an opinion piece published in a local newspaper
Sunday. "The people who provide the capital we need to invest in
our mines have been seeing negative returns."
The company already cautioned in July that, in light of weak
platinum prices and lower demand, it would cut capital spending
plans for the next few years, halving what it planned to spend in
2013 and 2014 to $250 million a year.
Deutsche Bank expects the company will need to raise $700
million via a rights issue, if production setbacks at Marikana
persist. The final amount depends on whether platinum prices
recover from current depressed levels and how quickly Lonmin is
able to restore production when the strike does end, and on whether
it intends to raise capital just to cover short-term debt
obligations or longer term debt obligations as well.
Analysts at Investec said they are assuming the company will
have to raise $500 million in 2013 at least to shore up its balance
sheet.
"The company's reputation has suffered and may cloud investor
sentiment for some time," the Investec mining team said.
But SBG Securities' analyst Justin Froneman said the timing of a
rights issue isn't as pressing as some market participants may
expect.
"They could possibly hold on for another six months or so at
current rand PGM [platinum group metals] basket prices, assuming a
very near term return to work by striking employees," he noted. He
forecast the company may look at raising about $400 million to
cover its short-term debt obligations and working capital
needs.
Unions, Lonmin management and worker representatives resumed
wage talks Monday. Tensions remain high at the mine after 45 people
died in strike clashes, including 34 shot by police Aug. 16, and as
police step up efforts to track down and arrest those they believe
are leading the strike, which has also affected production at Anglo
American Platinum Ltd. and Gold Fields Ltd.
Write to Devon Maylie at devon.maylie@dowjones.com
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