This is what producers need to watch out for
Rising Input Costs Eat into Profit at Lonmin
By Charlotte Mathews
26 Oct 2006 at 09:06 AM EDT
resourceinvestor.com
JOHANNESBURG (Business Day) -- Platinum producer Lonmin [LSE:LMI] overcame production problems in the year to September to produce record ouputs but warned that its margins had been squeezed by production issues and higher input costs.
The group said yesterday in its production report for the year to September it exceeded its target of producing 1-million ounces of platinum in concentrate for the year by 17,137 ounces. In the final quarter, smelter operations were stabilised and the process division recovered quickly from a fire in the precious metals refinery.
The group warned last month that full-year platinum sales could fall 2% to 3% after a fire at the refinery in Brakpan. It had previously suggested that full-year platinum sales would be between 950,000oz and 960,000oz. Despite the fire, the group’s final platinum sales for the year were in line with the original guidance, at 952,682oz of platinum. Total sales of platinum group metals, which also includes palladium and rhodium, rose 7.4% to 1.8million ounces compared with last year.
About a fifth of these sales were in the form of concentrate rather than refined metals because of the rebuilding of the smelter and other processing issues, Lonmin said. Concentrate carries a lower margin than the refined product.
At interim stage, the group’s costs appeared to be well under control with an increase in unit costs of only 0.5% at Marikana, which is the bulk of Lonmin’s operations. But it said yesterday that cost pressures increased in the second half, suggesting full year costs at Marikana, net of by-product credits, would be about R2,400-R2450/oz (US$320-US$326/oz) of platinum group metals sold. This compares with last year’s cost of R2243/oz (US$298/oz). Numis Securities analyst Simon Toyne said refined production was better than expected but there was an implied 3% increase in costs. Numis has downgraded its forecasts for Lonmin’s earnings a share for the past financial year and for later years. |
