Wrap Text
First Quarter 2017 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 : GB00BYSRJ698
("Lonmin")
REGULATORY RELEASE
26 January 2017
First Quarter 2017 Production Report and Update
Lonmin Plc (“Lonmin” or “the Company”), one of the world’s largest primary Platinum producers, today
announces its unaudited production results for the three months to 31 December 2016 and provides an
operational update.
Safety
Our safety strategy is centred on the belief that Zero Harm is achievable and important contributions are
required from all stakeholders to achieve it.
- We achieved significant milestones in the journey towards Zero Harm at the following operations:
o Saffy shaft achieved 4 million fatality free shifts on 14 December 2016;
o Newman shaft achieved 3 million fatality free shifts on 28 October 2016;
o Rowland shaft exceeded 1 million fatality free shifts on 13 January 2017; and
o The Precious Metal Refinery achieved one year without a lost time injury as of 30 December
2016 and one year without a medical treatment as of 27 October 2016.
- The twelve month rolling LTIFR to 31 December 2016 was 4.99 per million man hours, a marginal
increase of 0.4% on September 2016 at 4.97.
- Regrettably, and as announced at the time, one of our colleagues, Mr Joao Fernando Macamo, a
Production Team Leader at E1 Shaft, was fatally injured following a tramming incident on Thursday
10 November 2016. We extend our deepest condolences to his family and friends.
- We are addressing the root causes of safety incidents, and ensuring that the lessons learnt from
each incident are implemented and shared across operations.
Mining Operations
The Marikana mining operations including Pandora produced 2.3 million tonnes during the quarter,
down 7.8% or 0.2 million tonnes on the comparative period partly due to the planned decline from the
closing of our high cost shafts. While the first quarter of our financial year is historically our lowest
producing quarter, the mining performance was disappointing with production at our Generation 2 shafts
down 5.2% from the prior year period. The implementation of initiatives to improve productivity is taking
longer than we planned, particularly in respect to improving absenteeism; however we remain
committed to delivering sustained productivity improvements at our operations to ensure the long-term
viability of the business.
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The reduction in Section 54 stoppages has continued, with tonnes lost due to Section 54 safety
stoppages down by 71% in the quarter.
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Generation 2
Tonnes mined from our Generation 2 shafts were 1.8 million tonnes, a decrease of 5.2%, or 0.1 million
tonnes on the comparative period as K3’s underperformance predominantly weighed down the overall
performance.
- K3, our biggest shaft, produced 590,000 tonnes, a disappointing decrease of 13.8% on the prior
period. This shaft was most impacted by the reorganisation from 2016 and during the quarter
experienced high management induced safety stoppages resulting in 60,000 tonnes of lost
production. Overall, the relationship between operational management and unions at this shaft is
not working as effectively as we expected and the yielding of results from the implementation of
business improvement initiatives at this shaft is taking longer than we would have liked to see. As a
result, we are deploying additional stoping and vamping crews to the shaft to take advantage of the
immediately available ore reserves and improve production. This may have an adverse impact on the
shaft head cost per tonne which we would seek to mitigate by further reducing our overhead costs.
- Rowland shaft produced 424,000 tonnes, an increase of 9.6% on the prior year period as this shaft is
now starting to gain the production benefits from improved safety performance.
- Saffy shaft produced 493,000 tonnes, broadly in line with prior year period, demonstrating that the
shaft is maintaining its steady state performance.
- 4B produced 336,000 tonnes, a decrease of 10.7% on the prior year period as a result of higher than
planned frequency of intersecting geological features and changes in middle management.
Generation 1
The performance at the Generation 1 shafts is in line with our plan and we are executing successfully the
strategy to reduce high cost production in a low price environment. Tonnes mined from our Generation
1 shafts (1 B, Hossy, Newman, W1, E1, E2, E3 and Pandora (100%)) were 0.5 million tonnes, a decrease of
21.8%, or 0.1 million tonnes on the prior year period, reflecting the planned decline in production. Most
of these shafts are run by contractors, which provide better flexibility to retain or close them.
Hossy shaft remains on track for planned care and maintenance closure by the end of this financial year
and, as reported, at Newman, contract mining is being used to extract the remaining ore reserves.
Production Losses
We have been encouraged that the number and duration of Section 54 stoppages has continued to
improve, as experienced during the final quarter of FY2016. This resulted in a 71% improvement in lost
production due to Section 54 safety stoppages of 139,000 tonnes. This was partially offset by an increase
in management induced safety stoppages which illustrate our non-negotiable stance on safety. Most of
these stoppages were at K3 shaft where 60,000 tonnes were lost. Overall total tonnes lost in the quarter
reduced to 147,000 tonnes, compared to 204,000 tonnes lost in Quarter 1 2016.
Q1 2017 Q1 2016
Tonnes Tonnes
Section 54 safety stoppages 58,000 197,000
Management induced safety stoppages and other 89,000 7,000
Total tonnes lost 147,000 204,000
Update on Business Improvement Initiatives
In light of the Quarter 1 performance, we are deploying additional stoping and vamping crews to
Generation 2 shafts during Quarter 2 in order to provide support for the achievement of planned output,
enabled by our healthy ore reserve position.
In addition, we continue our drive to implement the initiatives announced at the time of our 2016 full
year results to improve productivity and these include:
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- Establishing a labour skills buffer;
o Following a successful trial of the labour skills buffer concept during the first quarter of
FY2017, a decision has been made to introduce labour buffers to all high producing half
levels on Generation 2 shafts during Quarter 2.
- Addressing employee absenteeism;
o This project continues with dedicated teams assigned to each operation to analyse
absenteeism trends and to ensure that appropriate action is taken to address the behaviour
of employees who repeatedly absent themselves from work.
- Introducing a programme aimed at the empowerment of frontline supervisors; and
o All planning and preparatory work has been completed during Quarter 1 and the roll out of
the programme will start at the beginning of February at K3 and Saffy shafts.
- Implementing the Theory of Constraints framework in order to improve the optimisation of half
levels at Generation 2 shafts.
o With the de-bottlenecking exercises mostly completed, the implementation of theory of
constraints started during December 2016 with an optimisation crew being deployed to
underperforming half level at each Generation 2 shaft.
Processing Operations
Underground milling production in the quarter of 2.4 million tonnes was affected by lower than planned
ore availability from the mining operations and was 10.0% lower than in the prior year period.
Underground milled head grade at 4.56 grammes per tonnes (5PGE+Au) increased by 2.0% when
compared to the 4.47 grammes per tonne achieved in the prior year period and the overall milled head
grade was also 4.56 grammes per tonne, up 2.4% on the prior year period, due to improved ore mix and
also better mining head grades.
Concentrator recoveries in the quarter remained excellent at 87.0%, marginally up from 86.8% in the
prior year period.
Platinum production (Metals-in-Concentrate) was 152,925 ounces, which was 8.4% lower than the prior
year period and PGM production (Metals-in-Concentrate) was 292,726, which was 8.6% lower than the
prior year period as relatively, we milled more than we mined in the prior year period.
Total refined Platinum production of 137,123 ounces in the first quarter, was 20.0% lower than the prior
year period. There were no refined platinum ounces from the smelter clean-up project in both periods.
Total PGMs produced were 263,283 ounces, a decrease of 20.5% on the prior year period.
Sales and Pricing
Platinum sales for the quarter were 134,954 ounces, 10.3% lower than the prior year period sales of
150,420 ounces as a result of the lower mined tonnes. PGM sales were 289,962 ounces, marginally down
(0.2%) on the prior year period sales of 290,475; there was a release of built up stocks of Ruthenium, as a
result of a change in the Ruthenium refining process. In addition, converse to Q1 2016, the Palladium to
other metal sales ratio was brought in line with the normal production ratio which cushioned the impact
of the decrease on PGM sales down.
The increased sales of Ruthenium in the quarter had an adverse impact on the basket price. As such, the
US Dollar basket price (including base metal revenue) at $739 per ounce during the quarter was down
3.8% on Q1 2016 while the corresponding Rand basket price of R10,372 per ounce was 4.5% lower than
the Q1 2016. Since the period end, Ruthenium sales have returned to normalised levels.
The average Rand to US Dollar exchange rate was 2.3% stronger at 13.90 compared to 14.22 in Q1 2016.
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Business and Operating Environment Update
The operating environment has remained challenging as the Company strives to balance the economic,
social and environmental imperatives. Management continues to participate in strategic multi-
stakeholder engagements to address these challenges.
Unit Costs
The distorting impact of the holidays in December typically results in unit costs peaking in the first
quarter of the financial year. An additional public holiday declared in December by the President of The
Republic of South Africa extended the Christmas break period in the quarter and impacted production
and costs.
Unit costs of R12,296 per PGM ounce were 12.3% higher on the prior year period, in part reflecting the
increase in labour costs as set in the multi-year agreement, signed at the end of October 2016, but also
reflecting the weak mining performance. As stated at the time of the 2016 Final Results in November
2016, unit costs will remain under pressure until we see a sustained improvement in production
throughput from mining. We remain vigilant in containing our costs and continue to work to reduce our
operating costs in order to preserve the achievement of our unit cost guidance in the range of R10,800
to R11,300 per PGM ounce for the full financial year.
Capital Expenditure
We are maintaining our focus on Generation 2 shafts but we are reviewing the capital expenditure
profile and expect to provide an update in due course.
Balance Sheet and Liquidity
Lonmin is highly geared to PGM prices and at current levels, would not be cash neutral. We continue to
proactively manage our cashflows and balance sheet through initiatives such as seeking ways of
containing our capital spend.
Net cash at 31 December 2016 was $49 million, after working capital and capital expenditure investment
of $106 million during the quarter. The working capital impact is typically greater in the first quarter of
our financial year due to the December holidays and the nature of our sales profile, which is weighted
towards the second half of our financial year. Total liquidity at 31 December 2016 was $414 million.
Ore Reserves
Operational flexibility was preserved with the immediately available ore reserve position of 3.7 million
square metres at the end of the quarter, or 22 months average production.
Excess Processing Facility Initiatives
Our processing facilities have excess capacity and we are continuing with various initiatives to fill the
pipeline and utilise the excess capacity.
Pandora Acquisition Update
On 11 November 2016, we announced that Lonmin had reached agreement to acquire Anglo American
Platinum’s 42.5% interest in the Pandora Joint Venture. Since then we have received Northam’s consent
for this transaction and have submitted the Merger Notification to the Competition Authorities and
requisite application for section 11 consent to the DMR. We expect the transaction to complete in late
2017.
FTSE4Good Index Series
Lonmin is pleased to advise that it has been confirmed a constituent of the FTSE4Good Index Series and
FTSE Russell ESG Rating following the review of our strong environmental, social and governance
practices.
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Outlook and Guidance
We have been disappointed by the Quarter 1 production at our Generation 2 shafts. With the initiative
of deploying additional stoping and vamping crews, as well as the expected Platinum ounces from the
smelter clean-up project, our sales guidance for the 2017 full year is maintained at between 650,000 and
680,000 Platinum ounces. At this stage we still expect unit costs to remain in the range of R10,800 to
R11,300 per PGM ounce for the full year subject to seeing sustained improvement in production during
the year. We will be reviewing our capital expenditure and will provide an update on guidance in due
course.
- ENDS -
ENQUIRIES
Investors / Analysts:
Tanya Chikanza (Head of Investor Relations) +27 11 218 8358 / +44 207 201 6007
Andrew Mari (Investor Relations Manager) +27 11 218 8420
Media:
Wendy Tlou +27 83 301 9663
Anthony Cardew / Emma Crawshaw, Cardew Group +44 207 930 0777
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 found.
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
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3 months 3 months
to 31 Dec to 31 Dec
2016 2015
Tonnes mined1 Generation 2
K3 Shaft kt 590 684
Rowland Shaft
kt 424 387
Saffy Shaft
kt 493 497
4B Shaft kt 336 376
Generation 2
kt 1 842 1 944
Generation 1 1B Shaft
kt 6
Hossy Shaft
kt 171 159
Newman Shaft
kt 23 132
W1 Shaft
kt 39 47
East 1 Shaft
kt 31 30
East 2 Shaft
kt 67 77
East 3 Shaft
kt 17 6
Pandora (100%)2
kt 102 118
Generation 1
kt 450 575
Total underground
kt 2 292 2 519
Opencast
kt 38 7
Lonmin (100%) Total Tonnes Mined (100%)
kt 2 330 2 526
% tonnes mined from UG2 reef (100%)
% 74.9% 76.0%
Lonmin (attributable) Underground & Opencast
kt 2 279 2 467
Ounces Mined3 Lonmin excluding Pt Ounces
Pandora oz 141 476 149 658
Pandora (100%) Pt Ounces
oz 7 112 7 921
Lonmin Pt Ounces
oz 148 588 157 579
Lonmin excluding PGM Ounces
Pandora oz 270 638 287 744
Pandora (100%) PGM Ounces
oz 14 067 15 558
Lonmin PGM Ounces
oz 284 705 303 303
Tonnes milled4 Marikana Underground
kt 2 277 2 524
Opencast
kt 11 31
Total
kt 2 288 2 555
Pandora5 Underground
kt 102 118
Lonmin Platinum Underground kt 2 378 2 642
Milled head grade6
g/t 4.56 4.47
Recovery rate7
% 87.1% 86.8%
Opencast kt 11 31
Milled head grade6
g/t 4.47 2.71
Recovery rate7
% 62.5% 84.2%
Total kt 2 390 2 673
Milled head grade6
g/t 4.56 4.45
Recovery rate7
% 87.0% 86.8%
8
3 months 3 months
to 31 Dec to 31 Dec
2016 2015
Metals-in- Marikana Platinum oz 145 211 157 873
concentrate8 Palladium oz 66 662 73 936
Gold oz 3 695 3 718
Rhodium oz 20 477 22 912
Ruthenium oz 34 567 37 021
Iridium oz 7 098 7 157
Total PGMs oz 277 709 302 616
Nickel9 MT
739 822
Copper9 MT
461 501
Pandora Platinum oz 7 112 7 921
Palladium oz 3 358 3 704
Gold oz 50 22
Rhodium oz 1 196 1 328
Ruthenium oz 1 947 2 164
Iridium oz 404 420
Total PGMs oz 14 067 15 558
Nickel9 MT
14 22
Copper9 MT
6 8
Concentrate Platinum oz 603 1 160
Purchases Palladium oz 164 376
Gold oz 2 3
Rhodium oz 58 149
Ruthenium oz 99 215
Iridium oz 24 60
Total PGMs oz 950 1 962
Nickel9 MT
0 1
Copper9 MT
0 1
Lonmin Platinum Platinum oz 152 925 166 953
Palladium oz 70 184 78 016
Gold oz 3 746 3 743
Rhodium oz 21 731 24 389
Ruthenium oz 36 613 39 399
Iridium oz 7 526 7 637
Total PGMs oz 292 726 320 137
Nickel9 MT
753 844
Copper9
MT 467 511
9
3 months 3 months
to 31 Dec to 31 Dec
2016 2015
Refined Production Lonmin refined metal Platinum oz 136 102 170 931
production Palladium oz 61 721 77 782
Gold oz 3 190 4 859
Rhodium oz 21 646 30 303
Ruthenium oz 31 892 35 450
Iridium oz 7 199 10 936
Total PGMs oz 261 751 330 261
Toll refined Platinum oz 1 021 510
metal Palladium oz
production 189 197
Gold oz 7 9
Rhodium oz 68 60
Ruthenium oz 234 222
Iridium oz 14 36
Total PGMs oz 1 532 1 033
Total Platinum oz 137 123 171 441
refined Palladium oz 61 910 77 978
PGMs
Gold oz 3 197 4 868
Rhodium oz 21 714 30 364
Ruthenium oz 32 126 35 672
Iridium oz 7 212 10 972
Total PGMs oz 263 283 331 294
Base metals Nickel10 MT
715 990
Copper10 MT
354 549
Sales Refined Platinum oz 134 954 150 420
metal Palladium oz 60 060 62 332
sales
Gold oz 2 889 4 714
Rhodium oz 26 130 35 195
Ruthenium oz 59 016 29 157
Iridium oz 6 913 8 656
Total PGMs oz 289 962 290 475
Nickel10 MT
928 1 071
Copper10 MT 215 406
Chrome10 MT 385 496 438 717
10
3 months 3 months
to 31 Dec to 31 Dec
2016 2015
Average prices Platinum $/oz 945 886
Palladium $/oz 687 586
Gold $/oz 1 154 1 323
Rhodium $/oz 730 715
$/oz
$ basket excl. by-product revenue11 683 711
$/oz
$ basket incl. by-product revenue12 739 769
R/oz
R basket excl. by-product revenue11 9 624 10 055
R/oz
R basket incl. by-product revenue12 10 372 10 859
Nickel10 $/MT 8 989 7 292
Copper10 $/MT 5 411 4 700
Unit Costs Cost of production per PGM ounce ZAR/oz 12 296 10 948
Exchange Rates Average rate for period13 R/$ 13.90 14.22
Closing rate R/$ 13.73 15.46
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
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