Lonmin's shares are plummeting as its latest production report reveals a "disappointing" first quarter

 
Courtney Goldsmith
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Lonmin has a lot of catching up to do in the rest of its financial year
Lonmin has a lot of catching up to do in the rest of its financial year (Source: Getty)

One of the world's largest platinum producers today said labour issues and falling output led to a "disappointing" first quarter.

Lonmin fell to the bottom of the FTSE all-share after it announced its production results for three months to 31 December 2016.

Shares were down 14.85 per cent at 150.50p in afternoon trading.

A "disappointing" quarter

The South Africa-focused metal miner said production in its generation two shafts was down 5.2 per cent from the previous year, a "disappointing" performance even in what is historically Lonmin's lowest-producing quarter.

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The company produced 1.8m tonnes in its generation two shafts, down 0.1m tonnes due to poor performance from K3, its largest shaft. The K3 mine produced 590,000 tonnes, down 13.8 per cent from the prior year.

This shaft was most impacted by "reorganisation" in 2016, in which high management induced safety stoppages resulted in 60,000 tonnes of lost production.

​Production at generation one shafts was in line with expectations. Lonmin produced 0.5m tonnes, down 21.8 per cent, or 0.1m tonnes, on the previous year, which reflected a planned decline in production.

Lonmin said its sales guidance for the 2017 full year is maintained at between 650,000 and 680,000 platinum ounces. "We will be reviewing our capital expenditure and will provide an update on guidance in due course."

Disputes with unions

Lonmin said the relationship between management and unions at its K3 shaft is "not working as effectively as we expected" while business improvement initiatives take longer than expected.

In 2012, thousands of Lonmin workers went on strike at its Marikana mine after the company reportedly declined to meet with them to discuss pay and conditions. South African police were brought in to break up the occupation of certain areas by striking workers, and 34 miners ended up being killed in action widely reported as the "Marikana Massacre".

The longest sustained industrial action occurred between January and June 2014. The strike ended when Lonmin agreed to a minimum wage that included annual increases over the following three years, with a commitment to agree a new structure in 2016.

In October, the firm agreed to a new three-year deal with workers and unions over wages and working conditions.

Read more: Bad news for Lonmin but good news for short sellers

The analyst view

Analysts at Liberum said the poor performance means the company is falling behind on its cost guidance.​

Liberum said:

"Management comments that productivity improvements are taking longer to come through than expected, which is no surprise given the structural down pressures on mining productivity in deep level mines. PGM Rand basket achieved during the quarter was R10,372/oz, clearly not sustainable, we remain conviction sellers of the equity."

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