Lonmin in major rebound

LONMIN, the world’s third largest platinum producer, rallied on the JSE yesterday in tandem with the resources sector, but it is not out of the woods due to concerns of its ability to service its debt.

The Lonmin stock climbed by as much as 30 percent before closing up 22.67 percent at R6.71 after precious metal prices climbed as bets dwindled on the Federal Reserve increasing interest rates in the US next month. The rand’s slump yesterday also boosted mining firms.

“There’s nervousness coming into the market at the moment, prompting investors to buy gold,” said Singa Gungqisa, an equity derivatives trader at Vunani Private Clients. “There’s no fundamental data that is pushing the mining stocks up other than just a rotation of money.”

Lonmin reached its worst point on Wednesday when it plunged by as much as 22 percent to R5.31, the lowest level since 1993.

But yesterday resource shares were the 10 top performing shares among stocks included in the all share index.

Peter Major, an analyst at Cadiz Corporate Solutions, said Lonmin’s spike showed how oversold the shares were.

Major said the stock had been in free fall for months as the market was panicking that Lonmin’s shares could become worthless.

“If you hear that unions will go on strike and are likely to close a mine that’s already on the verge of bankruptcy, what would you do? You certainly don’t want to be caught holding South African mining and many other assets because of the poisonous environment caused by an unsympathetic, unfriendly labour unions and government officials,” he added.

Financial woes

Even so, the Association of Mineworkers and Construction Union, which led the fivemonth platinum belt strike last year, was not aware of Lonmin’s financial difficulties, union national treasurer Jimmy Gama said yesterday.

“We are meeting Lonmin next week on the job cuts. By then, we can comment because we expect them to present us with the facts,” Gama said.

Lonmin is also grappling with rising costs.

To mitigate the financial strain, the firm, which employs 28 000 people, announced plans to cut production by 100 000 ounces that will affect 6 000 workers, including contractors.

Lonmin said it was not aware of any specific reason for the behaviour of the share price other than the price of platinum and its effects on the sector together with wider market movements.

“The current situation is not unique to Lonmin but we are being affected in particular by investor perceptions of our balance sheet,” said Lonmin spokeswoman Sue Vey.

“Lonmin’s underlying business is sound and the underlying assets are robust and delivering to expectation.“

Lonmin is expected to go to the market to refinance its R7.2 billion debt facility, which expires in June. – Additional reporting by Bloomberg