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
2
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 -
5
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.
10
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