Lonmin has been banned from selling a wide range of metals in South Africa by the country's government, it emerged yesterday (5th August).

The company revealed that a letter from the Department of Mineral Resources has ordered it to stop selling nickel, copper, chrome and any other non-pgm minerals.

Officials at the world's third-largest platinum producer have suggested that the ruling arrived "out of the blue" and have vowed to contest it "vigorously".

"Lonmin has taken comprehensive legal advice on this matter and believes that the action taken by the [mines ministry] is wrong and the company will defend its interests robustly," read a statement.

An article in the Financial Times has speculated that there was no explanation for the directive within the letter.

However, it is believed that the order is linked to a different dispute over the prospecting rights of a separate company on Lonmin's licensed mining area in South Africa.

Holgoun was awarded permission to prospect for minerals such as nickel and chrome in May 2009, prior to owner Sivi Gounden's departure from the Lonmin board five months later.

Lonmin appealed the decision and has not yet received a formal response, although some commentators are suggesting the letter may constitute the government's answer.

The ban is particularly problematic for the company, as it is often impossible to mine pgms without mining chrome because the latter occurs in platinum ore bodies in South Africa.

Miners can generate significant alternative revenues through the by-products, such as when gold and silver is collected during the extraction of copper.

Indeed, the decision represents a major financial blow to Lonmin, as the alternative minerals added about $63 million to its sales during its last financial year.

Chief Executive Ian Farmer revealed that the news could place its chrome-sales deal with diversified Swiss miner Xstrata in major jeopardy.

"If we are obliged not to sell any of our associated metals, that affects our contracts with all our customers to which we sell the metals, and Xstrata is one of those customers," he told the news provider.

"We would argue that you cannot economically extract associated metals in their own right. The concept of property titles is enshrined in the South African constitution."

Historally, South African laws have allowed miners automatic rights over their extraction plans, but new legislation in 2002 does not cover a conclusive appraisal of the issue.

As a result, mining analysts at Bank of America Merrill Lynch suggested that the ban could soon be applied to other companies, which would impact the whole pgm industry.

"At present we do not know if other pgm miners have applied for rights over associated minerals at their properties," they told the Financial Times.

"Combined with power tariffs and risks to power supply, above-inflation wage increases and safety-related regulations, this adds to negative sentiment towards the South African mining sector."

Neither Holgoun nor the Department of Mineral Resources were available for comment.

Sources:



Lonmin told by SA to stop selling some metals (05/08/10)



Lonmin says South Africa halts its nickel sales (05/08/10)

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