London Mining LOND’s recent FY12A results were only of mild interest, given that its main Marampa operation is still in ramp-up.

The key impact on the results was the $66m write-down of the Columbian assets, reflecting on the weak market for coke, but also on global investment sentiment generally, and the availability of capital for new developments.

We have therefore stripped out production growth beyond 5mtpa, with the resultant severe impact on our valuation (and TP) requiring us to reduce our recommendation to Sell. * In its recent FY12A report, LOND delivered mixed results: revenue of $121m (consensus $126m), EBITDA loss of $14.2m (consensus loss of US$8), loss from continuing operations of $28.3m (consensus loss of US$47m).

The reported loss of US$107.8m included a $66m provision against the Columbian coke assets, which LOND is now looking to divest. * The Marampa expansion is progressing well and we remain comfortable that LOND will meet its 5mtpa production target.

On-site management have done an excellent job in the face of challenging operating conditions.

We have, however, now taken the view that production will not increase significantly beyond this, given capital constraints, and have stripped out further growth. * As a result of the reduced production outlook and resultant higher operating cost assumptions, our risked NPV has reduced significantly, from 274p per share to 128p per share, thereby reducing our recommendation from Buy to Sell.

We acknowledge that the valuation is heavily influenced by our assumed long-term iron ore price of US$85/t (FOB WA, 62% Fe fines) and note that increasing this by US$10/t would lift our risked NPV by 75% to 224p per share.

LOND’s modest production base means, however, that it is always going to be exposed to the lower range of iron ore pricing.
To access the full note please click here Analyst: Hunter Hillcoat
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