Precious Metals


A strong palladium price has given PGMs producer Lonmin the chance to delay or scale back on the amount of job cuts it originally forecast.

Platinum-group metals (PGMs) miner Lonmin (LSE:LMI) is expected to delay or reduce the amount of jobs it was forecast to cut in South Africa.

Surging palladium prices have lifted the company’s bottom line, and Lonmin has made the decision ahead its takeover by Sibanye-Stillwater (NYSE:SBGL,JSE:SGL). Higher prices for a basket of Lonmin’s metals paired with a weaker South African rand have also boosted the company’s prospects.

However, CEO Ben Magara told Reuters that anything could happen long term, stating, “The job losses we anticipated may happen over a longer period – we may lose all of them or we may only lose half.”

In 2018, Lonmin did away with 2,400 jobs. The target for job cuts this year has been revised to 4,000, down from the original 5,300.

All of miner’s operations are located in South Africa and it employs roughly 29,000 people. Despite job cuts becoming increasingly difficult in that area, where unemployment runs around 27 percent, the Sibanye-Lonmin merger is being touted as the only way to save Lonmin jobs.

“Jobs are to do with market pressures, economics and macro factors which are beyond the control of any one company,” Magara noted.

Currently, palladium prices are hovering around US$1,325 per ounce, after hitting record highs above US$1,600 in March, when supply fears were circulating.

Metals Focus recently forecast a palladium supply deficit of 574,000 ounces for 2019. Meanwhile, FocusEconomics analysts predict that by Q4 of this year prices will range from US$1,140 on the low side and US$1,600 as the absolute high.

Even with the continued positive outlook for palladium, Lonmin lacks the investment needed to develop new reserves, which means jobs that have been lost to old and depleted shafts cannot be moved to new operations. With prices now trending higher the company may be able to do this.

Lonmin previously stopped capital expenditure on newer shafts to meet its goal of staying cash positive. Due to this strategic move, the miner is spending below what is needed to sustain its production profile.

“Over the next few years we need to double our capital spend to make sure we can bring about the new projects,” Magara said.

As of 11:52 a.m. EDT on Wednesday (May 15), Lonmin was trading at GBX 63 on the London Stock Exchange; meanwhile palladium was trading at US$1,320.

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Securities Disclosure: I, Nicole Rashotte, hold no direct investment interest in any company mentioned in this article. 


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