Strike-hit platinum miner Lonmin says job cuts inevitable

By Silvia Antonioli
Striking miners chant slogans as they march to Lonmin's head quarters in Johannesburg
Striking miners chant slogans as they march to Lonmin's head quarters in Johannesburg, April 3, 2014. REUTERS/Siphiwe Sibeko

By Silvia Antonioli

LONDON (Reuters) - Platinum miner Lonmin said on Monday restructuring and job cuts were inevitable as it posted a steep fall in six-month earnings, suffering from South Africa's longest and most costly labour stoppage.

The producer had anticipated a return to work on Wednesday and was preparing to restart operations but the killing of two of its employees as they reported for work on Monday threatened the firm's plans to end the industrial action this week. [ID:nL6N0NW0PF]

The pay dispute in the world's top platinum producing country has cut 40 percent of global production and halted operations at Lonmin's mines and processing plants.

The labour-intensive platinum industry was already grappling with rising costs and weaker prices for the precious metal, used in emissions-cutting catalytic converters in automobiles.

The strike, entering its 16th week, has worsened the situation and made restructuring more urgent, the platinum producer said.

"It is inevitable in that scenario that the business will have to be restructured with consequences on job losses," Chief Executive Officer Ben Magara said in a call with reporters.

"The depth of the restructuring will depend clearly on the return to work date and how we will ramp up (production)."


Lonmin, the world's third-largest primary platinum producer, saw its underlying earnings before interest and tax (EBIT) shrink to $34 million for the six months to the end of March, from $93 million a year earlier. This excluded a strike-related special cost of $164 million. The company said it has declared force majeure with suppliers and customers. Force majeure gives companies protection from liabilities if circumstances beyond their control mean they cannot meet contractual obligations.

"The poor results are not a surprise in light of the strike. Management is experienced at recovering from such disruption so we hope for a smooth ramp up," said Investec analyst Marc Elliott. "However, until workers return, estimating the operational performance in the year ahead is exceptionally challenging for all parties."

The company, which said it is focusing on reducing costs and conserving cash, is burning cash at a rate of about $3 million a day or $60-66 million a month, Magara said.

Lonmin said it would restart its platinum processing facility as it anticipated workers returning to work. If the strike continued however, it would start processing the inventories left in the pipeline to generate cash.

Lonmin said a security plan was in place to allow employees to go back to work this week. Security will be regarded as crucial as mining firms say union AMCU is using violence and intimidation to keep its members in line, allegations the union has denied.

South Africa's National Union of Mineworkers (NUM) said two of its members were killed on Monday as they reported for work at Lonmin's platinum mine. [ID:nL6N0NY1DI]

Magara confirmed one employee was killed in what he called "a sad incident" but provided no other details.

In 2012, Lonmin was at the centre of labour unrest and violence that left dozens dead.

Lonmin said its K4 shaft, which was scheduled to come back from maintenance in 2015, will not restart operations due to the strike until market conditions improve and the company has a positive cash flow.