Bloomberg News

Lonmin Plunges as CEO Hospitalized, Strike Cuts Output

August 16, 2012

Lonmin Plc (LMI) slumped in London trading after saying Chief Executive Officer Ian Farmer was hospitalized with an illness and it may miss output goals following a violent strike. South African press photographs showed at least 10 people dead today as police opened fire on armed miners.

A six-day work stoppage at Lonmin’s Marikana operations in South Africa’s North West province has resulted in rioting, and fatalities rose as police moved in to disperse protesters, Johannesburg’s eNews channel reported. Lonmin also issued a statement saying Farmer had a “serious illness” and Chairman Roger Phillimore will take charge of the executive committee.

Farmer’s hospitalization gives Lonmin “a lot of problems,” Carole Ferguson, an analyst at Fairfax IS Ltd., said by telephone from London. Farmer has a “hands-on role” where the company has its operations, she said.

Lonmin, the world’s third-biggest platinum miner, has lost metals output equivalent to 15,000 ounces of platinum at Marikana since rock-drill operators downed tools on Aug. 10, the Johannesburg-based company said in a separate statement. The workers, many of whom have camped out near the site, have been issued with an ultimatum to return by tomorrow or face dismissal, it said.

The violence at Marikana, located about 100 km (62 miles) west of Pretoria, is a “public order rather than a labor relations associated matter,” Phillimore said in an e-mailed statement. South African Minister of Minerals and Energy Susan Shabangu is awaiting a report on the violence at Lonmin and is “in liaison” with police minister Nathi Mthethwa, her spokeswoman Zingaphi Jakuja said.

Shares Drop

Lonmin slumped 6.8 percent to close at 648 pence in London trading, the lowest price since December 2008. The stock was the worst performer on the FTSE All-Share Mining Index. (FAMNG)

Before today, 10 people had died in violence related to the strike. The company has attributed the tension at the mine to rivalry between the dominant National Union of Mineworkers and the Association of Mineworkers and Construction Union, which is seeking to recruit members.

“At this point it is still very difficult to know how many people have died” today, Lesiba Seshoka, a spokesman for the NUM, said by telephone from Johannesburg. “What we know for a fact is that since yesterday those guys got given several warnings from the police to move away.”

Alarmed, Saddened

Johannesburg’s eNews television channel said its reporter had seen 12 bodies while the South African Press Association said 18 people were dead or injured. Police spokesman Dennis Adriao didn’t answer calls, text messages and e-mails. His voice mail box on his mobile phone was full.

“President Jacob Zuma is alarmed and saddened at the manner in which a dispute at the industrial level at the Lonmin mine in Rustenburg has degenerated,” the office of the South African leader said in an e-mailed statement. “We are shocked and dismayed by this senseless violence.”

Most Lonmin mines are running on essential services, with production disrupted by the work stoppage. Marikana produced 96 percent of the company’s platinum group metals in concentrate last year.

“It is unlikely that Lonmin will meet its full-year guidance of 750,000 saleable ounces of platinum,” the company said. “Unit costs will be negatively impacted as well, and as a result we expect the guidance of an 8.5 percent increase” in full-year costs to be exceeded.

Lonmin Problems

Platinum producers in South Africa, which account for three-quarters of world output, are facing plunging profits and surging costs as demand for the metal weakens, raising the prospect of violating loan terms. Lonmin, which has two debt covenants due on Sept. 30, said last month it’s examining increasing borrowing as metal prices retreat.

“The company is in significant operational and financial difficulty,” Abhishek Shukla, an analyst at Societe Generale in Bangalore, said in an interview. “If metal prices stay where they are, they will miss both those covenants.”

Police “massacred” the workers that had been camped on a rocky outcrop at Lonmin’s Marikana mining complex, the Association of Mineworkers and Construction Union President Joseph Mathunjwa said by phone.

“These things should be blamed squarely before management of Lonmin and the NUM,” he said

The NUM’s Seshoka said AMCU is to blame for the violence. Abey Kgotle, a spokesman for Lonmin said.

To contact the reporters on this story: Matthew Hill in Johannesburg at mhill58@bloomberg.net; Ana Monteiro in Johannesburg at amonteiro4@bloomberg.net

To contact the editor responsible for this story: Amanda Jordan at ajordan11@bloomberg.net


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