Lonmin posts pre-tax profit fall
The platinum producer blamed production interruptions, price falls and rising costs for the fall in profits
By CFOWorld staff | CFO UK | Published 14:29, 14 May 12
Lonmin blamed production interruptions, price falls and rising costs for a pre-tax profit fall in the first six months of its financial year, the platinum producer said on Monday.
Weak European demand weighed on prices and a record level of safety stoppages imposed by South African authorities hit output and operating costs, the world's third-largest platinum producer said.
Lonmin said a 10 percent drop in average prices and costs up almost 11 percent in the six months reduced pre-tax profit to just $18 million (£11 million). That compares to $159 million a year earlier.
But the miner stuck to its closely watched spending plans, as it ramps up growth shafts to bring down the overall cost of producing an ounce of platinum. Chief executive Ian Farmer said Lonmin would be prudent, however, with what analysts say is one of the weaker balance sheets in the industry.
"Lonmin is in a tough position. It has to walk a tightrope between creating a strong and robust company... and navigating the short term," Farmer said. "Mining is a long-term game. I can't flip-flop every time there is a Greek headline."
Miners across the board have been feeling pressure from investors to take a more disciplined approach to spending. Lonmin, which faces debt covenants of 3.75 times net debt to core profit, plans to spend $450 million this year ramping up growth shafts to cut unit costs.
Farmer said Lonmin consistently reviewed its position.
"In our view the medium- to long-term PGM (platinum group metals) market fundamentals, however, remain sound and this strategy will benefit our shareholders as the market improves," Farmer said.
Net debt stands at $356 million, up from $234 million at September 2011.
Lonmin's drop in profit and rising costs hit the miner's shares, down 3.6 percent at 869 pence at 0940 GMT, but not far below a 2.7 percent drop in the broader sector.
Lonmin reported as the industry met in London for its annual Platinum Week gathering, reviewing a South Africa-focused sector battered by stoppages, strikes, soaring costs and lacklustre appetite in its key European auto market.
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