JOHANNESBURG (Business Day) -- Platinum producer Lonmin [LSE:LMI] hiked its dividend yesterday for the first time in four years, reflecting a confident outlook for platinum and the continued growth of the business, said CEO Brad Mills.
"We had a great first half, and the markets are helping," said Mills, in an interview with Classic Business Day.
The group, which operates mines at Marikana and Limpopo, declared an interim dividend of $0.45 a share for the six months to March, up from $0.30 a share in the same period last year, as underlying earnings more than doubled to $1.10 a share from $0.438 previously.
"Our board took a good look at the performance, and felt very comfortable that we can sustain that level of increase in dividend, and took the view that it was time to start to share some of the wealth with the shareholders," said Mills.
After taking into account movements in fair value of the embedded derivative associated with Lonmin's convertible bond, which is related to the rise in its share price, the group reported a loss of $0.471 a share from a profit of $0.515 previously.
Numis Securities analyst John Meyer said Lonmin's underlying earnings were almost 4% better than forecasts, and the group had delivered an impressive cost performance, with Marikana showing an increase in unit costs of only 0.5%.
Globally, mining companies are experiencing pressure on input costs such as fuel, steel, cement and wages.
The group had realised $32 million in savings at the level of net earnings before interest and tax (ebit) from its Six Sigma continuous improvement programme, as well as $2.3 million in savings from a shared business services programme.
Mill said the introduction of our Six Sigma continuous improvement methodology that was started two years ago is "really catching hold, and doing a great job."
"We had great cost results during the first half - our costs were only up 0.5% year on year - which is I think great in South Africa where the inflationary environment is probably running closer to 5% - so we're getting great traction around that, and the consequence is that all of the price improvement fell right to the bottom line," Mills added.
Production from Marikana reached a record 5.7 million tonnes milled from underground and 1.3 million tonnes milled from opencast operations.
"We had a lot of things that went right for us - our mines produced 500,000 ounces of platinum in concentrate, and we're well on track for the 1 million ounces per year," said Mills.
Management is continuing to introduce mechanised mining at Marikana with the aim of 8% of production from mechanised stopes by the end of this year and 50% by end 2010.
The group's Limpopo operations, where it consolidated control through buying out the remaining 8.5% of minorities in the past six months, produced 487,000 tonnes milled from underground operations and contributed $8 million to ebit, which was "substantially" ahead of budget, Mills said.
The ramp-up of production had progressed well and costs were coming down.
Last month the company reported a leak at its number one furnace had caused an 11-day shutdown and this would bring down the forecast sales of platinum to between 970,000 ounces and 980,000 ounces from the original forecast of 1-million ounces.
But Mill said Lonmin should have sales hit between the 970,000 and the 980,000 ounces of metal sales this year - with production from the mines at about 1 million ounces, and that growing then to 1.3-million ounces by 2010.
"Lonmin is investigating a number of possible expansion projects, including an open-cast operation at Limpopo to add 20,000 ounces of platinum a year for two years, a second phase of development at Limpopo which could add about 125,000 ounces of platinum a year, and development of the Pandora property using mechanised mining, which could add an attributable 85,000 ounces of platinum to Lonmin," said Mills.
"The group is also looking to expand its metallurgical capacity, which would require adding a new furnace and upgrading the precious metals refinery at a cost of about $300-$350 million," added Mills.
Mills said Lonmin's goal is to create shareholder value through building good growth in the company executing against our strategy.
Although the company could "ultimately elicit some kind of corporate activity, because clearly there are a number of very large companies that are struggling with growth - so they may see at some point that's an attractive opportunity for them," said Mills.
"But we really think that what we can do best is to focus on what we're doing well - which is deliver our growth pipeline, and create that value for the shareholders," he concluded.
