Join our community of smart investors

Lonmin cuts its cloth

Lonmin is moving ahead with job cuts as platinum price remain in the doldrums.
May 12, 2015

Miners that preface reports with details of their safety record inevitably give cause for concern. Apparently, Lonmin (LMI) hasn't recorded a fatality in over 18 months. No doubt commendable, but the platinum miner still booked an underlying pre-tax loss of $77m (£50m) for the half-year, against a profit of $26m in 2014.

IC TIP: Buy at 141p

The group's performance continues to be dogged by weak platinum prices. The balance sheet is beginning to show the strain, with net debt of $282m on 31 March, against a net cash position of $71m a year earlier. Lonmin was also forced to contend with smelter outages during the period. The consequent reduction in processing capacity meant that the group produced just 262,303 ounces of refined platinum last year - a modest 2 per cent increase on 2013-14 - despite a surge in comparative mine output.

Last year's interim figures were delivered in the midst of a protracted industrial dispute, and Lonmin will still need to tread carefully with South Africa's main mining union - the AMCU - as it proceeds with plans to cut back another 3,500 jobs. Lonmin has re-set its expenditure targets on reduced assumptions for platinum prices over the next two years. The FTSE 250 miner has also trimmed its capital spending forecast for the current fiscal year to $160m, from $185m. That builds on an earlier reduction in guidance from $250m in January.

LONMIN (LMI)
ORD PRICE:141pMARKET VALUE:£824m
TOUCH:140-143p12-MONTH HIGH:290p106p
DIVIDEND YIELD:nilPE RATIO:na
NET ASSET VALUE:549¢*NET DEBT:8%

Half-year to 31 MarchTurnover ($m)Pre-tax profit ($m)Earnings per share (¢)Dividend per share (¢)
2013578-278-35.5nil
2014508-118-13.6nil
% change-12---
£1 = $1.54.  *Includes intangible assets of $495m, or 85¢ a share.