LONDON South Africa-focused platinum producer Lonmin (LMI.L) is pulling every lever to try to restore confidence in its ailing business, including reopening a major shaft and expanding its biggest operation, its chief executive said.
Lonmin, one of the world's top platinum producers, has been in the doldrums for years due to low prices and soaring costs, leading the company to tap investors for cash three times in the last eight years.
Analysts have said Lonmin will probably come to the market soon for more cash as its liquidity shrank, bringing it closer to breaching debt covenants following a $146 million (£113.26 million) writedown in May.
As of end-March, Lonmin had net cash of $75 million, down 34 percent from a year ago.
"At this stage, our cash is better than post-rights issue 2015 and our liquidity is sufficient," Chief Executive Ben Magara told Reuters in a telephone interview on Wednesday.
"We are managing to fund from our own funds consistently."
In an interview earlier this month, Lonmin's chief financial officer said a rights issue was not on the cards.
Magara said the company would focus on breaking even at current prices and fund all projects from its cashflow.
The London-listed Lonmin plans to reopen its K4 shaft at the Marikana mine in South Africa in 2019, pending the outcome of a study on how to mine the reserve. Magara said the shaft was on track to produce about 150,000 ounces per year.
K4 was shut in 2009 when metal prices sank and the company had to write off billions of rand after a project to mechanise the mine failed.
Another lever to increase profits is a plan to extend the life of Lonmin's main K3 shaft at Marikana, by mining into the boundary of a platinum mine owned by neighbour and rival Sibanye Gold (SGLJ.J). Talks were at an "advanced stage", Magara said.
But the market has shown little faith in Lonmin.
Its London-listed shares hit a 15-month low on Wednesday and lagged a recovery in the wider sector .FTNMX1770, which has collectively more than doubled since February last year.
Citi, UBS, Deutsche Bank and Peel Hunt downgraded Lonmin's stock to "sell" this year, while JPMorgan has the stock on neutral.
"As the industry's highest-cost player and with limited strategic flexibility, Lonmin remains structurally challenged and a speculative play on PGM (platinum group metals) prices," Citi said in a May 22 note.
Lonmin's larger rival Impala Platinum (IMPJ.J) has also been dogged by operational issues and last week refinanced $400 million of its convertible bonds to help repay debt.
The main issue is the stubbornly low price of platinum XPT=, which stabilised in 2016 after three years of losses.
The price of the metal, mainly used to reduce emissions in cars, has fallen by a fifth since the Volkswagen diesel emissions scandal became public in 2015.
"It's a tough operating environment and this has persisted longer than many predicted," Magara said.
(Additional reporting by Eric Onstad; Editing by Dale Hudson and David Evans)