Lonmin released its 2018 operational update and first Quarter production results for the three months ending 31 December 2017 on monday.
Commenting on the results, the company’s CEO, Ben Magara, said: “Lonmin continues to be hamstrung by its capital structure and liquidity constraints”.
Results indicates a financial distress resulting from a $1.08bn loss (2016 – $322m) including an impairment of $1.05bn.
The impairment was a result of changes to its business plan’s assumptions. This resulted in Lonmin’s tangible net worth to fall below the $1.1bn threshold required of the firm’s lenders.
Magara acknowledged that it was becoming “tougher and tougher” to keep cutting costs at the organisation, which has not been much assisted by the rand platinum group metal basket price which was about 3% lower at some R11.236 per ounce year-on-year. “But we still have to keep cutting our cloth,” he said. “Unit costs were 8.9% higher at R11,701/oz,” he mantained.
The deteriorating nature of the business was underlined by its first quarter performance which the group also reported. (The full year figures were delayed last year in order that Lonmin could complete a business re-engineering study, hence the write-down). Cash fell to $69m as a result of some $40m in cash burn.
However, on a positive note, the group has managed to stabilise its cash position following a poor first quarter of production at $103m as of September 30. Net cash was $49m as of the first quarter’s end, but on a year-on-year basis, Lonmin’s cash position is $70m worse off.
Lenders waived the covenant, however, provided Lonmin is successfully bought by Sibanye-Stillwater, which on December 14 launched an all-share bid for the company.
For the 2018 financial year, Lonmin has targeted sales of between 650,000 to 680,000 oz while unit costs would be higher again in the range of R12,000 ($991.70) to R12,500 ($1,033.02) per PGM oz. Capital expenditure would be “limited” to a range of R1.4bn ($115,7m) to R1.5bn ($124, m) following expenditure of R1.3bn ($107,5m) in 2017 – lower than the guided R1.4bn($115,7m) to R15bn ($124m). Magara said the industry was not spending enough for the future.
Shareholders, including the Public Investment Corporation which owns about 30% of the company, will shortly be posted the firm’s circular regarding Sibanye-Stillwater’s offer which both boards have endorsed.
“The PIC will make their decision, but we have to wait until the lady sings,” said Magara. Lonmin said it anticipated completing the transaction during the second half of the current year.