Uptick, despite challenges
Investors seem to be regaining some confidence in struggling platinum miner Lonmin, which was one of the worst performers on the JSE in 2015. The group raised $396m from shareholders last year in order to restructure debt and continue operating as a going concern.
The equity raising was Lonmin’s third in six years. It raised $817m in equity from investors in December 2012 after violent strikes halted its operations near Rustenburg that August and led to police killing 34 protestors at its Marikana mine. The company was also forced to raise $457m in equity from investors and the refinancing of $575m in debt in 2009, when it announced 7 000 job cuts as part of a restructuring plan.
The group said in January that it is making progress with its turnaround plans, including the shutdown of high-cost production. It cut more than 5 000 job as at 27 January. The group is targeting cost savings of R700m in the 2016 financial year and sales of around 700 000 platinum ounces.
At the end of December 2015, the group had a fully drawn down-term loan of $150m, which matures in May 2020, and $203m in revolving credit facilities available. Its net cash position was $69m.
With the recent jump in the share price, many investors are feeling some reprieve. Thanks to the rebounding platinum spot price, which is up 11% since the start of the year in dollar terms, investors could see the share price gain further this year, despite the financial challenges continuing to face Lonmin. How to trade it: In the past three months, Lonmin’s share price traded between 870c/ share and 4 019c/share, according to INET BFA data. This surge warranted the recent near-term pullback experienced from March. It has retained support at 2 400c/share and should head towards 3 000c/share in the near term. Investors could go long at current levels and maintain a tight stop-loss. Above 3 000c/share the correction phase would end and a new short-term uptrend would commence towards the 4 360c/share prior high – increase long positions aggressively.