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Latest News - September 2012

September 20, 2012
Lonmin Says Labor Cost Set To Rise 14% Based On New Wage Pact
Source: Dow Jones Newswires
By: Alex MacDonald and Devon Maylie

Lonmin PLC (LMI.LN), the world's third largest platinum producer, said Thursday its labor cost will rise 14% from Oct. 1 after the settlement of a wage dispute that resulted in nearly 50 deaths and lost production at its Marikana mine in South Africa.

The higher labor cost will further crimp the company's cashflow, which is suffering from high input costs, relatively lackluster platinum prices, and about 60,000 troy ounces of lost production due to the illegal strikes that led to 46 deaths at Marikana, Lonmin's largest mine. The company is now discussing with some of its creditors what can be done to avoid breaching its debt covenant.

Lonmin management agreed on Tuesday to raise wages by 11% to 22% from Oct. 1. The wage increase includes an already agreed upon 9% to 10% increase, also due to come into force next month.

Lonmin said that although over 80% of employees have returned to work at Marikana, it could still take some time to reach full production, with blasting set to resume only sometime next week.

The illegal strikes and violence led other platinum producers such as Anglo American Platinum Ltd (AMS.JO), the world's largest platinum producer, and Aquarius Platinum Ltd (AQP.AU), the world's fourth largest platinum producer, to shut operations at neighboring mines in the Rustenburg region, about 100 kilometers northwest from Johannesburg, for fear that the strikes might spread to their mines.

As of Thursday Aquarius Platinum's Kroondal mine had returned to normal operation but Anglo American Platinum said Thursday that four of its mines have yet to resume full production after less than 20% of their employees returned to work due to what it called illegal striking.

Anglo American Platinum shut five mines, which account for a third of Anglo Platinum's production, on Friday due to concerns over illegal strikes.

Equity analyst Steve Shepherd of JP Morgan Cazenove said that there was a high likelihood that other platinum producers might have to make similar wage concessions or face labor unrest. The higher labor cost "would have cost and margin implications for the PGM [Platinum Group of Metals] industry as a whole and could lead to further capacity shutdowns and job losses," he added.

Anglo Platinum said its Rustenburg mining operations are already under considerable economic pressure and the illegal industrial action would make its affected operations even less viable than they are currently. The company is

currently reviewing its platinum operations with a view to possibly shutting down its more costly mines. The five mines that were shut on Friday are among the company's least profitable operations.



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