In order to cut costs due to the six year slump in the price of platinum, Lonmin has announced that it will be restructuring. However, during this process 6 000 employees are at risk of losing their jobs.
A statement released by Lonmin said: “The Board is taking firm action to further reduce Lonmin's cost base in the current pricing environment so that it will be able to sustain a viable operation even if the current metal pricing environment continues for some time. Our objective is both to preserve value for our shareholders, including employees and communities, and put the company in a position where it can prosper as and when the metal prices improve from the current depressed levels.”
Jason Muscat, an industry analyst at First National Bank (FNB) has noted that there are three challenges facing the domestic mining industry at present that may lead to the job cuts and restructuring at Lonmin. There are:
· A depressed platinum price due to slower growth in China (weak demand)
· Rising input costs (a weak exchange rate and rising wage demands)
· Labour disruptions
“Rising wage demands at a time of weak product demand inevitably leads to rationalisation. At an overall level, these particular layoffs won’t have a material impact on the unemployment rate, but will obviously be devastating for those affected and their dependents. More concerning is that we see this as a prelude to broader retrenchments across the industry, not just in platinum. Gold and iron-ore prices are significantly off their highs too,” said Muscat.
Job losses
The restructuring at Lonmin will result in job losses as the mining company reduces the size of its operation.
According to Lonmin, “a total of 6000 employees including contractors are likely to be affected by these closures.”
Among these 6000 employees are those who have already applied for the company’s voluntary separation packages which it announced in May. Lonmin revealed: “It is our intention to achieve this outcome in partnership with our employees, unions and other relevant stakeholders.”
Lonmin has stressed that it will be carrying out any retrenchments in line with Section 189 of the Labour Relations Act, which deals with “Dismissals based on operations requirements”. In doing this, the company will work with the employees and relevant unions to ensure that the retrenchment process goes smoothly. (Scroll down for more information on Section 189)
“This consultation process is aimed at identifying all possible measures and alternatives to forced retrenchments, which include redeployments and reskilling, alternative working arrangements, further cost reduction opportunities and, as a last resort, forced retrenchments. This process is further intended, to facilitate these closures and protect the majority of our workforce,” noted Lonmin.
It added: “Our objective is to save the majority of the positions in the company and create a sustainable business by taking urgent action and maximising liquidity to protect the business. All costs, not just labour costs, have to be reduced and productivity improved if the business is to be sustainable.”
The restructuring
As part of the restructuring process, Lonmin has announced that it will close two of its shafts, Hossy and Newman, to reduce high production costs.
“This will be achieved by stopping development and capital work. Instead, only the immediately available ore reserves will be utilised, reducing the overall costs of production and enhancing cash generation and profitability,” explained Lonmin.
Further changes that the company will be making include putting several shafts on care and maintenance, meaning that operations at those shafts may restart in the future.
“This will include reducing the associated active concentrator capacity. We are also taking further measures to reduce our overhead and support service structures in-line with the closing of shafts and the resultant reduction in the size of our operations,” said Lonmin.
As a result of this, Lonmin has noted that it will have a more sustainable and agile business due to its reduced size.
For more information on Section 189, click here.