The world's third-largest platinum producer, Lonmin, has started initial studies into generating its own power to boost supplies to its South African mines, CEO Brad Mills said on Thursday.
"We have to consider the possibility that to continue growth we may have to put in alternatives to being 100%-supplied by Eskom," he said in a conference call.
This comes as the development of its Akanani operation, where attributable resources had increased significantly, and other growth projects were depending on the outcome of an internal Eskom review, which was due in June.
Mills said that, while it had made initial progress on water supplies, and although it had commitments from Eskom for power supplies, it would have to wait for the utility's review to be completed before it could have a more definitive view of the mine start-up and operation dates.
He stated that the previously indicated resources of 2,8-million ounces for its P2 horizon orebody on the southern portion of its Akanani operation had increased to 8,8-million ounces of three platinum-group metals - platinum, palladium and rhodium - and gold (3PGE+ Au). The producer had a high degree of confidence that it could be extracted. Mills added the grade of the ore had also increased significantly.
Lonmin expected the prefeasibility study, which it started in May last year, after acquiring the operation from AfriOre, to be completed by the end of this year, when it would move on to the feasibility-study phase, which includes securing water and power supplies.
Meanwhile, Mills declined to comment on the company's future production targets pending the outcome of Eskom's review. The company has slashed its production target to 775 000 oz for the year, and he said it would give an updated guidance of long-term production targets when it announces its full-year results.
While Lonmin's financial results for the first six months were at record levels on the back of strong platinum-group metals appreciation, the Eskom power disruptions in January, along with safety shutdowns, had negatively impacted the company's overall production, which was down 13% from the same period last year.
Between February and April, Lonmin operated at 90% of normal power consumption, which increased to 95% at the end of April, at which it has been operating since.
Lonmin had rolled out energy-saving initiatives and was investigating a number of medium- to long-term options, including self-generation to improve electricity supplies to its operations.
Mills said that it was trying to understand what the future of power looks like in South Africa, and what power availability would be two to five years down the line.
However, Mills stated that self-generation was not the preferred solution as it would be more expensive than relying on the State-owned utility, but that it was an option it might have to consider given the current situation.
Lonmin reported that it had made steady progress with its development projects during the first six months, with its Saffy and Hossy mechanised shafts, at its Marikana mine, continuing to increase production. Lonmin's mechanised operations contributed 552 000 t of ore, which was a 134% increase on its performance for the first half of 2007.
Mills said Lonmin's mechanisation programme was making good progress.
"We believe mechanisation is the future of mining in South Africa, both to reduce the safety risk inherent in deep hard rock operations and also to improve productivity and manage costs over the long-term."
In addition, shaft-equipping of its K4 shaft would be completed by the end of May, at which point Lonmin would begin ore reserve development.
Prefeasibility studies at its Limpopo phase 2 and Pandora projects were completed with a drilling programme and mine design work at Akanani starting. The drilling programme led to the increase in its attributable P2 resource estimate.
Lonmin reported that it had made good progress with its sustainability development, and in particular with the technical assistance programme, which it was running in cooperation with the International Finance Corporation. A key part of the programme is the development and promotion of suppliers and service providers within the communities around its operations.
Mills said Lonmin had, to date, awarded 13 contracts to local suppliers, with a total value of $25-million.
Half-year revenue had increased by 44%, compared with the same period last year, to $907-million with an underlying profit of $399-million, which was an increase of 70% compared with the same period last year.
Underlying earnings were up by 132,5c or 63% a share compared with the same period last year.
The producer said its safety performance had improved further during the half-year with its lost time injury frequency rate decreasing by 45%, compared with the same period last year.