A delay in its financials bludgeons Lonmin’s shares

PLATINUM producer Lonmin was the biggest loser on the JSE on Friday – after tanking 28 percent – to trade at R14 a share on news that it would delay the release of its financial results for the year to September, 2017.

Lonmin shares dived 28.31 percent on the JSE on Friday to close at R14. The delay was unprecedented for the world’s third-biggest platinum producer, which has been mining platinum in Marikana, North West, since 1969.

Management was scheduled to release the results next Monday, but said on Friday it would announce the new date.

It attributed the delay to the operational review, which was currently under way, adding that it would have potentially significant outcomes.

“This includes areas of material accounting judgment like impairment of assets, the basis of preparation of accounts and the impact on any outcomes of the operational review thereon.

“Lonmin and its auditors require additional time to complete the audit,” the company said in its fourth quarter and full-year to September production update.

The operational review aims to help Lonmin conserve cash and includes cutting overhead costs by R500 million by the end of September, 2018.

Seleho Tsatsi, an investment researcher at Anchor Capital, said Friday’s share price movement illustrated concern around the viability of the balance sheet.

“The share is very volatile, perhaps reflecting the vulnerability of underlying operations and sensitivity of cash flows to exogenous factors, and the impact that that has on the balance sheet,” Tsatsi added.

René Hochreiter, a mining analyst at Noah Capital Markets, said it was unlikely that the decision to delay the results was a mistake.

“I don’t know what the problem is. Lonmin has more cash than debt,” he said. Net cash improved to $103m (R1.46 billion) at September 30, 2017 – up from $86m at June 30, 2017.

Lonmin said the group’s tangible net worth at the end of September would be in the region of the covenant level required by its banking facilities of $1.1bn.

The covenant was waived, however, until March 30, 2018.

Sales for the year were expected to hit 706 030 platinum ounces, exceeding the previous sales guidance of 650 000 to 680 000 platinum ounces.

It’s Saffy shaft fourth quarter production was the highest in its history – up 10.3 percent on the fourth quarter of 2016.

The company said it had delayed its decision to place the Hossy shaft on care and maintenance as a result of the improved performance.

The E2 shaft would be placed on care and maintenance by January, 2018, as it had reached a stage where the remaining ore reserve was insufficient to support an economically viable operation.

Lonmin also warned that unit costs would remain under pressure.