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Lonmin shares tumble after costs trigger loss, deeper cuts planned

Lonmin said its E2 and E3 shafts remained closed due to protests and the operations have lost about R56 million since the disruption began on 2 May.

The Lonmin platinum mine in Marikana. Picture: AFP.

LONDON - A drop in production and higher costs forced South Africa-focused platinum producer Lonmin to make deeper cuts and shift its headquarters on Monday as a first-half operating loss of $181 million knocked its shares.

Lonmin took a write-down of $146 million due to the stronger rand against the dollar as miners in South Africa pay costs in the local currency and earn revenue in dollars.

This also reduced Lonmin's liquidity by 6% compared with the previous year to $447 million, troubling some analysts.

"Shrinking liquidity post the write-down is a concerning indicator as is the increase in cash cost guidance," Investec analysts said in a note after the results.

London-listed shares in Lonmin fell 8% and the stock was down 12% in Johannesburg by 0936 GMT.

Lonmin, which has all its mines in South Africa, reported a loss per share of 64.4 cents versus 1.8 cents, while unit costs were higher driven by the weak mining performance.

Lonmin cut its spending plan for the year to a range of R1.4 billion to R1.5 billion ($105.1 million to $112.6 million) from R1.8 billion and raised its unit costs target.

As part of cost-saving efforts, the company plans to move its head office from Johannesburg to its operations in Marikana by the end of the year, chief executive Ben Magara told a conference call.

In the three months to March, production from Lonmin's larger shafts, known as generation 2, fell by 2.8% on the previous year while total refined platinum output fell 7.5% to 161,138 ounces.

The company said it bought the remaining 7.5% stake in the Pandora mine from Northam Platinum. Lonmin purchased 42.5% from Anglo American Platinum in November.

"Longer term, we continue to argue that the company faces significant structural headwinds," Citi analyst Johann Steyn said, adding that Lonmin was its least preferred South Africa platinum stock.

In a statement on Sunday, Lonmin said its E2 and E3 shafts remained closed due to protests and the operations have lost about R56 million since the disruption began on May 2.

The company maintained its platinum sales guidance for the year of 650,000-680,000 ounces.

The drop in production and higher costs have forced Lonmin to move its head office from Joburg to Marikana by the end of the year.

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