Uptick, de­spite chal­lenges

Finweek English Edition - - MARKETPLACE - Edi­to­rial@fin­week.co.za

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.

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