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Lonmin dogged by pricing and production woes

Weak selling prices and lost production make it hard going for Lonmin
May 16, 2017

Rising costs and their impact on the net present value of the business prompted beleaguered mineral resources group Lonmin (LMI) to take a $146m (£113m) impairment charge in the six months to March 2017. Even without this, operating losses more than doubled to $35m, and while debt covenants remain secure, the tangible net worth of the group fell to $1.43bn, nearer to the $1.1bn minimum covenant level.

IC TIP: Sell at 109.75p

This shouldn't be a concern, but Lonmin continues to struggle in a market where platinum prices remain weak and where unit cost guidance for the full year has been revised up from R10,800-R11,300 to R11,300-R11,800. This is a worry because the average selling price of the platinum-group (PGM) metals was lower than this at R10,852.

Unit costs for the first six months were R12,059 per PGM ounce, up 13 per cent from a year earlier, but improved mining production brought this back to R9,695 for March. Total tonnes mined fell 7.6 per cent to 387,000, mainly as a result of reduced output from the high-cost Generation 1 shafts. And while safety stoppages reduced tonnage lost by 17 per cent at 194,000 tonnes, management-induced safety stoppages accounted for 324,000 lost tonnes, up sharply from 241,000 in the previous first half.

LONMIN (LMI)
ORD PRICE:109.75pMARKET VALUE:£310m
TOUCH:109.25-110p12-MONTH HIGH:253pLOW: 81p
DIVIDEND YIELD:nilPE RATIO:NA
NET ASSET VALUE:456¢NET CASH:$75m

Half-year to 31 MarTurnover ($m)Pre-tax profit ($m)Earnings per share (¢)Dividend per share (¢)
2015515-21-1.8nil
2016486-199-64.4nil
% change-6---

Ex-div: na

Payment: na

£1=$1.293