Lonmin axes 5,500 jobs and mothballs one mine as low prices take toll

Speculation about a rights issue is still rife, despite the company's denials

Lonmin, the world's third-largest platinum producer, is axing 5,500 jobs and mothballing the smaller of its two mines in South Africa.

The London-listed group will cut 4,000 staff from its 30,000-strong operation at Marikana, of which 300 will be management positions. A further 1,500 jobs will be cut from the 1,900 at the Limpopo facility, where activity will be reduced to care and maintenance only.

Demand for platinum has been devastated by the worldwide economic slowdown. With around half of all the metal produced used by the motor industry in catalytic converters, the collapse of vehicle sales from the US to Tokyo to Europe has caused major problems.

Ian Farmer, the chief executive of Lonmin, said: "With the current backdrop of challenging economic conditions, these agreements are an important milestone in our objective of restructuring the company."

He also commended the approach of the trade unions with which the staff cuts were negotiated. "Our dialogue has been constructive and pragmatic," Mr Farmer said. "We appreciate [the unions'] active engagement during this difficult period. Whilst they have understandably executed their mandate to protect the interests of their members, they have displayed an appreciation of our efforts to ensure the long-term sustainability of the company."

Despite the contraction in the global market, Lonmin says it will produce 700,000 ounces of platinum in the current financial year, which is only 25,000 ounces lower than the 2008 level.

But platinum prices are still languishing at around the $1,080 (£749) per ounce mark – less than half of last year's high of $2,260 – leaving revenues for its producers far from guaranteed. The price has gone up since the woeful $787 in November, largely as a result of speculators piling into the metal after it performed the rare stunt of dropping below the gold price in mid-December. But even with the current blip, a number of City analysts are still predicting losses for Lonmin when it reports its full-year figures in September.

The decline of the South African rand against the dollar in recent months has provided some relief, but rumours of a possible rights issue have also still not been laid to rest, despite denials from the group. Although $303m of debt on the balance sheet of a $2.2bn-plus company is not too substantial, and there are no major refinancings needed soon, there are concerns that falling earnings might breach covenants and force the group to explore other ways of raising money.

"If platinum prices stay where they are now and Lonmin can keep taking costs out, it might just be able to get away with things," one City analyst said. "It was a good decision to work on the cost and production base, but the cuts they've made are pretty small beer in terms of the overall structure of the company."

Lonmin has had a difficult year. Brad Mills, the former chief executive, stepped down in September amid speculation that Sir John Craven, then the chairman, had sidelined him from discussions about defending the group from a £5bn hostile bid from its rival Xstrata. Under Mr Mills' stewardship, the company saw production levels fall, reserves go undeveloped and attempts to mechanise Limpopo fail. Xstrata dropped its bid in October, citing poor market conditions.

"What will be important in the short term is the company's ability to show investors that it is overcoming its cost of production issues," Charles Kernot, an analyst at Evolution Securities, said.

Sir John resigned in January, leaving Roger Phillimore, the deputy chairman, to fill the interim role. A permanent replacement is yet to be found, making an imminent rights issue unlikely on corporate governance grounds.

Start your day with The Independent, sign up for daily news emails
ebooks
ebooksAn introduction to the ground rules of British democracy
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Customer Service Advisor

£15000 - £16000 per annum: Recruitment Genius: Customer Service Advisors are r...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE £45K: SThree: SThree were established in 1986....

Recruitment Genius: Compliance Manager

£40000 - £60000 per annum: Recruitment Genius: A Compliance Manager is require...

SThree: Talent Acquisition Consultant

£22500 - £27000 per annum + OTE £45K: SThree: Since our inception in 1986, STh...

Day In a Page

John Palmer: 'Goldfinger' of British crime was murdered, say police

Murder of the Brink’s-MAT mastermind

'Goldfinger' of British crime's life ended in a blaze of bullets, say police
Forget little green men - aliens will look like humans, says Cambridge University evolution expert

Forget little green men

Leading evolutionary biologist says aliens will look like humans
The Real Stories of Migrant Britain: An Algerian scientist adjusts to life working in a kebab shop

The Real Stories of Migrant Britain

An Algerian scientist struggles to adjust to her new life working in a Scottish kebab shop
Bodyworlds museum: Dr Gunther von Hagens has battled legal threats, Parkinson's disease, and the threat of bankruptcy

Dying dream of Doctor Death

Dr Gunther von Hagens has battled legal threats, Parkinson's disease, and the threat of bankruptcy
UK heatwave: Temperature reaches 39.8 degrees on Central Line - the sweatiest place in London

39.8 degrees recorded on Tube

There's hot (London) and too damn hot (the Underground). Simon Usborne braved the Central line to discover what its passengers suffer
Kitchens go hi-tech: From robot chefs to recipe-shopping apps, computerised cooking is coming

Computerised cooking is coming

From apps that automatically make shopping lists from your recipe books to smart ovens and robot chefs, Kevin Maney rounds up innovations to make your mouth water
Jessie Cave interview: The Harry Potter star has published a feminist collection of cartoons

Jessie Cave's feminist cartoons

The Harry Potter star tells Alice Jones how a one-night stand changed her life
Football Beyond Borders: Even the most distruptive pupils score at homework club

Education: Football Beyond Borders

Add football to an after-school homework club, and even the naughtiest boys can score
10 best barbecue books

Fire up the barbie: 10 best barbecue books

We've got Bibles to get you grilling and smoking like a true south American pro
Wimbledon 2015: Nick Bollettieri - Junk balls and chop and slice are only way 5ft 1in Kurumi Nara can live with Petra Kvitova’s power

Nick Bollettieri's Wimbledon Files

Junk balls and chop and slice are only way 5ft 1in Kurumi Nara can live with Petra Kvitova’s power
Ron Dennis exclusive: ‘This is one of the best McLaren teams ever – we are going to do it’

‘This is one of the best McLaren teams ever – we are going to do it’

Ron Dennis shrugs off a poor start to the season in an exclusive interview, and says the glory days will come back
Seifeddine Rezgui: What motivated a shy student to kill 38 holidaymakers in Tunisia?

Making of a killer

What motivated a shy student to kill 38 holidaymakers in Tunisia?
UK Heatwave: Temperatures on the tube are going to exceed the legal limit for transporting cattle

Just when you thought your commute couldn't get any worse...

Heatwave will see temperatures on the Tube exceed legal limit for transporting cattle
Exclusive - The Real Stories of Migrant Britain: Swapping Bucharest for London

The Real Stories of Migrant Britain

Meet the man who swapped Romania for the UK in a bid to provide for his family, only to discover that the home he left behind wasn't quite what it seemed
Cheaper energy on the way, but it's not all sunshine and rainbows

Cheaper energy on the way, but it's not all sunshine and rainbows

Solar power will help bring down electricity prices over the next five years, according to a new report. But it’s cheap imports of ‘dirty power’ that will lower them the most