Lonmin Plc (LMI), the platinum producer that lost half its value in the past year, cut its estimates of production growth and capital spending after metal prices fell.
“The current lackluster demand for platinum group metals and the weak pricing environment may persist for longer than we had previously anticipated,” the London-based company said in a statement today. Lonmin, the world’s third-largest platinum producer, said it’s reviewing financing options.
Prices are down 22 percent in a year, while labor and power costs in South Africa, owner of the most reserves, rose faster than inflation. Anglo American Platinum Ltd. (AMS), the largest producer, cut spending after posting a loss this week and idled its Marikana mine, jointly owned with Aquarius Platinum Ltd. (AQP) In addition, Aquarius suspended its Blue Ridge and Everest mines.
Lonmin will spend about $250 million in both the 2013 and 2014 financial years and cap 2013 sales at the current level of 750,000 ounces of platinum, it said. Chief Executive Officer Ian Farmer planned a year ago to spend an average $400 million a year to boost annual output to 950,000 platinum ounces by 2015.
That target may be achieved two years later, BMO Capital Markets analyst Edward Sterck said in a note today.
“The deferral in Lonmin’s ramp-up removes about 100,000 to 200,000 ounces per annum of platinum from the market over the next three years,” SBG Securities Ltd. analysts Justin Froneman and Michael Starke said. Lonmin and Aquarius’s cutbacks should “ultimately support a higher platinum price,” they said.
While net debt is “well within” limits, Lonmin said it may enter international markets. Lonmin replaced an $875 million facility with $700 million of syndicated debt and three 660 million rand facilities a year ago to fund production growth.
The stock climbed 3.9 percent to 694 pence at the close in London. Sales for the nine months through June slid 2.1 percent to 468,777 ounces, the company said in a statement today.
Lonmin produces all its metal in South Africa, which holds about 88 percent of known global platinum group metal reserves.
The company’s cost of producing an ounce of metal should rise 8.5 percent this year from last year, it said.
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