Platinum’s sparkling form of late has done little to help this put upon miner’s performance

by Dan Coatsworth

While most platinum miners are enjoying higher selling prices, the future for Lonmin doesn’t look good as it continues to unveil production problems. Charles Kernot at Seymour Pierce has brandished the stock with a sell rating, suggesting that Lonmin’s recent share price rally could be coming to a close. This is despite admitting that the drop in production will be more than offset by the higher metal price.

Lonmin produced 128,124 ounces of platinum in the first three months of 2008. This is a progressive decline from the 154,526 ounces extracted in the December quarter and 262,280 ounces in the September period. Lonmin lost 23 shifts, the equivalent of around 70,000 ounces of metal. Only one third of production loss was out of the company’s control, due to power problems in South Africa. The rest was caused by ‘safety-related shutdowns’ at a furnace and high levels of staff being absent over Christmas and Easter.

Limpopo operations fell by 34%. ‘[We believe] the driving force behind the [Limpopo] acquisition, which was to mechanise what we believe to be an unmechanisable operation, was flawed. The latest production data further confirms our belief and we suspect that the group will look to sell the mine,’ says Kernot, who suggests that company’s growth days could be over.

Rebecca O’Dwyer at Investec says the reasons behind the poor performance were already well known, but says the management’s downward revision for 2008 sales to 775,000 ounces of platinum is still a ‘very stretching target’. Charles Cooper at Evolution is more optimistic, lifting his price target from £32 to £35 per share and saying: ‘We are starting to believe that the company is about to face a positive turn-around in performance.’