No rush to buy

Finweek English Edition - - Portfolio Punts - BREN­DAN RYAN

LON­MIN LON­MIN’S PRICE PLUNGED to a 12-month low of R134,61/share when the com­pany re­leased its re­sults for the year to end-Septem­ber on 18 Novem­ber. How­ever, the com­pany is fi­nally on the mend. New CEO Ian Farmer has em­barked on a se­ries of sweep­ing changes to rec­tify ma­jor prob­lems that had de­vel­oped un­der pre­de­ces­sor Brad Mills.

JPMor­gan an­a­lysts Steve Shep­herd and Al­lan Cooke say: “Com­mon sense pre­vails at last. The cat­a­logue of changes planned is im­pres­sive, con­sid­er­ing the short time Farmer has been in charge. What this says to us is that the ex­ec­u­tive man­age­ment team did a lot of think­ing and plan­ning in an­tic­i­pa­tion of the lead­er­ship change.”

Farmer will stop mech­a­nised op­er­a­tions on two shafts and re­vert to a hy­brid min­ing sys­tem us­ing con­ven­tional stop­ing to mine the ore and mech­a­nised equip­ment to con­duct de­vel­op­ment work. He in­tends shut­ting down the loss-mak­ing Lim­popo mine along with its open­cast op­er­a­tion at the Marikana divi­sion and is putting the Akanani project on hold.

Farmer’s also chop­ping back on Lon­min’s Lon­don head of­fice and mov­ing more func­tions to Jo­han­nes­burg, where he says he’ll be spending half his time. Plans are to hold Lon­min’s cap­i­tal spend for fi­nan­cial 2009 to US$250m and keep the rise in “gross op­er­at­ing costs” well be­low South Africa’s inflation.

That’s the good news. The bad news is Farmer’s pre­dic­tion that no re­cov­ery from cur­rent de­pressed platinum group met­als prices can be ex­pected “be­fore 2010 at the ear­li­est”. That means its share price is likely to re­main de­pressed for some time. In fact, it and those of its peers could drop fur­ther over the next few months.

The platinum mar­ket will turn and when it does the re­cov­ery in Lon­min stock is likely to be rapid. The ques­tion is when to buy – and I don’t have an an­swer to that one. Adding fur­ther longer-term in­cen­tive to Lon­min’s prospects is the fact that Xs­trata still re­tains a 24,% stake in the com­pany and doesn’t ap­pear to have given up on its am­bi­tions to ac­quire Lon­min.

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