Lonmin doubles earnings but workforce negotiations loom

 
Suzie Neuwirth
PLATINUM miner Lonmin more than doubled its profits in the first half of the year and has lifted its production guidance, but a wage battle with trade unions looms on the horizon.

The FTSE 250-listed company yesterday posted pre-tax profits of $54m (£35m) for the six months to 31 March 2013, compared to $18m in the same period the previous year.

However, wage negotiations with the unions will be a “significant challenge” for the year ahead, the company said.

The miner announced earlier this month that the militant Association of Mineworkers and Construction Union (AMCU) now controls 70 per cent of its South African workforce, after poaching discontented members from the National Union of Mineworkers (NUM).

A turf war between the two unions triggered wildcat strikes and violence last year that killed around 50 people in the mining sector.

Over the weekend, AMCU said that one of its organisers was shot dead as a result of the rising tension.

“Lonmin is doing better but the industry is still in trouble. South Africa has constant labour problems and I don’t think that’s going to change very soon,” commented Cailey Barker, analyst at Numis Securities.

“The results are good at a mining level but there are clearly still some problems with the furnaces, so sales won’t increase as much as production has,” Nick Hatch, analyst at Westhouse, told City A.M.

“With regard to the unrest, the key issue is how to quantify it and there are no indicators of that at the moment. I expect these problems to impact market sentiment towards the whole sector.”

Acting chief executive Simon Scott said in yesterday’s statement that the company’s return to profitability had allowed it to de-risk the balance sheet and generate positive free cash flows in the second quarter.

Lonmin has increased its production guidance for platinum from 680,000 ounces to over 700,000 ounces for the full year.