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LONMIN PLC - First Quarter 2016 Production Report and Update

Release Date: 28/01/2016 09:00
Code(s): LON     PDF:  
Wrap Text
First Quarter 2016 Production Report and Update

Lonmin Plc (Incorporated in England and Wales)
(Registered in the Republic of South Africa under registration number 1969/000015/10)
JSE code: LON
Issuer Code: LOLMI & ISIN : GB0031192486
 ("Lonmin")



REGULATORY RELEASE


28 January 2016


First Quarter 2016 Production Report and Update


Lonmin Plc (“Lonmin” or “the Company”), a primary Platinum producer, today announces its production
results for the three months to 31 December 2015 (unaudited) and a progress update on its Business Plan
for the period from 1 October 2015 to today’s date.


Overview

We are making good progress with the implementation of our Business Plan. As at 27 January 2016 5,077
workers, had left the Group representing 84.6% of our planned head count reduction, in line with
expectations. Removal of high cost production has advanced with the shutdown of the 1B shaft and
opencast completed and further cost reductions are being made through our total cost of ownership
projects. Our Business Plan assumes that a low pricing environment will persist in the short to medium
term and we are managing our business on that basis.

The rolling 12 month average Lost Time Injury Frequency Rate (LTIFR) for the 12 months to 31 December
2015 was 5.38 per million man hours, an improvement of 0.6% on September 2015 at 5.41. Regrettably,
however, one of our colleagues, Mr Zilindile Ndumela, was fatally injured on 26 October 2015 at Rowland
shaft and we extend our deepest condolences to his family and friends. We continue to focus on safety
improvements.

Total tonnes mined in the quarter were 2.5 million tonnes. Saffy shaft is now at full production and
achieved a record 200,076 tonnes in November. In line with our plans to reduce high cost production in
response to low PGM prices, and due to a year on year increase in Section 54 safety stoppages (up 0.2
million tonnes), underground tonnes mined were lower than the prior year period by 11.8% or 0.3 million
tonnes.

Refined Platinum production of 171,441 ounces was 31,618 ounces or 22.6% higher than the prior year
period, as the smelter complex operated well, unlike December 2014 which had smelter shutdowns. Sales
of 150,420 Platinum ounces were 3,530 ounces or 2.4% higher than the prior year period.

The average Rand basket price at R10,859 per PGM ounce was 5.5% lower than the prior year period, a
reduction which was anticipated in our Business Plan. Unit costs for the quarter were contained to R10,949



                                                   1
per PGM ounce, a 5.5% year on year increase notwithstanding the 8.2% year on year increase in labour
costs set in the multi-year wage agreement in 2014. Unit costs in Q1 are seasonally high due to the
distorting impact of the holiday period in December and unit costs are expected to reduce over the course
of the year in-line with guidance of R10,400 per PGM ounce for the full year.

Strategic Update

We continue to proactively manage our cashflows and balance sheet through cost containment measures.
Capital spent in Q1 was $16 million as planned.

Update on Rights Issue and Amended Bank Debt Facilities
The successful completion of the Rights Issue raised $396 million in gross proceeds before the impact of
hedging arrangements which resulted in a forward exchange gain of $4 million. The proceeds net of fees
and expenses relating to the Rights Issue of $27 million were $373 million. This was below the $381 million
expected net proceeds as stated in the Prospectus as a result of exchange rate differences of $7 million and
$1 million higher expenses.

The amended bank debt facilities became effective on 15 December 2015 and are summarised as follows:

     -   Revolving credit facilities totalling $75 million and a $150 million term loan, at a Lonmin Plc level,
         which mature in May 2020 (assuming Lonmin exercises its option to extend the term up until this
         date).
     -   Revolving credit facility totalling R1,980 million, at a Western Platinum Limited level, which
         matures in May 2020 (assuming Lonmin exercises its option to extend the term up until this date).

Lonmin has used part of the proceeds from the Rights Issue to fully repay the amounts drawn on the
revolving credit facilities, leaving $150 million fully drawn on the USD term loan and $203 million in
revolving credit facilities available to Lonmin to draw on when required. Fees and expenses relating to the
amended facilities agreements amounted to $12 million, in-line with the expectation given in the
Prospectus. Net cash at 31 December 2015 was $69 million.

Right Sizing the Group
Progress continues with the restructuring programme due to the new bench marked operating model and
removal of high cost production to ensure the business remains viable. In total by 27 January 2016 5,077
people had left the Group with 2,880 own employees leaving of which 2,440 took voluntary separations
and early retirement packages. The net reduction in contractor headcount was 2,197. This represents
84.6% of our total planned reduction and is in line with expectations. Redundancy costs paid in the quarter
amounted to $13 million.

We reached agreement in December 2015 that we would continue with the mining operations at E1 and
W1 at least until the end of the financial year. As a result, and in the short term, the reduction in contractor
headcount will be 1,000 less than previously reported.

Cost savings
We are making good progress towards achieving the target of R0.7 billion cost savings in 2016 through the
reduction in the size of the Group’s workforce, overhead costs and support service structures and the total
cost of ownership projects. By the end of the first quarter the estimated labour cost was R194 million lower
than the prior year period and total cost of ownership savings amounted to R12 million. In addition a
further benefit of around R84 million has been realised as a result of permanently reducing our metal in
process stock.

Unit costs
The distorting impact of the holidays in December typically results in unit costs peaking in the first quarter
of the financial year. Unit costs in Q1 at R10,949 per PGM ounce increased by 5.5% on the prior year period



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despite the 8.2% increase in labour costs year on year and the increased level of Section 54 safety
stoppages in the quarter. We remain vigilant in containing our costs. The distorting impacts of the
December and Easter holiday periods, which are important for our employees’ health and wellbeing, are
built into our plans and we are maintaining our full year guidance for unit costs of R10,400 per PGM ounce.

Bulk Tailings Treatment
We are progressing towards securing third party funding for the Bulk Tailings Treatment plant. We have
signed an agreement with the counterparty which is subject to various conditions precedent, including
obtaining lender consent to the agreed terms.

Update of Shanduka / Pembani merger
The merger between Shanduka, our former BEE partner and Pembani recently completed with Pembani
assuming all the rights and obligations previously held by Shanduka. Lonmin retains its BEE status.


First Quarter Production Overview

Mining Operations
The Marikana underground mining operations produced 2.5 million tonnes during the first quarter, a
decrease of 11.8% or 0.3 million tonnes on the prior year period. Tonnes lost due to Section 54 safety
stoppages were 0.2 million tonnes partly driven by the fatality in October.

Generation 2 shafts
Production from our Generation 2 shafts (K3, Rowland, Saffy and 4B/1B) was 2.0 million tonnes, a decrease
of 2.5%, or 0.1 million tonnes on the prior year period. Since we are commencing an orderly shutdown and
placement on care and maintenance of Hossy shaft, this shaft is now reported as a Generation 1 shaft and
prior periods have been restated accordingly.

     -   K3, our biggest shaft, produced 684,000 tonnes, a decrease of 2.0% on the prior year period due
         to an increase in the impact of Section 54 safety stoppages.
     -   Saffy shaft produced 497,000 tonnes, an increase of 21.2% on the prior year period. This shaft is
         now operating at full production and achieved a record 200,000 tonnes in November.
     -   Rowland produced 387,000 tonnes, which was a decrease of 18.4% on the prior year period
         driven by safety shut downs following the fatality in October 2015.
     -   4B/1B produced 382,000 tonnes as planned, a decrease of 8.7%. As announced on 9 November,
         the 1B shaft was closed and placed on care and maintenance in October 2015.

Generation 1 shafts
Production from our Generation 1 shafts (Hossy, Newman, W1, E1, E2, E3 and Pandora (100%)) at 0.6
million tonnes during the first quarter was 0.3 million tonnes, or 32.9% lower than the prior year period in
line with the end of life plans for these shafts.

K4 shaft remains on care and maintenance and a small amount of opencast ore was recovered in October
as this operation wound down.

Production Losses
These results have been achieved with significantly increased Section 54 safety stoppages year on year.
Production lost due to Section 54 safety stoppages in the quarter totalled 197,000 tonnes. This was 190,000
tonnes higher than the prior year period. We have examined the relationship between the increase in our
LTIFR and Section 54 safety stoppages and we have developed a safety improvement plan to curb the
increase in LTIs and high potential incidents. Each mine has a 90 day safety turnaround action plan in place
to address site-specific safety challenges and these action plans are implemented by the General Manager
of each area.

                                                                              Q1 2016              Q1 2015



                                                    3
                                                                         tonnes                     tonnes
   Section 54 safety stoppages                                         197,000                        7,000
   Management induced safety stoppages                                    7,000                      13,000
   Labour stoppages                                                       9,000                       2,000
   Total tonnes lost                                                   213,000                       22,000

We remain focused on embedding the safety protocols and improving our safety performance in         light of
the high level of Section 54 safety stoppages.

Process Operations
Total tonnes milled in the quarter at 2.7 million tonnes were 14.9% or 0.5 million tonnes lower when
compared to the prior year period. There was a small amount of opencast ore milled in October as stock
piles were wound down.

Underground milled head grade at 4.47 grammes per tonnes (5PGE+Au) decreased slightly by 1.1% when
compared to the 4.55 grammes per tonne in the prior year period. The overall milled head grade was 4.45
grammes per tonne, also down 1.1% on the prior year period. Concentrator recoveries for the quarter were
excellent at 86.8% albeit slightly lower than the prior year period at 87.1% largely due to ore mix. Total
Platinum in concentrate for the quarter at 166,953 saleable ounces was 16.6% lower than the prior year
period. Total PGMs in concentrate were 320,137 saleable ounces which was 16.2% lower than the prior
year period.

Total refined Platinum production for the first quarter at 171,441 ounces was 22.6% higher than the prior
year period when processing capacity was impacted by smelter stoppages in December 2014. Total PGMs
produced in the first quarter were 331,294 ounces, an increase of 25.0% on the prior year period. The
Number Two furnace was successfully rebuilt and commissioned in early December 2015, having been
disassembled for a planned shutdown at the end of September 2015 for scheduled refractory brick
replacement and design upgrades on the roof and off gas system. The Pyromet furnaces were utilised
during this time to provide the additional smelting capacity required.

Sales & Pricing
Platinum sales for the quarter at 150,420 ounces were up 2.4%, or 3,530 ounces on the prior year period
and PGM sales were up 5.8% to 290,475 ounces. BASF and Johnson Matthey, two of the largest consumers
of platinum group metals globally reconfirmed their commitment to the sector and Lonmin in particular by
both entering into multiple year agreements during this quarter.

The US Dollar basket price (including base metal revenue) at $769 per ounce during the quarter was down
25.6% on the prior year period while the corresponding Rand basket price (R10,859 per ounce) was 5.5%
lower than the prior year period impacted by the Rand weakness. The average Rand to US Dollar exchange
rate was 26.8% weaker at 14.22 compared to 11.22 in the prior year period. Post the quarter end the
platinum price in January 2016 ranged between a high of $891 per ounce and a low of $816 per ounce
compared to the price achieved in Q1 of $886 per ounce. The impact of the decrease in platinum price was
offset by the Rand weakening further against the US Dollar, averaging ZAR:USD 16.37 in January 2016
compared to 14.22 in Q1 resulting in a Rand basket price for January 2016 that is in-line with Q1.


Outlook and Guidance

The weak PGM pricing environment appears likely to continue, offset by Dollar strength. Sales guidance for
the full year is maintained at around 700,000 Platinum ounces. We are maintaining unit cost guidance of
around R10,400 per PGM ounce produced absent any material safety stoppages. Our capital expenditure
guidance for the year of around $132 million (including the $29 million for the Bulk Tailing Treatment plant
expected to be funded by a third party) is currently maintained.




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- ENDS -




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ENQUIRIES

Investors / Analysts:
Lonmin
Tanya Chikanza (Head of Investor Relations)      +44 207 201 6007 / +27 11 218 8358

Media:
Cardew Group
Anthony Cardew                                +44 207 930 0777
Sue Vey                                       +27 60 523 7953

JSE Sponsor: J.P. Morgan Equities South Africa (Pty) Ltd

Notes to editors

Lonmin, which is listed on both the London Stock Exchange and the Johannesburg Stock Exchange, is one
of the world's largest primary producers of PGMs. These metals are essential for many industrial
applications, especially catalytic converters for internal combustion engine emissions, as well as their
widespread use in jewellery.

Lonmin's operations are situated in the Bushveld Igneous Complex in South Africa, where more than 70%
of known global PGM resources are located.

The Company creates value for shareholders through mining, refining and marketing PGMs and has a
vertically integrated operational structure - from mine to market. Underpinning the operations is the
Shared Services function which provides high quality levels of support and infrastructure across the
operations.

For further information please visit our website: http://www.lonmin.com




                                                    6
                                                                                3 months    3 months
                                                                                to 31 Dec   to 31 Dec
                                                                                    2015        2014
Tonnes mined1     Generation 2               K3 shaft                     kt          684         699
                                             Rowland shaft                kt          387         474
                                             Saffy shaft                  kt          497         410
                                             4B/1B shaft                  kt          382         418
                                             Generation 2                 kt        1,950       2,001
                  Generation 1               Hossy shaft                  kt          159         267
                                             Newman shaft                 kt          132         220
                                             W1 shaft                     kt           47          47
                                             East 1 shaft                 kt           30          35
                                             East 2 shaft                 kt           77          95
                                             East 3 shaft                 kt            6          18
                                                            2
                                             Pandora (100%)               kt          118         165
                                             Generation 1                 kt          569         848
                  Generation 3               K4 shaft                     kt            -           8
                                             Total underground            kt        2,519       2,857
                                             Opencast                     kt            7          56
                  Lonmin (100%)              Total tonnes mined (100%)    kt        2,526       2,913
                                             % tonnes mined from UG2 reef
                                                                          %         76.0        76.5
                                             (100%)
                  Lonmin (attributable)      Underground & Opencast       kt       2,467       2,821
Ounces mined 3    Lonmin excluding Pandora   Pt ounces                    oz     149,658     175,357
                  Pandora (100%)             Pt ounces                    oz       7,921      11,329
                  Lonmin                     Pt ounces                    oz     157,579     186,686

                  Lonmin excluding Pandora   PGM ounces                   oz     287,744     334,417
                  Pandora (100%)             PGM ounces                   oz      15,558      22,172
                  Lonmin                     PGM ounces                   oz     303,303     356,589
Tonnes milled 4   Marikana                   Underground                  kt       2,524       2,864
                                             Opencast                     kt          31          93
                                             Total                        kt       2,555       2,957
                  Pandora 5                  Underground                  kt         118         183
                  Lonmin Platinum            Underground                  kt       2,642       3,047
                                             Head grade6                  g/t       4.47        4.55
                                             Recovery rate7               %         86.8        87.2
                                             Opencast                     kt          31          93
                                             Head grade6                  g/t       2.71        3.01
                                             Recovery rate7               %         84.2        85.0
                                             Total                        kt       2,673       3,140
                                             Head grade6                  g/t       4.45        4.50
                                             Recovery rate7               %         86.8        87.1




                                                     7
                                                         3 months    3 months
                                                         to 31 Dec   to 31 Dec
                                                             2015        2014
Metals-in-     Marikana                Platinum     oz    157,873     186,092
concentrate8                           Palladium    oz      73,936      84,817
                                       Gold         oz       3,718       4,406
                                       Rhodium      oz      22,912      27,348
                                       Ruthenium    oz      37,021      43,655
                                       Iridium      oz       7,157       8,448
                                       Total PGMs   oz    302,616     354,765
                                       Nickel 9     MT         822         960
                                       Copper 9     MT         501         592
               Pandora                 Platinum     oz       7,921      12,425
                                       Palladium    oz       3,704       5,700
                                       Gold         oz          22          43
                                       Rhodium      oz       1,328       2,116
                                       Ruthenium    oz       2,164       3,404
                                       Iridium      oz         420         644
                                       Total PGMs   oz      15,558      24,332
                                       Nickel 9     MT          22          28
                                       Copper 9     MT           8          12
               Concentrate purchases   Platinum     oz       1,160       1,653
                                       Palladium    oz         376         490
                                       Gold         oz           3           7
                                       Rhodium      oz         149         210
                                       Ruthenium    oz         215         262
                                       Iridium      oz          60          84
                                       Total PGMs   oz       1,962       2,707
                                       Nickel 9     MT           1           1
                                       Copper 9     MT           1           1
               Lonmin Platinum         Platinum     oz    166,953     200,170
                                       Palladium    oz      78,016      91,007
                                       Gold         oz       3,743       4,456
                                       Rhodium      oz      24,389      29,674
                                       Ruthenium    oz      39,399      47,320
                                       Iridium      oz       7,637       9,177
                                       Total PGMs   oz    320,137     381,804
                                       Nickel 9     MT         844         989
                                       Copper 9     MT         511         605




                                          8
                                                              3 months    3 months
                                                              to 31 Dec   to 31 Dec
                                                                  2015        2014
Refined production   Lonmin refined metal   Platinum     oz    170,931     139,712
                     production             Palladium    oz      77,782      63,443
                                            Gold         oz       4,859       3,654
                                            Rhodium      oz      30,303      18,944
                                            Ruthenium    oz      35,450      32,522
                                            Iridium      oz      10,936       4,349
                                            Total PGMs   oz    330,261     262,625
                     Toll refined metal     Platinum     oz         510         111
                     production             Palladium    oz         197           1
                                            Gold         oz           9           -
                                            Rhodium      oz          60           -
                                            Ruthenium    oz         222       1,889
                                            Iridium      oz          36         502
                                            Total PGMs   oz       1,033       2,503
                     Total refined PGMs     Platinum     oz    171,441     139,823
                                            Palladium    oz      77,978      63,444
                                            Gold         oz       4,868       3,655
                                            Rhodium      oz      30,364      18,944
                                            Ruthenium    oz      35,672      34,411
                                            Iridium      oz      10,972       4,851
                                            Total PGMs   oz    331,294     265,128
                     Base metals            Nickel 10    MT         990         660
                                            Copper 10    MT         549         392
Sales                Refined metal sales    Platinum     oz    150,420     146,890
                                            Palladium    oz      62,332      67,836
                                            Gold         oz       4,714       5,200
                                            Rhodium      oz      35,195      17,114
                                            Ruthenium    oz      29,157      33,335
                                            Iridium      oz       8,656       4,050
                                            Total PGMs   oz    290,475     274,425
                                            Nickel 10    MT       1,071         832
                                            Copper 10    MT         406         402
                                            Chrome 10    MT    438,717     367,507




                                               9
                                                                                                    3 months          3 months
                                                                                                    to 31 Dec         to 31 Dec
                                                                                                        2015              2014
Average prices            Platinum                                               $/oz                     886             1,213
                          Palladium                                              $/oz                     586               787
                          Gold                                                   $/oz                   1,323             1,512
                          Rhodium                                                $/oz                     715             1,199
                          Ruthenium                                              $/oz                      36                52
                          Iridium                                                $/oz                     505               509
                          $ basket excl. by-product revenue 11                   $/oz                     711               961
                          $ basket incl. by-product revenue 12                   $/oz                     769             1,033
                          R basket excl. by-product revenue 11                   R/oz                  10,055            10,689
                          R basket incl. by-product revenue 12                   R/oz                  10,859            11,488
                          Nickel 12                                              $/MT                   7,292            12,683
                          Copper 12                                              $/MT                   4,700             6,517
                          Chrome 12                                              $/MT                      16                18
Unit costs                Cost of production per PGM ounce                       R/oz                  10,949            10,380
Exchange rates            Average rate for period 13                             R/$                    14.22             11.22
                          Closing rate                                           R/$                    15.46             11.56

Notes:
1 Reporting of shafts is in line with our operating strategy for Generation 1 and Generation 2 shafts.
2 Pandora underground tonnes mined represents 100% of the total tonnes mined on the Pandora joint venture of which 42.5%
  for October and November 2014 and 50% thereafter is attributable to Lonmin.
3 Ounces mined have been calculated at achieved concentrator recoveries and with Lonmin standard downstream processing
  recoveries to present produced saleable ounces.
4 Tonnes milled excludes slag milling.
5 Lonmin purchases 100% of the ore produced by the Pandora joint venture for onward processing which is included in
  downstream operating statistics.
6 Head grade is the grammes per tonne (5PGE + Au) value contained in the tonnes milled and fed into the concentrator from
  the mines (excludes slag milled).
7 Recovery rate in the concentrators is the total content produced divided by the total content milled (excluding slag).
8 Metals-in-concentrate have been calculated at Lonmin standard downstream processing recoveries to present produced
  saleable ounces.
9 Corresponds to contained base metals-in-concentrate.
10 Nickel is produced and sold as nickel sulphate crystals or solution and the volumes shown correspond to contained metal.
   Copper is produced as refined product but typically at LME grade C. Chrome is produced in the form of chromite concentrate
   and volumes shown are in the form of chromite.
11 Basket price of PGMs is based on the revenue generated in Rand and Dollar from the actual PGMs (5PGE + Au) sold in the
   period based on the appropriate Rand / Dollar exchange rate applicable for each sales transaction.
12 As per note 11 but including revenue from base metals.
13 Exchange rates are calculated using the market average daily closing rate over the course of the period.




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