🕐21.01.14 - 10:54 Uhr

INVESTEC: LONMIN PLC : STRIKES TO START ON THURSDAY - SELL



Lonmin PLC (Price: 316p | Target: 278p | Rec: Sell) Lonmin has confirmed an AMCU strike to start Thursday.

Discussions continue to settle wages for the year starting 1st October.

The notice to strike coincides with a similar notice served by AMCU on Anglo Platinum and Impala Platinum which has prompted the latest platinum price rally.

We maintain our Sell recommendation on Lonmin and TP of 278p in light of the long term issues of above inflation wage pressure, PGM price volatility and long term capex requirements, the most notable of which is the K4 shaft. * Lonmin’s share price appears to be reacting more to the rally in PGM prices than to disruptions from strikes.

AMCU plans to go on strike at all three major PGM miners, set to impact over 50% of global supply.

Despite this, we note the platinum price is only up around US$50/oz in two days.

However, in ZAR terms the platinum price is close to record highs.

Current thinking is that the strike will be relatively short lived, unlike the 2+ month strike at Northam. * If strike action can be resolved within 2-3 weeks, we would expect the impact on PGM miners to be negligible.

We estimate a 6-8 week lead time from mine face to finished metal, with scope to catch back lost time if required.

Lonmin has a strong balance sheet, and rebuilt its pipeline, consequently sales need not be interrupted for the time being, and will benefit from the PGM price rally. * We note that the disruptions following the Marikana event in late CY2012 led to an appreciation of PGM prices that unwound relatively quickly, highlighting the plentiful supply situation.

Lonmin still faces the hurdle of developing its K4 shaft (c.

US$500-600m capex) to maintain long term output, however it needs a sustained stronger PGM basket for this.

We feel that the project will likely be delayed as a consequence that ironically could be value accretive if PGM prices rise as we expect. * We value Lonmin using a blend of parameters including NPV, earnings and cashflow multiples based on our commodity and exchange rate assumptions.
To access the full note please click here Analyst: Marc Elliott +44 (0)20 7597 5189
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