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
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
SPONSORED FEATURES
Independent Dating
and  

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

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Sales Adviser - OTE £24,500

£22500 - £24500 per annum: Recruitment Genius: Inbound and outbound calls with...

Recruitment Genius: Business Development Executive / Sales - OTE £40,000

£18000 - £40000 per annum: Recruitment Genius: This fast growing Insurance Bro...

Guru Careers: Research Associate / Asset Management Research Analyst

£40 - 45k (DOE) + Benefits: Guru Careers: A Research Associate / Research Anal...

Ashdown Group: Chief Technology Officer (CTO) - Glasgow

£90000 - £98000 per annum + benefits : Ashdown Group: A truly exciting opportu...

Day In a Page

Solved after 200 years: the mysterious deaths of 3,000 soldiers from Napoleon's army

Solved after 200 years

The mysterious deaths of 3,000 soldiers from Napoleon's army
Every regional power has betrayed the Kurds so Turkish bombing is no surprise

Robert Fisk on the Turkey conflict

Every regional power has betrayed the Kurds so Turkish bombing is no surprise
Investigation into wreck of unidentified submarine found off the coast of Sweden

Sunken sub

Investigation underway into wreck of an unidentified submarine found off the coast of Sweden
Instagram and Facebook have 'totally changed' the way people buy clothes

Age of the selfie

Instagram and Facebook have 'totally changed' the way people buy clothes
Not so square: How BBC's Bloomsbury saga is sexing up the period drama

Not so square

How Virginia Woolf saga is sexing up the BBC period drama
Rio Olympics 2016: The seven teenagers still carrying a torch for our Games hopes

Still carrying the torch

The seven teenagers given our Olympic hopes
The West likes to think that 'civilisation' will defeat Isis, but history suggests otherwise

The West likes to think that 'civilisation' will defeat Isis...

...but history suggests otherwise
The bald truth: How one author's thinning hair made him a Wayne Rooney sympathiser

The bald truth

How thinning hair made me a Wayne Rooney sympathiser
Froome wins second Tour de France after triumphant ride into Paris with Team Sky

Tour de France 2015

Froome rides into Paris to win historic second Tour
Fifteen years ago, Concorde crashed, and a dream died. Today, the desire to travel faster than the speed of sound is growing once again

A new beginning for supersonic flight?

Concorde's successors are in the works 15 years on from the Paris crash
I would never quit Labour, says Liz Kendall

I would never quit party, says Liz Kendall

Latest on the Labour leadership contest
Froome seals second Tour de France victory

Never mind Pinot, it’s bubbly for Froome

Second Tour de France victory all but sealed
Oh really? How the 'lowest form of wit' makes people brighter and more creative

The uses of sarcasm

'Lowest form of wit' actually makes people brighter and more creative
A magazine editor with no vanity, and lots of flair

No vanity, but lots of flair

A tribute to the magazine editor Ingrid Sischy
Foraging: How the British rediscovered their taste for chasing after wild food

In praise of foraging

How the British rediscovered their taste for wild food