Wrap Text
2016 Q3 Production Report and Business 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
1 August 2016
Third Quarter 2016 Production Report and Business Update
Lonmin Plc (“Lonmin” or “the Company”), one of the world’s largest primary platinum producers, today
announces its production results for the quarter ended 30 June 2016 (unaudited) and a business update. Ben
Magara, Chief Executive Officer, said: ‘Another good quarter in a challenging operating environment. Again I am
pleased that we continue to focus and execute on our committed strategy.’
Third Quarter Highlights
- LTIFR improved by 4.5%. Sadly two colleagues were fatally injured. We declared and held a Tripartite Safety
Day on 14 July, in conjunction with the Department of Mineral Resources (DMR) and The Association of
Mineworkers and Construction Union (AMCU)
- Mined Platinum ounces up 3.3% to 166,581, notwithstanding the rationalisation of the workforce by 19%
(compared to people as at 30 June 2015)
- Concentrator recoveries continue to be industry leading at 87%
- Produced 2.6 million tonnes from underground mining, broadly flat on Q3 2015
- Generation 2 shafts production up 8.7% to 2 million tonnes, and productivity up 6%
- Unit costs reduced by 2.2% year-on-year to R10,596 per PGM ounce (6E basis), in spite of RSA CPI of 6.3%
and increased safety stoppages
- Average Rand full basket price (including base metals) up 9.2% on Q3 2015, at R11,864 per PGM ounce
- Refined production of 173,512 and sales of 162,725 Platinum ounces on track to achieve full-year guidance
- Net cash of $91 million as at 30 June 2016, after working capital and capital expenditure investment of $51
million. Total Liquidity at 30 June 2016 was $451 million
3 months 3 months
to 30 Jun to 30 Jun
2016 2015
Tonnes Generation 2 kt 2 043 1 881
mined1 Generation 1 kt 526 698
Generation 3 kt 18
Total underground kt 2 569 2 597
Opencast kt 63
Lonmin (100%, incl Pandora) Total tonnes mined kt 2 569 2 659
% tonnes mined from % 74.6% 74.0%
UG2 reef
Lonmin (attributable) Total tonnes mined kt 2 508 2 604
Ounces Lonmin (incl Pandora) Platinum oz 166 581 161 204
mined3 PGMs oz 320 514 310 051
Tonnes Total kt 2 514 2 811
milled4 Head grade6 g/t 4.68 4.40
Recovery rate7 % 87.0% 86.7%
Metals-in- Platinum oz 164 647 172 672
concentrate8 Total PGMs oz 316 480 332 355
Sales Platinum oz 162 725 231 778
refined metal Total PGMs oz 315 091 437 160
Average prices $ basket incl. by-product revenue12 $/oz 796 907
R basket incl. by-product revenue12 ZAR/oz 11 864 10 861
Exchange rate Average rate for period13 ZAR/$ 14.99 12.08
1
Unit costs Cost of production per PGM ounce ZAR/oz 10 596 10 839
2
Third Quarter Production Overview
Safety
- The 12 month rolling LTIFR to 30 June improved by 4.5% to 4.87 per million man hours from 5.10 at 31
March.
- Regrettably, two colleagues were fatally injured in April and May, and after the period end there was
another fatality at our E3 shaft in July.
- We have intensified our focus on a number of safety initiatives through visible felt leadership and direct
employee engagement. This includes continued focus on Fatal Risk Control Protocols relating to Fall of
Ground and Scraping & Rigging; mining industry occupational safety and health initiatives (MOSH); hands
and finger injury prevention campaigns; cross-site safety audits; the roll out of people and vehicle detection
systems; compliance audits on contractors and contractor management; and training through on-the-job
team coaching and leadership coaching sessions.
- We also declared and held a Tripartite Safety Day on 14 July at Rowland and E3 shafts, incorporating our key
stakeholders including the DMR and AMCU, in our continuing efforts to prioritise improving safety
performance. Alongside the Company, the focus on safety was also reiterated to employees by Mr Joseph
Mathunjwa, the President of AMCU, and Mr Monageng Mothiba, Principal Inspector of Mines for the
Rustenburg region and our CEO.
- Our safety strategy is centred on the belief that zero harm is achievable and important contributions are
required from all stakeholders to achieve it.
Mining Operations
The Marikana underground mining operations (including Pandora) produced 2.6 million tonnes during the third
quarter, a decrease of 1.1% or 28,000 tonnes on the prior year period, reflecting the planned decrease in
production from the Generation 1 shafts in line with our strategy to reduce high cost production in a low price
environment. Mine production was also impacted by the Section 54 safety stoppages associated with the
fatalities.
This production level was achieved in spite of the rationalisation of the workforce by 19% or 6,861 people as at
30 June 2015, comprising a reduction of 5,433 employees and contractors and the efficient reskilling and
redeployment into vacant roles of 1,428 employees. The vacancies were predominantly as a result of a
deliberate freeze on recruitment and losses due to natural attrition.
Generation 2 shafts
Production from our core Generation 2 shafts (K3, Rowland, Saffy and 4B/1B) was 2 million tonnes, an increase
of 8.7% on Q3 2015 and accounted for 80% of total tonnes mined, emphasizing our continued focus on
improving productivity at these shafts, which make up Lonmin’s future.
- Saffy shaft produced 518,000 tonnes, an increase of 19.5% on Q3 2015 as this shaft is now running at full
production.
- 4B/1B produced 427,000 tonnes, an increase of 16% on Q3 2015, despite the closure of 1B shaft in October
2015. (1B produced 52 000 tonnes in Q3 2015).
- K3 produced 661,000 tonnes, an increase of 9.4% on Q3 2015.
- Rowland shaft produced 437,000 tonnes, a decrease of 38,000 tonnes or 7.9% on Q3 2015. Production
losses of 53,000 tonnes occurred mainly due to section 54 stoppages following the unfortunate fatality at
this shaft.
Productivity at our Generation 2 shafts at 5.8 square metres per mining employee for Q3 YTD 2016 improved by
6% on Q3 YTD 2015. The increase in productivity is mainly due to labour rationalisation at these shafts, our
Theory of Constraints (TOC) initiatives and a drive to reduce absenteeism.
Generation 1 shafts
In line with the Group’s rationalisation of high cost areas, production from our Generation 1 shafts (Hossy,
Newman, W1, E1, E2, E3 and Pandora (100%)) at 526,000 tonnes was 24.7% lower than Q3 2015. These shafts
are managed as a coherent unit, which provides better flexibility to retain/close them, depending on their profit
contribution to the Company.
3
Ore reserves
Operational flexibility was preserved with the immediately available ore reserve position of 3.9 million square
metres at the end of Q3 2016, or 22 months average production.
Production Losses
A total of some 243,000 tonnes of production was lost in the quarter due to Section 54 safety stoppages
compared to 260,000 tonnes in Q3 2015. This sustained level of lost production is disappointing. We believe
safety is a proxy for good performance and the board and management have implemented the safety initiatives
highlighted above most importantly to improve safety and to reduce production losses.
Q3 2016 Q3 2015
Tonnes Tonnes
Section 54 safety stoppages 243,000 260,000
Management induced safety stoppages and other 68,000 41,000
Total tonnes lost 311,000 301,000
Process Operations
Milling production in the quarter of 2.5 million tonnes was in line with tonnes mined of 2.6 million tonnes, but
10.6% lower than the 2.8 million milled in Q3 2015, as a result of an ore stockpile that was milled in 2015.
However, mined saleable ounces increased by 3.3% to 166,581 and the platinum production (Metal in
Concentrate) was only 4.6% lower and the PGMs in concentrate were only 4.8% lower than Q3 2015 due to an
improvement in underground grade.
Underground milled head grade at 4.69 grammes per tonnes (5PGE+Au) increased by 5.9% when compared to
the 4.42 grammes per tonne achieved in Q3 2015 due to improved ore mix. The overall milled head grade was
4.68 grammes per tonne, up 6.4% on the prior year period due to the decrease in lower grade opencast ore.
Concentrator recoveries for the quarter continue to be excellent and industry leading at 87.0%.
Total refined Platinum production at 173,512 ounces was 28.1% lower than Q3 2015, but in line with the plan
and the Q2 2016 refined Platinum production of 177,444 ounces. Total PGMs produced were 348,712 ounces, a
decrease of 22.7% on Q3 2015. Total PGM production in Q3 2015 was the highest volume refined in a single
quarter since Q4 2013, as a result of the release of built-up metal stock following the repairs and reopening of
Number One furnace in March 2015 and reopening of Number Two furnace in January 2015.
Refined Platinum production benefited from the smelter clean-up project, which released 8,865 ounces during
the quarter. The Other Precious Metals Plant, which was commissioned in H1 2016, significantly increased the
production of Rhodium and Iridium due to improved recoveries and pipeline shortening. As a result, total refined
Rhodium production at 35,120 ounces was higher than the saleable Rhodium-in-concentrate of 23,825 ounces
and total refined Iridium production at 10,459 ounces was higher than the saleable Iridium-in-concentrate of
8,101 ounces.
Sales & Pricing
Platinum sales for the quarter at 162,725 ounces were slightly lower than refined production to accommodate
customer delivery schedules. This was a decrease of 29.8% or 69,054 ounces compared with Q3 2015, when the
refined production was extremely high due to the release of built-up stock following the smelter outages during
2015. PGM sales were 315,091 ounces, down 27.9% on the comparatively high Q3 2015 sales.
The US Dollar basket price (including base metal revenue) at $796 per ounce during the quarter was down 12.2%
on Q3 2015 while the corresponding Rand basket price (R11,864 per ounce) was 9.2% higher than the prior year
period and 7.5% higher than Q2 2016 impacted by the Rand weakness. The average Rand to US Dollar exchange
rate was 24.2% weaker at 14.99 compared to 12.08 in Q3 2015.
Unit costs
Unit costs for the quarter were contained to R10,596 per PGM ounce, a year on year decrease of 2.2%,
demonstrating the success of the cost cutting programme outlined in our business plan, notwithstanding
4
increased safety stoppages and despite the 8.2% year on year increase in labour costs and the RSA CPI of 6.3%
for June 2016.
5
Wage negotiations update
We have entered into negotiations with AMCU for wage increases effective 1 July 2016. The negotiations have
started well and have been constructive as we have been working closely with our employees and unions. Union
membership remains stable with AMCU representing 80% and 90.7% of overall Company employees and
category 4-9 employees respectively.
Bulk tailings treatment
We have secured third party funding for the Bulk Tailings Treatment project. All material agreements are being
finalised and we have obtained consent from Lonmin’s lending banks to proceed with this transaction. We are
now finalising the remaining supporting documentation and expect to have access to the first tranche of project
funding thereafter.
FTSE4Good index series
Lonmin is pleased to advise that it has been confirmed a constituent of the FTSE4Good Index Series following the
review of our strong environmental, social and governance practices.
Kenya JV
Lonmin is pleased to announce that it has entered into an agreement with Acacia Mining plc to dispose of the
49% stake in West Kenya JV for a cash consideration of $5 million. This is in line with our strategy of divesting
non-core assets and maximising cash to focus on our core platinum operations.
Outlook and Guidance
The period we are reporting on has been marked by complex and competing themes as the operating
environment has remained challenging. Whilst we are pleased with the implementation of our business plan, we
have yet to fully harness the associated benefits and productivity gains. As the disruption created by the
employee and contractor rationalisation process settles down we expect the mining teams to return to the long
run target levels of production with the objective of improving cash generation.
Historically, the fourth quarter of our financial year which has the most uninterrupted working days, is our
strongest, on the back of a smooth uninterrupted mining production run. We are, however, conscious of a
number of events occurring during this year’s fourth quarter, including local government elections, wage
negotiations, and various holidays, which have the potential to interfere with production. We will monitor these
events closely to reduce the impact on production and ultimately unit costs.
We remain focused on addressing the root causes of safety incidents as demonstrated by the Tripartite Safety
Day we held on 14 July 2016 with our stakeholders and on reducing absenteeism.
In light of the above, we anticipate achieving unit costs in FY16 of between R10,400 and R10,700 per PGM
ounce.
We expect to achieve our Platinum sales guidance of 700,000 ounces for the year.
Capital expenditure guidance remains unchanged at $105 million, although this could be impacted by currency
fluctuations.
- ENDS -
6
ENQUIRIES
Investors / Analysts:
Lonmin
Tanya Chikanza (Head of Investor Relations) +27 11 218 8358 /+44 207 201 6007
Andrew Mari (Investor Relations Manager) +27 11 218 8420
Media:
Cardew Group
Anthony Cardew / Emma Crawshaw +44 207 930 0777
Sue Vey +27 60 523 7953
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 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
7
3 months 3 months 9 months 9 months
to 30 Jun to 30 Jun to 30 Jun to 30 Jun
2016 2015 2016 2015
1
Tonnes mined Generation 2 K3 Shaft kt 661 604 1 979 1 940
Rowland Shaft kt 437 475 1 245 1 401
Saffy Shaft kt 518 433 1 507 1 264
4B/1B Shaft kt 427 368 1 196 1 190
Generation 2 kt 2 043 1 881 5 927 5 795
Generation 1 Hossy Shaft kt 187 195 521 729
Newman Shaft kt 45 192 290 592
W1 Shaft kt 41 45 129 134
East 1 Shaft kt 39 37 109 111
East 2 Shaft kt 73 99 227 293
East 3 Shaft kt 20 19 43 51
2
Pandora (100%) kt 123 110 387 420
Generation 1 kt 526 698 1 705 2 330
Generation 3 K4 Shaft kt 18 0 41
Total underground kt 2 569 2 597 7 632 8 166
Opencast kt 63 10 171
Lonmin (100%) Total tonnes mined kt 2 569 2 659 7 642 8 336
(100%)
% tonnes mined % 74.6% 74.0% 75.7% 75.5%
from UG2 reef
Lonmin Underground & kt 2 508 2 604 7 448 8 117
(attributable) Opencast
3
Ounces mined Lonmin excluding Platinum oz 157 984 154 040 461 351 492 585
Pandora
Pandora (100%) Platinum oz 8 597 7 164 26 657 28 279
Lonmin Platinum oz 166 581 161 204 488 008 520 864
Lonmin excluding PGMs oz 303 620 295 889 885 706 944 707
Pandora
Pandora (100%) PGMs oz 16 893 14 162 52 318 55 774
Lonmin PGMs oz 320 514 310 051 938 024 1 000 481
4
Tonnes milled Marikana Underground kt 2 382 2 642 7 107 8 127
Opencast kt 9 59 60 266
Total kt 2 391 2 701 7 166 8 393
5
Pandora Underground kt 123 110 387 438
Lonmin Platinum Underground kt 2 505 2 752 7 494 8 565
6
Head grade g/t 4.69 4.42 4.61 4.52
7
Recovery rate % 87.0% 86.7% 86.9% 86.9%
Opencast kt 9 59 60 266
6
Head grade g/t 3.04 3.12 2.81 3.08
7
Recovery rate % 83.8% 85.0% 83.9% 85.2%
Total kt 2 514 2 811 7 554 8 831
6
Head grade g/t 4.68 4.40 4.59 4.48
7
Recovery rate % 87.0% 86.7% 86.8% 86.9%
8
3 months 3 months 9 months 9 months
to 30 Jun to 30 Jun to 30 Jun to 30 Jun
2016 2015 2016 2015
Metals-in- Marikana Platinum oz 155 010 163 840 456 130 520 366
8
concentrate Palladium oz 72 516 76 956 212 642 241 143
Gold oz 3 730 3 818 10 953 12 232
Rhodium oz 22 302 23 729 65 952 76 595
Ruthenium oz 36 840 39 266 107 831 124 656
Iridium oz 7 572 7 800 21 556 24 327
Total PGMs oz 297 970 315 410 875 063 999 319
9
Nickel MT 775 829 2 280 2 618
9
Copper MT 477 515 1 403 1 620
Pandora Platinum oz 8 597 7 164 26 657 29 375
Palladium oz 4 058 3 373 12 478 13 671
Gold oz 27 20 79 101
Rhodium oz 1 416 1 192 4 407 5 010
Ruthenium oz 2 315 2 024 7 235 8 212
Iridium oz 481 389 1 462 1 563
Total PGMs oz 16 893 14 162 52 318 57 932
9
Nickel MT 21 16 79 63
9
Copper MT 8 7 26 28
Concentrate Platinum oz 1 039 1 667 3 304 4 916
purchases Palladium oz 272 496 1 083 1 493
Gold oz 3 4 12 15
Rhodium oz 106 228 407 642
Ruthenium oz 147 294 620 839
Iridium oz 48 92 169 261
Total PGMs oz 1 616 2 783 5 596 8 166
9
Nickel MT 0 1 2 2
9
Copper MT 0 1 1 2
Lonmin Platinum Platinum oz 164 647 172 672 486 091 554 657
Palladium oz 76 846 80 825 226 204 256 307
Gold oz 3 760 3 843 11 044 12 348
Rhodium oz 23 825 25 149 70 766 82 248
Ruthenium oz 39 301 41 584 115 686 133 707
Iridium oz 8 101 8 282 23 186 26 151
Total PGMs oz 316 480 332 355 932 977 1 065 417
9
Nickel MT 796 846 2 360 2 684
9
Copper MT 485 523 1 430 1 650
9
3 months 3 months 9 months 9 months
to 30 Jun to 30 Jun to 30 Jun to 30 Jun
2016 2015 2016 2015
Refined Lonmin refined Platinum oz 173 302 241 170 520 065 502 977
production metal production Palladium oz 82 590 111 938 237 687 232 018
Gold oz 4 585 5 628 14 113 12 298
Rhodium oz 35 085 25 317 88 855 62 216
Ruthenium oz 42 268 61 388 120 691 122 310
Iridium oz 10 404 5 300 30 844 17 203
Total PGMs oz 348 233 450 742 1 012 255 949 021
Toll refined metal Platinum oz 210 2 331 496
production Palladium oz 100 599 186
Gold oz 4 24 9
Rhodium oz 35 35 170 61
Ruthenium oz 75 79 640 2 024
Iridium oz 55 30 91 543
Total PGMs oz 479 144 3 856 3 320
Total refined PGMs Platinum oz 173 512 241 170 522 396 503 473
Palladium oz 82 690 111 938 238 286 232 204
Gold oz 4 589 5 628 14 137 12 307
Rhodium oz 35 120 25 353 89 025 62 277
Ruthenium oz 42 343 61 467 121 331 124 334
Iridium oz 10 459 5 330 30 935 17 746
Total PGMs oz 348 712 450 885 1 016 110 952 341
10
Base metals Nickel MT 930 1 200 2 673 2 557
10
Copper MT 519 710 1 531 1 495
Sales Refined metal sales Platinum oz 162 725 231 778 524 607 497 719
Palladium oz 77 134 108 745 239 879 232 993
Gold oz 4 200 4 560 14 845 11 610
Rhodium oz 28 122 26 369 89 283 57 558
Ruthenium oz 31 511 61 207 113 605 134 807
Iridium oz 11 400 4 500 32 142 17 220
Total PGMs oz 315 091 437 160 1 014 360 951 907
10
Nickel MT 744 775 2 525 2 276
10
Copper MT 563 402 1 641 1 186
10
Chrome MT 277 489 350 839 1 030 468 1 118 252
Average Platinum $/oz 1 005 1 114 936 1 153
prices Palladium $/oz 565 756 556 771
Gold $/oz 1 510 1 468 1 404 1 494
Rhodium $/oz 673 1 036 684 1 116
11
$ basket excl. by-product revenue $/oz 760 869 716 894
12
$ basket incl. by-product revenue $/oz 796 907 755 950
11
R basket excl. by-product revenue R/oz 11 321 10 408 10 682 10 430
12
R basket incl. by-product revenue R/oz 11 864 10 861 11 242 11 079
10
Nickel $/MT 7 215 11 071 7 026 11 857
10
Copper $/MT 4 637 6 049 4 524 6 072
13
Exchange Average rate for period ZAR/$ 14.99 12.08 15.00 11.68
rates Closing rate ZAR/$ 14.72 12.16 14.72 12.16
Unit costs Cost of production per PGM ounce ZAR/oz 10 596 10 839 10 643 10 546
10
Notes:
1 Reporting of shafts are 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 exclude 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.
Sponsor: J.P. Morgan Equities South Africa (Pty) Ltd
11
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