This year Lonmin, the world’s third largest platinum producer, will try to save its African business.
After a disastrous couple of years, the future of Lonmin hung in the balance in November as the platinum mining giant needed a $407-million bailout to keep going. It was the third capital raising in six years.
Wounded by declining platinum prices, electricity shortages, slow demand, and strikes, the company’s financial circumstances deteriorated sharply. To make matters worse, the company frittered away money.
“In the boom times around 2004 and 2005, Lonmin went and bought a ground in the Northern Province around the Plat Reef, a property called Akanani. Akanani was bought for almost a billion dollars. Today, in our books, it’s worth zero. So that billion dollars went down the drain,” admits Lonmin CEO, Ben Magara.
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Magara says a further billion dollars was wasted when Lonmin embarked on a failed mechanization program. The rock was too hard and shafts too narrow.
“To try and reverse all those challenges has needed even more money,” says Magara.
On the morning of November 19, Lonmin went cap in hand to its shareholders for an emergency capital injection. Prior to the meeting, other shareholders sold out of Lonmin. The share price went down from $8 in December 2010, to just 16c in November just before the meeting.
In London, Lonmin offered shareholders a 94% discount as part of its rebuilding plan. The Public Investment Corporation (PIC) saved the day by increasing its stake in Lonmin by 23% from 7%.
Even though the bailout was successful, 6,000 job losses are expected by September. Paul Theron, the CEO of asset management company, Vestact, reckons Lonmin’s shareholders are growing tired of bailouts.
“It’s a bit like SAA (South African Airways) where they say ‘this is one last bailout please’, but unfortunately that is exactly what happened in the past. The management team has raised additional funding in order to increase equity and to pay down debt, but then proceeded to run business in a way that didn’t result in a sustainable profitable scenario,” says Theron.
“No one anticipated that we would see this level of oversupply in the industry and this level of self-demand and this level of poor prices. A lot of people assumed that once the supply side started to calm down, there would be an immediate response in terms of higher platinum prices.”
Lonmin is hoping upon hope it can save its 106-year-old African operations and more than 30,000 jobs.

Lonmin Tries A Lazarus

Modernization, mechanization and regulation are some of the key aspects that need to be looked at for South Africa to build a globally competitive and sustainable mining industry.
Earlier this year, the mining sector experienced a five-month crippling wage strike. It follows the 2012 unprotected wage strike outside Lonmin’s Marikana mine, where 34 miners demanding a wage increase, were shot dead by police. Strikes pose risk and uncertainty for investors. It is often perceived, when long protracted strikes take place, that conversations about mechanization comes to the fore.
Mechanizing mines is seen as a solution to securing a steady stream of revenue and could cut significant costs for mining companies.
Speaking at the Joburg Indaba on mining, Mineral Resources Minister Ngoako Ramatlhodi says strikes are not a uniquely South African phenomenon.
“But when they run into periods exceeding five months; that should raise attention to all stakeholders. It puts the efficacy of regulatory institutions into question,” says Ramatlhodi.
“The cost to the industry and economy has been beyond words with recent figures revealing that in the first quarter, sales of total minerals declined by 24.7 percent. This narrowed to 9.6 percent in the
second quarter.”
He says the cost to the industry and economy has been beyond imaginable proportions.
Chairman of Anglo American Platinum, Valli Moosa, says that the recent strikes in South Africa are more of a major social uprising and revolt than purely labor relations disputes.
“We can say that it was a result of educators from the ultra-left influencing workers… but workers would not have gone on a five-month strike without pay, unless they wanted to send us a serious message. I feel ashamed that miners did that,” says Moosa.
“Workers want a fundamental change of what is happening in this industry. They didn’t achieve that much in as far as their demands are concerned.”
Moosa added that there needs to be a fundamental change and questioned whether mechanization could be the silver bullet to drive the future of South Africa’s mining industry. He believes that the country needs to move to a higher degree of modernization because it will improve productivity.
The rest of the world has experienced unprecedented growth of their economies following mechanization.
“We should not take ourselves back to the dark ages. Technology will be the biggest driver of growth in South Africa in the foreseeable future,” says Moosa.
The Chief Executive of diversified miner, Exxaro Resources, Sipho Nkosi, agrees but notes that education is critical.
“We need to go back to educate our people in the correct areas. And if you look at technological areas around the world, its mind boggling,” he says.
Industry experts say that the mining sector is a sunset industry, but Nkosi says that we cannot focus on that. He believes that government must be clear on its policy and that the industry needs to know what its role is in helping to grow the economy.
But trade unions fear that mechanizing the mines will result in massive job losses. Moosa believes that where there’s a reduction in the labor force, mining bosses have a responsibility.
“We have a moral responsibility for that. Unless we take responsibility we will not get to where we want,” says Moosa.
Norman Mbazima, Chief Executive of Kumba Iron Ore, says mechanization does not necessarily result in job losses as perceived by many, especially labor unions.
“Unlike before, when we solely relied on labor, now due to mechanization we rely more on planners who might incorporate even injured miners,” says Mbazima.
Chief Executive of Lonmin, Ben Magara, in support of Mbazima, says unlike what is generally perceived, no mine could retrofit as every mineral deposit had an appropriate method.
“If we achieve mechanization within 10 years, we could have achieved it in the shortest term possible, 20 years would be medium term and 30 years long term,” says Magara.
To have a stable economy, South Africa needs to grow at 6%. In September, the International Monetary Fund lowered this year’s growth to a mere 1.4%.
All stakeholders must come together and find solutions that make sense.

Tag: Mechanization

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Lonmin Tries A Lazarus

Machines OVER MEN?