No rush to buy
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.