LONDON (Alliance News) - Lonmin PLC shares rose on Monday after reiterating its full year guidance and reporting a narrower loss in the first half of the year, as shareholders note the substantial improvement in the second quarter of the year as the miner begins to turn its ship around.
Lonmin shares were up 21% to 197.25 pence per share on Monday morning, comfortably the best performer in the FTSE All-Share.
The South Africa-focused platinum miner reported a pretax loss of USD21.0 million in the six months to the end of March compared to the USD118.0 million loss booked a year earlier after revenue experienced a slight lift and the level of impairments booked fell.
Revenue in the period rose to USD515.0 million from USD508.0 million a year earlier, allowing the miner to squeeze out earnings before interest, tax, depreciation and amortisation of USD36.0 million compared to a USD6.0 million loss last year.
Depreciation, amortisation and impairments totalled USD51.0 million in the first half, falling from USD78.0 million a year earlier.
That pushed Lonmin to an operating loss of USD15.0 million, but that was still narrower than the USD84.0 million loss a year earlier.
Revenue rose in the period after production of refined platinum rose by a third year-on-year to 348,885 ounces, but that was partly driven by smelter stoppages interrupting processing operations in the previous year, which was not repeated in the most recent period.
Breaking that down, production in the first quarter amounted to 171,441 ounces of platinum before rising 3.5% in the second quarter to 177,444 ounces.
Platinum sales in the first half were up 31% to 361,882 ounces. Sales totalled 150,420 ounces in the first quarter and sold at an average of ZAR10,859 per ounce whilst sales in the second quarter amounted to 211,462 ounces at a price of ZAR11,035 per ounce.
That suggests Lonmin sold some of its stockpiled inventory in the second quarter to capitalise on higher platinum prices, which rose 1.6% quarter-on-quarter. The ramp-up in sales between the first and second quarter represents over a 40% rise.
Lonmin reiterated its production and cost guidance for the full year, with the miner aiming to sell 700,000 ounces of platinum at a unit cost of ZAR10,400 per ounce.
Based on the first half sales, Lonmin is on track to produce 723,764 ounces of platinum this year, but that relies on the miner being able to avoid any hiccups for the remainder of the year.
Unit costs in the first half averaged ZAR10,668 - suggesting its gross margin in the first half was only ZAR294.0 per ounce produced in the first half - equal to around USD15.9 per ounce.
Lonmin was making a gross loss of around ZAR90 per ounce in the first quarter, equal to around USD5.8 per ounce, but the price and cost improvements in the second quarter led to a margin of around ZAR645 per ounce, equal to making around USD41.4 per ounce produced.
If Lonmin wants to hit its unit cost goal for the year, a further 2.5% reduction will need to be made as a minimum over the remainder of the year.
One of the reasons costs improved significantly in the second quarter from the first was the absence of any fatalities. Lonmin reported the death of an employee back in October, which falls in the first quarter of the current financial year, but remained "fatality free" in the second quarter.
Lonmin processed 213,000 tonnes of ore less than expected in the first quarter due to the fatality and other labour and safety stoppages compared to the second quarter when it processed 37,000 tonnes of ore less than anticipated thanks to safety stoppages.
Unsurprisingly, deaths cause production to stop whilst investigations are carried out - and the third quarter is likely to be impacted by this as another two people have died since the end of the second quarter as Lonmin continues to drive the message that safety improvements "remain a priority".
"Whilst production from our mining operations was negatively impacted by section 54 safety stoppages in the first quarter the improvement in our safety performance saw these reduce significantly in the second quarter. However, the third quarter will be negatively impacted by sections 54 safety stoppages following the fatalities in April and May," said Lonmin.
Lonmin cut its capital expenditure budget for the remainder of the year, stating full year expenditure will now be USD105.0 million compared to the previous budget of USD132.0 million. Expenditure in the first half amounted to USD27.0 million.
Cost savings are also ahead of schedule, with Lonmin delivering 67% of its full year target in the first half. The miner aims to deliver cost savings worth ZAR700.0 million over the full year, with ZAR469.0 million booked in the first six months.
Lonmin is now in a net cash position of USD114.0 million at the end of March, swinging from net debt of USD282.0 million a year earlier after cashflow significantly improved. Lonmin reported cash inflow of USD285.0 million in the first half compared to outflows of USD256.0 million a year earlier.
By Joshua Warner; joshuawarner@alliancenews.com; @JoshAlliance
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