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Lonmin unveils new cost-cutting measures

07 August 2017 07:27

Lonmin is taking further decisive action to ensure a sustainable business in a continuing adverse macroeconomic environment.

In its third quarter production results and business update on 17 July, the group reported improved mining performance, reduced unit costs and increased net cash.

But it said that despite this pleasing performance, it continued to be concerned by the persistent adverse macroeconomic conditions and the inflationary cost pressures confronting the platinum mining industry in South Africa.

And it said that despite having already taken significant measures to reduce costs, it was announcing further measures to ensure that its operations generate sufficient cash to support a sustainable business. In addition to continuing to remove high cost production, Lonmin said it was today announcing the initial conclusions resulting from an on-going review of its operations, which had the primary objective of preserving value for shareholders and safeguarding the long-term interests of employees and all key stakeholders.

It said: "The Operational Review is focused on optimizing the cash produced by the business, both from its operations and through releasing capital from those activities where the company is currently bearing the cost of excess capacity and unrealized development potential.

" The review is also designed to position the Company to benefit from any future improvement in the PGM pricing environment.

"The immediate results of the Operational Review include initiatives to generate cash through the monetisation of select Lonmin assets and to preserve cash by reducing fixed costs."

Lonmin said that subject to receiving the necessary consents and approvals, it planned to implement the following:

- Pursue all options to maximise cash from Lonmin's high quality downstream processing operations.

It said it currently intended to implement this through the sale of excess processing capacity of up to 500,000 platinum ounces per annum.

It said this would have the benefit not only of releasing capital for Lonmin, but would also allow other South African PGM producers who currently operate on a sale of concentrate basis to access the profit margin benefits of an integrated beneficiation model.

- A review of the Company's major development capital requirements over the next few years.

In this regard, Lonmin said it would consider selling for cash or introducing joint venture partners into Limpopo and Akanani together with exploring options to introduce funding partners into K4.

- Despite consistent strong performance from Rowland, Lonmin's current capital position made it challenging to fund the MK2 project which was necessary to extend Rowland's economic life.

Lonmin said it believed that the MK2 project would be value accretive and the company would explore options to introduce funding partners and preserve approximately five thousand jobs.

- The reduction in annual overhead costs by a minimum of ZAR500 million by the end of the year ending 30 September 2018.

It said the substantial majority of overhead reductions would come from non-production central functions as the company sought to right-size its overheads to its operations.

In addition, Lonmin would continue to identify further overhead and cost savings. Lonmin said it was too early to define the ultimate effect of the Operational Review on the company, but the overall aim remained for the business to be cash positive after capital investment.

It said further announcements would be made as and when appropriate and Lonmin will engage with all appropriate stakeholders in relation to these initiatives. Lonmin also announcef today the approval by the DMR of its S11 application to acquire the Pandora JV from Anglo Platinum which would defer R2.6 billion of capital expenditure and contribute to the sustainability of the business by potentially preserving jobs at E3 shaft.

Lonmin has already received approval from the competition tribunal and is in the process of obtaining lender consent.

Story provided by StockMarketWire.com

Related Company: LMI

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