Reuters: Global Markets: Lonmin H1 profit tumbles as rising costs bite

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Lonmin H1 profit tumbles as rising costs bite May 14th 2012, 07:28 LONDON | Mon May 14, 2012 3:28am EDT LONDON (Reuters) - Platinum producer Lonmin (LMI.L) said pre-tax profit tumbled in the first half of its financial year, as weak European demand weighed on prices and a record level of government-imposed safety stoppages hit its output and operating costs. Pre-tax profit fell to $18 million for the six months to the end of March, below analysts' expectations, against a year-ago profit of $159 million. Revenues fell almost 20 percent, underperforming a 10 percent drop in prices in dollar terms, while expectations of an underlying profit per share were disappointed with a loss of 6.9 cents per share. The weak numbers hit the miner's shares, down 4.2 percent at 863 pence at 03:20 a.m. EDT (0720 GMT) against a 2.3 percent drop in the broader mining sector .FTNMX1770. The world's third-largest platinum producer stuck to its guidance of a 2012 cost increase of 8.5 percent, despite a 10.9 percent rise in costs per ounce in the first half, and kept its closely watched full-year production target. But the miner said further deterioration in the market environment could prompt it to scale back ambitious spending plans to boost output by 2015 and help cut operating costs. Chief Executive Ian Farmer said growth plans for its Marikana operations were proceeding "with an element of caution in a market where demand is currently soft". "In our view the medium to long term PGM market fundamentals, however, remain sound and this strategy will benefit our shareholders as the market improves," Farmer said, adding Lonmin was constantly reviewing the market and would "defer capital to the extent deemed necessary to remain within prudent debt parameters". Lonmin plans to spend $450 million this year, most of which has either been committed or spent. Analysts say Lonmin has one of the weakest balance sheets in the sector but has also been among the most active in reducing its cost profile. The platinum industry in South Africa has been battered labor disputes, rising costs, as well as weak demand in Europe and elsewhere that has held back prices, but mostly by the increase in so-called "section 54" safety stoppages. Miners have criticized the blanket nature of the stoppages, which can bring an entire mine to a standstill because of a problem in a single shaft. Lonmin said the impact of the stoppages was up almost 400 percent, reducing its tonnes produced by 347,000. But Farmer, in comments to reporters, signaled an improvement since the start of the year. "There was a reduction in February and March and our experience in April and May has been positive as well," he said. "A more balanced approach is being taken all round." Platinum sales for the six months totalled 318,402 ounces, broadly flat on last year. Average prices, however, fell 10 percent against its first half a year ago. (Reporting by Clara Ferreira-Marques; Editing by Kate Kelland) Link this Share this Digg this Email Reprints

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