🕐16.01.13 - 09:00 Uhr

INVESTEC: LONMIN PLC - UPDATE FOLLOWING ANNOUNCEMENT OF ANGLO PLATINUM CUTS - HOLD




Lonmin PLC Anglo Platinum (AMS SJ, not rated), the world’s largest platinum (Pt) producer, has announced output cuts of 400kozpa Pt.

Platinum prices which have been rallying in response to this announcement could rise still further should miners strike in response.

Lonmin’s relatively high cost position would allow it to benefit greatly from an appreciation in prices.

We have reviewed our PGM basket prices to levels that we feel are supportive for the major miners to achieve sustainable margins.
* Following last year’s US$800m rights issue, LMI has sufficient cash reserves to return to steady-state production and weather the current economic environment for around two years.

A quarterly update is due at the end of this month for the December 2012 quarter (LMI’s Q1), for which we expect poor results reflecting the impact of strike action that ended on 20th September 2012.

We anticipate, however, that the update will demonstrate operational performance returning to more normal levels and provide confidence in the planned 680koz platinum this financial year (we assume 650koz). * Production cuts: AMJ’s 400koz of production cuts are to come from putting four high-cost shafts on long-term care and maintenance, impacting 14,000 jobs.

The company has made a commitment to create new jobs to replace those lost.

Unions have threatened to act should AMJ cut output.

Any strikes that follow are likely to exacerbate the price impact of production cuts, driving PGM (platinum group metal) prices up still further.

Resultant strike action should remain confined to Anglo Platinum, allowing LMI to benefit from any resultant rally. * We have updated our valuation of LMI based on a weighted mix of NPV, P/E ratios and free cashflow yield, leading to a target price of 353p with a Hold recommendation.

Should PGM prices continue to rally then LMI could continue to trade higher.
To access the full note please click here Analyst: Marc Elliott
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