Upbeat Lonmin advances despite loss
November 17, 2009
By Reuters and Asha Speckman
Lonmin, the third-biggest platinum producer, reported an annual loss on weak prices and lower output but said it planned to boost output by a fifth by 2013 as prices climb on supply shortages of the precious metal.
Its shares leapt as the UK-based company said it aimed for refined platinum production to rise gradually to 850 000 ounces by 2013, from 700 000 ounces in the current financial year to September, to meet a supply deficit.
"We're working on the basis that we'll see a gradual (economic) recovery during 2010, with supply shortages expected from 2011 onwards," chief executive Ian Farmer said yesterday. "I think we'll see a gradual firming of the revenue basket (in 2010), and that may come through as a slight firming of prices and that also may come from a slight weakening of the exchange rate."
Lonmin shares, which have rebounded nearly 90 percent this year on a recovery in platinum prices, jumped 7.6 percent to close at R213.85 on the JSE yesterday, outperforming a 2.85 percent rise in the mining index as metals prices rallied.
The group, whose mines are located in South Africa, said it would not pay a final dividend.
Analyst Charles Kernot at Evolution Securities said: "Lonmin remains exposed to still potentially weak markets, the strength of the rand and cost increases.
"Against this backdrop, and given the strong lead given by the passing of the dividend, we retain our (sell) stance."
The mining house posted an underlying loss a share of 59 US cents (R4.32) for the fiscal year, compared with earnings a share of $3.36 last year.
The dual-listed group posted a one-off charge of $182 million for restructuring, impairments and finance costs, bringing its total loss a share to $164.
Lonmin, which said cash flows remained under pressure, paid out $39m last month under loan guarantees for a black investor group that bought a stake in Incwala Platinum, spun out from Lonmin.
Lonmin may have to pay out a further $20m in December, but negotiations with banks to find a solution were continuing after the investor group defaulted on its debt.
Sholto Dolamo, a Stanlib platinum analyst, said the results were in line with expectations. "We were aware of the restructuring of the balance sheet to report a lot less debt.
"In terms of their turnaround we are aware of what they are trying to do and we are buying into that."
He pinpointed specific initiatives such as a decision by the company to convert one of its shafts into a hybrid mine. "We buy into this philosophy of trying to go back to basics." He expected further strong prices of platinum, which has gained 50 percent this year.
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