Q3 2016 Production Report

 

Third Quarter 2016 Production Report and Business Update

 

Lonmin Plc ("Lonmin" or "the Company"), one of the world's largest primary platinum producers, today announces its production results for the quarter ended 30 June 2016 (unaudited) and a business update. Ben Magara, Chief Executive Officer, said: 'Another good quarter in a challenging operating environment. Again I am pleased that we continue to focus and execute on our committed strategy.'

 

Third Quarter Highlights

·     LTIFR improved by 4.5%. Sadly two colleagues were fatally injured. We declared and held a Tripartite Safety Day on 14 July, in conjunction with the Department of Mineral Resources (DMR) and The Association of Mineworkers and Construction Union (AMCU)

·   Mined Platinum ounces up 3.3% to 166,581, notwithstanding the rationalisation of the workforce by 19% (compared to people as at 30 June 2015)

·     Concentrator recoveries continue to be industry leading at 87%

·     Produced 2.6 million tonnes from underground mining, broadly flat on Q3 2015

·     Generation 2 shafts production up 8.7% to 2 million tonnes, and productivity up 6%

·    Unit costs reduced by 2.2% year-on-year to R10,596 per PGM ounce (6E basis), in spite of RSA CPI of 6.3% and increased safety stoppages

·     Average Rand full basket price (including base metals) up 9.2% on Q3 2015, at R11,864 per PGM ounce

·     Refined production of 173,512 and sales of 162,725 Platinum ounces on track to achieve full-year guidance

·    Net cash of $91 million as at 30 June 2016, after working capital and capital expenditure investment of $51 million. Total Liquidity at 30 June 2016 was $451 million

 

						3 months	3 months
						to 30 Jun	to 30 Jun
						2016	2015
Tonnes				Generation  2	kt	2 043	1 881
mined1				Generation 1	kt	526	698
				Generation 3	kt		18
				Total underground	kt	2 569	2 597
				Opencast	kt		63
			Lonmin (100%, incl Pandora)	Total tonnes mined	kt	2 569	2 659
				% tonnes mined from UG2 reef	%	74.6%	74.0%
			Lonmin (attributable)	Total tonnes mined	kt	2 508	2 604
Ounces			Lonmin (incl Pandora)	Platinum	oz	166 581	161 204
mined3				PGMs	oz	320 514	310 051
Tonnes				Total	kt	2 514	2 811
milled4				Head grade6	g/t	4.68	4.40
				Recovery rate7	%	87.0%	86.7%
Metals-in-				Platinum	oz	164 647	172 672
concentrate8				Total PGMs	oz	316 480	332 355
Sales				Platinum	oz	162 725	231 778
refined metal				Total PGMs	oz	315 091	437 160
Average prices			$ basket incl. by-product revenue12		$/oz	796	907
			R basket incl. by-product revenue12		ZAR/oz	11 864	10 861
Exchange rate			Average rate for period13		ZAR/$	14.99	12.08
Unit costs			Cost of production per PGM ounce		ZAR/oz	10 596	10 839

 

 

Third Quarter Production Overview

 

Safety

·     The 12 month rolling LTIFR to 30 June improved by 4.5% to 4.87 per million man hours from 5.10 at 31 March.

·     Regrettably, two colleagues were fatally injured in April and May, and after the period end there was another fatality at our E3 shaft in July.

·   We have intensified our focus on a number of safety initiatives through visible felt leadership and direct employee engagement. This includes continued focus on Fatal Risk Control Protocols relating to Fall of Ground and Scraping & Rigging; mining industry occupational safety and health initiatives (MOSH); hands and finger injury prevention campaigns; cross-site safety audits; the roll out of people and vehicle detection systems; compliance audits on contractors and contractor management; and training through on-the-job team coaching and leadership coaching sessions.  

·     We also declared and held a Tripartite Safety Day on 14 July at Rowland and E3 shafts, incorporating our key stakeholders including the DMR and AMCU, in our continuing efforts to prioritise improving safety performance. Alongside the Company, the focus on safety was also reiterated to employees by Mr Joseph Mathunjwa, the President of AMCU, and Mr Monageng Mothiba, Principal Inspector of Mines for the Rustenburg region and our CEO.

·     Our safety strategy is centred on the belief that zero harm is achievable and important contributions are required from all stakeholders to achieve it.

 

Mining Operations

The Marikana underground mining operations (including Pandora) produced 2.6 million tonnes during the third quarter, a decrease of 1.1% or 28,000 tonnes on the prior year period, reflecting the planned decrease in production from the Generation 1 shafts in line with our strategy to reduce high cost production in a low price environment. Mine production was also impacted by the Section 54 safety stoppages associated with the fatalities.

 

This production level was achieved in spite of the rationalisation of the workforce by 19% or 6,861 people as at 30 June 2015, comprising a reduction of 5,433 employees and contractors and the efficient reskilling and redeployment into vacant roles of 1,428 employees.  The vacancies were predominantly as a result of a deliberate freeze on recruitment and losses due to natural attrition.

 

Generation 2 shafts

Production from our core Generation 2 shafts (K3, Rowland, Saffy and 4B/1B) was 2 million tonnes, an increase of 8.7% on Q3 2015 and accounted for 80% of total tonnes mined, emphasizing our continued focus on improving productivity at these shafts, which make up Lonmin's future.

·      Saffy shaft produced 518,000 tonnes, an increase of 19.5% on Q3 2015 as this shaft is now running at full production.

·    4B/1B produced 427,000 tonnes, an increase of 16% on Q3 2015, despite the closure of 1B shaft in October 2015. (1B produced 52 000 tonnes in Q3 2015).

·      K3 produced 661,000 tonnes, an increase of 9.4% on Q3 2015.

·    Rowland shaft produced 437,000 tonnes, a decrease of 38,000 tonnes or 7.9% on Q3 2015. Production losses of 53,000 tonnes occurred mainly due to section 54 stoppages following the unfortunate fatality at this shaft.

 

Productivity at our Generation 2 shafts at 5.8 square metres per mining employee for Q3 YTD 2016 improved by 6% on Q3 YTD 2015. The increase in productivity is mainly due to labour rationalisation at these shafts, our Theory of Constraints (TOC) initiatives and a drive to reduce absenteeism.

 

Generation 1 shafts

In line with the Group's rationalisation of high cost areas, production from our Generation 1 shafts (Hossy, Newman, W1, E1, E2, E3 and Pandora (100%)) at 526,000 tonnes was 24.7% lower than Q3 2015.  These shafts are managed as a coherent unit, which provides better flexibility to retain/close them, depending on their profit contribution to the Company.

 

Ore reserves

Operational flexibility was preserved with the immediately available ore reserve position of 3.9 million square metres at the end of Q3 2016, or 22 months average production. 

 

Production Losses

A total of some 243,000 tonnes of production was lost in the quarter due to Section 54 safety stoppages compared to 260,000 tonnes in Q3 2015. This sustained level of lost production is disappointing. We believe safety is a proxy for good performance and the board and management have implemented the safety initiatives highlighted above most importantly to improve safety and to reduce production losses.  

 

	Q3 2016	Q3 2015
	Tonnes	Tonnes
Section 54 safety stoppages	243,000	260,000
Management induced safety stoppages and other	68,000	41,000
Total tonnes lost	311,000	301,000

 

Process Operations

Milling production in the quarter of 2.5 million tonnes was in line with tonnes mined of 2.6 million tonnes, but 10.6% lower than the 2.8 million milled in Q3 2015, as a result of an ore stockpile that was milled in 2015. However, mined saleable ounces increased by 3.3% to 166,581 and the platinum production (Metal in Concentrate) was only 4.6% lower and the PGMs in concentrate were only 4.8% lower than Q3 2015 due to an improvement in underground grade.

 

Underground milled head grade at 4.69 grammes per tonnes (5PGE+Au) increased by 5.9% when compared to the 4.42 grammes per tonne achieved in Q3 2015 due to improved ore mix. The overall milled head grade was 4.68 grammes per tonne, up 6.4% on the prior year period due to the decrease in lower grade opencast ore.

 

Concentrator recoveries for the quarter continue to be excellent and industry leading at 87.0%.

 

Total refined Platinum production at 173,512 ounces was 28.1% lower than Q3 2015, but in line with the plan and the Q2 2016 refined Platinum production of 177,444 ounces. Total PGMs produced were 348,712 ounces, a decrease of 22.7% on Q3 2015. Total PGM production in Q3 2015 was the highest volume refined in a single quarter since Q4 2013, as a result of the release of built-up metal stock following the repairs and reopening of Number One furnace in March 2015 and reopening of Number Two furnace in January 2015.

 

Refined Platinum production benefited from the smelter clean-up project, which released 8,865 ounces during the quarter. The Other Precious Metals Plant, which was commissioned in H1 2016, significantly increased the production of Rhodium and Iridium due to improved recoveries and pipeline shortening. As a result, total refined Rhodium production at 35,120 ounces was higher than the saleable Rhodium-in-concentrate of 23,825 ounces and total refined Iridium production at 10,459 ounces was higher than the saleable Iridium-in-concentrate of 8,101 ounces.

 

Sales & Pricing

Platinum sales for the quarter at 162,725 ounces were slightly lower than refined production to accommodate customer delivery schedules. This was a decrease of 29.8% or 69,054 ounces compared with Q3 2015, when the refined production was extremely high due to the release of built-up stock following the smelter outages during 2015. PGM sales were 315,091 ounces, down 27.9% on the comparatively high Q3 2015 sales.

 

The US Dollar basket price (including base metal revenue) at $796 per ounce during the quarter was down 12.2% on Q3 2015 while the corresponding Rand basket price (R11,864 per ounce) was 9.2% higher than the prior year period and 7.5% higher than Q2 2016 impacted by the Rand weakness. The average Rand to US Dollar exchange rate was 24.2% weaker at 14.99 compared to 12.08 in Q3 2015.

 

Unit costs

Unit costs for the quarter were contained to R10,596 per PGM ounce, a year on year decrease of 2.2%, demonstrating the success of the cost cutting programme outlined in our business plan, notwithstanding increased safety stoppages and despite the 8.2% year on year increase in labour costs and the RSA CPI of 6.3% for June 2016.

 

Wage negotiations update

We have entered into negotiations with AMCU for wage increases effective 1 July 2016. The negotiations have started well and have been constructive as we have been working closely with our employees and unions. Union membership remains stable with AMCU representing 80% and 90.7% of overall Company employees and category 4-9 employees respectively.

 

Bulk tailings treatment

We have secured third party funding for the Bulk Tailings Treatment project.  All material agreements are being finalised and we have obtained consent from Lonmin's lending banks to proceed with this transaction.  We are now finalising the remaining supporting documentation and expect to have access to the first tranche of project funding thereafter.

 

FTSE4Good index series

Lonmin is pleased to advise that it has been confirmed a constituent of the FTSE4Good Index Series following the review of our strong environmental, social and governance practices.

 

Kenya JV 

Lonmin is pleased to announce that it has entered into an agreement with Acacia Mining plc to dispose of the 49% stake in West Kenya JV for a cash consideration of $5 million.  This is in line with our strategy of divesting non-core assets and maximising cash to focus on our core platinum operations.

 

Outlook and Guidance

 

The period we are reporting on has been marked by complex and competing themes as the operating environment has remained challenging. Whilst we are pleased with the implementation of our business plan, we have yet to fully harness the associated benefits and productivity gains. As the disruption created by the employee and contractor rationalisation process settles down we expect the mining teams to return to the long run target levels of production with the objective of improving cash generation.  

 

Historically, the fourth quarter of our financial year which has the most uninterrupted working days, is our strongest, on the back of a smooth uninterrupted mining production run.  We are, however, conscious of a number of events occurring during this year's fourth quarter, including local government elections, wage negotiations, and various holidays, which have the potential to interfere with production.  We will monitor these events closely to reduce the impact on production and ultimately unit costs.

 

We remain focused on addressing the root causes of safety incidents as demonstrated by the Tripartite Safety Day we held on 14 July 2016 with our stakeholders and on reducing absenteeism.

 

In light of the above, we anticipate achieving unit costs in FY16 of between R10,400 and R10,700 per PGM ounce.

 

We expect to achieve our Platinum sales guidance of 700,000 ounces for the year.

 

Capital expenditure guidance remains unchanged at $105 million, although this could be impacted by currency fluctuations.

 

- ENDS -