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Strike-hit Lonmin's cautious outlook

Lonmin has cut back its capital commitments as it looks to move on after this year's lengthy strike
November 11, 2014

Lonmin (LMI), one of South Africa's biggest platinum miners, posted a full-year operating loss of $255m (£160m), against a profit of $147m in 2013. The reversal had been expected after an increasingly bitter five-month strike by mine workers. Sadly, however, the consequent fall-away in production volumes wasn't offset by the anticipated price spike, as platinum instead sunk to a multi-year low. This casts doubt on the old assumption that the platinum market is subject to persistent structural deficit.

IC TIP: Buy at 193p

The industrial action reduced annual production by 391,000 ounces, which hit cash profits to the tune of $307m. However, Lonmin did manage to briskly ramp up production to its optimum rate after the strike's end in June, and platinum sales of 441,684 ounces were well in advance of forecasts.

Year-end net debt at $29m was also better than expected, but the miner remains circumspect over its ability to fund near-term growth. Although its undrawn loan facilities total $575m, it has decided to pare back current capital expenditure to $250m, compared with an original estimate of $400m. Lonmin's chief executive, Ben Magara, also said the group is targeting cost savings amounting to more than ZAR2.0bn (£112m) over the next three years.

HSBC expects pre-tax profits of $142m and EPS of 16¢ for the current financial year.

LONMIN (LMI)
ORD PRICE:193pMARKET VALUE:£1.1bn
TOUCH:192p-193p12-MONTH HIGH:359pLOW: 159p
DIVIDEND YIELD:NILPE RATIO:NA
NET ASSET VALUE:566¢*NET DEBT:1%

Year to 30 SepTurnover ($bn)Pre-tax profit ($m)Earnings per share (¢)**Dividend per share (p)
20101.62403015
20112.02937115
20121.6-698-108nil
20131.514031nil
20141.0-326-33nil
% change-37---

£1=$1.59 *Includes intangible assets of $497m, or 87¢ a share

**Adjusted to reflect December 2012's nine-for-five rights issue