Lonmin Posts Loss In FY09 - Update

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Platinum producer Lonmin Plc (LMI.L, LNMIY.PK,LNMIF.PK) reported Monday a loss for fiscal 2009, as revenues dropped 52.4%, hurt by a significantly weaker pricing environment. Looking ahead, the company expects demand for Platinum to improve gradually in 2010, supported by a steady recovery in the automotive and industrial sectors. However, Lonmin said South African cost environment remains challenging, with continued inflation across the mining sector.

For fiscal 2009, the company's loss before tax was US$ 272 million, compared to a profit of US$ 779 million in the previous year. Underlying loss before tax was US$111 million, in comparison with a profit of US$ 997 million in the year earlier.

For the year, the company recorded a special loss of US$ 182 million, wider than US$ 95 million last year. Special items include restructuring and reorganization costs of US$ 49 million, impairment of available for sale financial assets of US$ 39 million and finance costs amounting US$ 73 million.

Loss attributable to equity shareholders of the company was US$ 285 million or 163.7 cents per share, compared to a profit of US$ 455 million or 276.9 cents per share in the prior year.

Underlying loss, excluding items, was US$ 103 million or 59.2 cents per share, in comparison with a profit of US$ 550 million or 335.8 cents per share last year.

Headline loss was US$ 242 million or 139 cents per share, compared with a profit of US$ 647 million or 393.7 cents per share a year ago. The company noted that all figures related to the prior year have been restated.

Revenues for the year dropped 52.4% to US$ 1.06 billion from US$ 2.23 billion in the year earlier. According to the company, the Group's primary operating segment is the mining of Platinum Group Metals, with the vast majority of operating assets in South Africa.

Geographically, revenues from Americas fell to US$ 227 million from US$ 580 million in the previous year. Asia reported revenues of US$ 296 million, down from US$ 798 million a year ago, while Europe revenues increased to US$ 417 million from US$ 349 million in the prior year. South Africa generated revenues of US$122 million, compared to US$496 million in the year earlier.

Operating loss for the year was US$ 142 million, compared to a profit of US$ 764 million in the preceding year. Excluding special items, underlying operating loss was US$93 million, in comparison with a profit of US$963 million last year.

The company said it achieved US$ 64 million of cost savings in the second half, as a result of restructuring programme, which is ahead of its initial annualized target of US$ 90 million.

Lonmin noted that production at core Marikana underground operations was in line with 2008 levels and said it achieved the revised 2009 sales guidance by selling 682,955 ounces of Platinum. The company expects the Marikana mined production to increase in 2010 and anticipates to achieve 2010 sales of around 700 thousand Platinum ounces, slightly ahead of 2009.

Total tonnes mined during the year were 10.8 million, down 1.6 million from last year as a result of the company's decision to close production units which were unprofitable. Total Marikana underground production was 10.2 million tonnes, same as at 2008.

The company said its share of production from the Pandora joint venture ground during the year was 298,000 tonnes mined, a decline of 34%, due to the planned stoppage of opencast production at the joint venture.

Average Platinum prices were US$ 1,086 per ounce, down from US$ 1,655 per ounce in the prior year. Rhodium prices for the year dropped to US$ 1,571 per ounce from US$ 7,614 per ounce a year ago.

According to the company, PGM prices started to improve in the second quarter of the year, stabilizing in the following quarter due to strong jewellery and investment demand and Platinum price closed at US$ 1,280 per ounce and Rhodium at US$1,650 per ounce on September 30. However, the strength of the South African Rand largely offset these improvements in US dollar based PGM prices, and continued to put pressure on industry margins and cash flows, the company noted. PGM basket pricing increasing by 23% in the second half to US$ 861 per ounce from US$ 699 per ounce in the first half of the year.

PGM sales volume for the year at 1,268,918 ounces were 132,453 below the prior year, which resulted in an adverse revenue impact of US$ 203 million, the company said.

Looking ahead, Lonmin anticipates the supply will struggle to keep up with recovering demand from 2010 onwards and, as demand returns, there should be a recovery in PGM profit margins.

Further, the electricity pricing tariffs are expected to increase by over 45% in 2010 and said it anticipates similar power price increases in the subsequent years.

Ian Farmer, chief executive officer said, "Lonmin is well placed, following the decisive management actions taken in 2009, enabling us to grow into the robust market fundamentals we foresee developing in 2011 and beyond. Lonmin has high quality, long life assets and increasing production volume together with vigilant cost control will improve our position on the cost curve."

As the company's profitability and cash flows remain under pressure, Lonmin said it has decided not to declare a final dividend for the 2009 financial year. However, the Board will keep the matter of dividend distributions under constant review and will resume payments as soon as conditions allow, the company added.

LMI.L is currently trading at 1,719 pence, up 127 pence or 7.98%, on a volume of 675 thousand shares. In the past 52 weeks, the shares have been trading in a range of 536.5 pence - 1,885 pence on the LSE.

LNMIY.PK closed Friday's regular trading at $26.49 on the OTC, while LNMIF.PK last traded at $26.45 on November 11.

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