Yahoo Finance Struggling Lonmin looks for new ways to save cash
Mining group Lonmin is looking for ways to raise cash and cut costs as it struggles to cope with the flatlining price of platinum, its key product.
The South Africa-based miner has announced a scheme to save $37m (£28m) by September 2018 that could see the axe fall on mainly back office roles. It is thought up to 5,000 jobs could be at risk.
The London-listed group will also look to sell space in its processing plant to other platinum producers and is seeking partners to help finance a pair of capital projects to extend the life of two of its mines.
Lonmin did not put a figure on how much it is hoping to raise from these latest measures.
The company has been badly hit by an ongoing downturn in the market for platinum, which is used in catalytic converters for cars and in jewellery. It has also seen its costs spiral due to the strengthening of the South African rand against the dollar. The company pays its workers in rand but reports its accounts in dollars.
Lonmin boss Ben Magara has said he wants the company to be “cash neutral” by the end of the year as it looks to stop its outgoings from exceeding its income.
The steps outlined today follow a lengthy restructuring that has resulted in Lonmin closing high-cost mining shafts in favour of lower-cost production. The miner cut more than 6,000 jobs at the end of 2015 but still has around 33,000 staff on payroll.
Last week Ivanhoe Mines indicated that it would press ahead with the construction of a large new automated platinum mine in South Africa, which analysts fear could undercut Lonmin’s operations as it would have lower overheads.
Lonmin raised $400m in a rights issue in 2015, its third in six years, but speculation has mounted that it will need to tap investors for cash once again.
“It seems to me a confession that despite the cost saving seen so far the business model is basically unsustainable at the current price deck,” said Paul Gait, analyst at Bernstein.
Richard Hatch, an analyst at RBC, added: “We continue to believe that if spot prices and foreign exchange remain [unchanged], Lonmin will eventually need a further refinancing given rising cost inflation and increasing capex requirements.”
