Low prices for platinum group metals (PGMs) and a weak operating environment resulted in a slump in the profitability and sales volumes at Lonmin in the six months to March, the world’s third biggest producer of the industrial metal, in the first half of the 2012, the company said.
The share price at Lonmin fell 5.1 percent 854 pence on the London Stock Exchange when the company announced its interim results for the six months to March 2012, but analysts were divided on reasons for fall of the company’s share price.
Lonmin reported that volumes had dropped 20 percent during the six months to March 2012, while profits dropped to $14 million from $144 million in the same period last year.
Revenue was hit by lower PGM prices and volumes sold and fell by 20 percent to $751 million, the company said.
An analyst, who spoke on condition of anonymity, said Lonmin had “missed consensus” as sales volumes were below expectations.
“Any company with a stretched balance sheet will be penalised by the markets.”
He added: “Lonmin has a high gearing. In other words the company is deeply indebted in relation to its capital. The net debt at the group had increased to $356 million for the period under review from $296 million previously.”
In contrast, another analyst said that Lonmin’s results were impressive. He said share was down because platinum prices had lost ground.
Total PGMs sales decreased by 15.4 percent to 418 988 ounces. The company said that operating costs, which increased to R5.8 billion from R5.3 billion last year, continued to be a challenge.
PGMs are used for the production of mainly catalytic converters for internal combustion engine emissions in motor vehicles. These metals are also used in the manufacture of jewellery.
The price of platinum weakened 10 percent to $1 566 per ounce in the first half of 2012 from an average of $1 745 an ounce in the first half of 2011. The price of palladium was down 11 percent to $655 in the first half of 2012 from $734 in the first half of 2011.
Lonmin, a Johannesburg Stock Exchange listed company, with eleven operations in South Africa’s Bushveld Complex, saw its output hit by Section 54 safety stoppages, which allow the state to shut mines in order to investigate accidents.
In the first half of 2011, Lonmin lost 347 000 tons of ore mined across all its operations due to Section 54 stoppages compared to 70 000 tons of ore mined in the first half of last year.
Ian Farmer, the chief executive at Lonmin, said: “Following some high level dialogue across all levels of the Department of Mineral Resources around the end of January, losses have subsequently fallen to lower levels.”
Lonmin also lost 48 000 tons of ore mined in the first half of 2011 because of management induced safety stoppages and 69 000 tons ore mined in the first half this year because of community and labour unrest.