UPDATE 2-Miner Lonmin returns to profit amid tough wage talks

Mon Nov 11, 2013 7:03am EST

* Pretax profit $140 mln vs year-ago $698 mln loss

* Production, sales beat targets

* Says ongoing wage talks "tough", eyes "sensible" outcome

* Shares up more than 7 percent in early trade

By Clara Ferreira-Marques

LONDON, Nov 11 (Reuters) - South African platinum miner Lonmin returned to an annual profit after losses resulting from fatal strikes in 2012 and said it hoped wage talks, though "tough", would avoid disruption this year.

Lonmin, the world's third-largest primary platinum producer, on Monday said its production, sales of platinum and efforts to contain cost increases exceeded its own targets, helping pretax profit beat analysts' forecasts.

The London-listed company forecast sales would increase almost 8 percent or more next year, with cost inflation - a major problem for platinum miners struggling with lacklustre prices - kept below increases in South African wages.

That helped send the miner's stock up more than 7 percent in early trade, as investors looked beyond the risk of strikes that could hit half of global platinum output.

Lonmin was at the centre of the labour unrest and violence in South Africa last year that left dozens dead. Lonmin's finances were left so battered it had to tap shareholders for cash and initially struggled to revive its production.

Last month leading platinum-belt union AMCU declared a wage dispute with Lonmin, raising the possibility of new strikes.

Lonmin's newly appointed chief executive, Zimbabwean former Anglo American executive Ben Magara, declined to comment on Monday on the details of wage talks, but said he believed strikes could be prevented.

He described negotiations as "tough" and potentially lengthy, as the miner tried to balance workers' demands with a weak platinum market. Lonmin is also considering a multi-year wage agreement.

AMCU has demanded Lonmin should more than double the wages of entry-level platinum miners - an increase most analysts argue is unsustainable, given the lacklustre platinum price, high costs and poor short-term prospects for demand.

"We are hoping to strike a balance, with the right economic realities factored in," Magara told reporters.

This year, platinum prices peaked in early February, driven higher by supply fears. But those have since eased and the metal is trading around $1,400 per ounce compared with a record high $2,290 an ounce five years ago.

TRANSITION YEAR

Lonmin's pretax profit rose to $140 million for the year to the end of September, compared with a loss of $698 million a year ago and well above analysts' consensus forecast of $83.9 million, according to Thomson Reuters I/B/E/S Estimates.

At 1148 GMT, the stock was up 6.3 precent at 349.6 pence, outperforming a 0.9 percent drop in the broader UK-listed mining sector.

"This has been a transition year for the company following last year's refinancing. However, the company has yet to settle wages and faces a volatile PGM market and South African rand," Investec analysts said in a note to clients.

"Thankfully the company has a strong balance sheet to help manage unexpected surprises."

The company reported net cash of $201 million, compared with net debt of $421 million at the end of last year.

Lonmin said it produced 751,000 ounces of platinum in concentrate, its highest in six years, and sold 696,000 ounces, above its forecast of 660,000 ounces. The company targets sales above 750,000 ounces for the coming financial year.

Lonmin, one of the most cash-strapped miners in the sector before last year's strike and subsequent cash call, deferred investment in key growth shafts last year - having previously sought to ramp up swiftly to bring down production costs.

It is now focused on increasing capacity at its Saffy shaft to cut production costs, and has moved in crews from less profitable mines after doubling available reserves.

It is also re-treating tailings - dumps of waste from historic mining operations - to extract platinum group metals (PGMs) and chrome, a source it described as cheap and low-risk.

Lonmin said its cost of production per PGM ounce over the past 12 months was contained to 3.8 percent - better than it had expected, compared with South African inflation running at closer to 6 percent.

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