LONMIN, the world's third-largest platinum miner, said yesterday it would decide in coming months how to pursue a growth strategy, which could cost up to $900m over the next two years in an oversupplied market that has forced its neighbours to suspend or alter their mines.

SA platinum producers, which supply about 80% of the world's platinum, have been hit by rising costs outpacing stagnant prices in rand for the basket of metals they produce. This has forced companies like Aquarius Platinum to suspend two mines in recent weeks and Eastern Platinum to change its mining methods at the Crocodile River mine neighbouring Lonmin's Marikana mine.

Aquarius Platinum also has a mine called Marikana, which is near Lonmin's Marikana operations. They are separate mines.

Lonmin has a $450m capital budget this year to develop new mines that will allow it to reach production of 950000oz of platinum group metals from 2015. Analysts have expressed concern whether Lonmin can afford the programme without violating debt covenants it has in place for a new $950m debt package.

Lonmin is reviewing all its options, which include forging ahead with the growth projects, which are critical to bringing its costs down. It has a high level of fixed costs and the more platinum group metals it produces the more it brings those costs down. The alternatives are to suspend the capital expenditure entirely or scale it back.

Lonmin will let the market know its decision either when it releases its results for the full year to end-September or before then, if it is material to the group, said spokeswoman Tanya Chikanza.

At the new Saffy shaft, which will supply about 16% of the full 950000oz, work is under way to switch the operations from the expensive failure of trying to mechanise the mine. The Saffy Shaft is near Brits. The decision has pushed the mine's ability to reach full production by about a decade, said Mark Munroe, head of the mining division.

The mine, which has difficult geological conditions to contend with, is opening new levels to reach the (Upper Group 2) UG2 reef. The mine is operating at about half its capacity of 200000 tons of ore a month. So far R1,3bn has been spent at the mine and there is another R300m to go.

The biggest success story at Lonmin is the main smelter, known as the Number One Furnace. The furnace was struggling with the high chrome levels in the UG2 concentrate, with its operators having to deal with annual leaks of molten metal, entailing lengthy and expensive repairs. It appears Lonmin's processing team has resolved the problems, using new designs and better temperature controls.

The furnace has run for two years without a repeat of the problems that had dogged it in the past, a result never before achieved, said Natascha Viljoen, head of the processing division.

seccombea@bdfm.co.za