[miningmx.com] — A STORY that former Lonmin boss Brad Mills once sojourned overnight with miners in one of the group’s mining hostels could not offset the worrying fact that as the CEO, Mills spent more time treading the pavements of London’s Hyde Park Corner than at any North West province platinum mine.
Distant management was only one of the reasons Lonmin became the serial under-performer of the platinum sector, but it was an important one. Lonmin also suffered an exodus of talent and embarked on some questionable tactical strategies such as wholesale adoption of mechanised mining in mines where a more flexible approach might have been better.
Mills’ replacement since September 2008, however, financial director Ian Farmer, has made a fresh fist of things, and its reflected in the company’s numbers and share price.
On November 12, Lonmin produced a complete turnaround in full year share earnings of 57 US cents from a loss in the previous financial year of 164c. The share price has also responded. Lonmin was last trading at R192/share, a one fifth improvement from the calendar year low in July (but still off the R221/share high in January).
So what’s changed?
Headcount for one. Farmer reduced employment numbers 19% and then relocated senior management to South Africa. Mills’ argument was that shareholders sat in London, not Johannesburg, but by focusing on the mines Farmer has improved ore reserve development, flattened the reporting structure and lifted morale.
Crucially, recoveries in the concentrators have also been improved to 84% from about 80% with the effect of lifting revenue. That’s because more metal is being produced and sold, at almost zero additional cost. In essence, Farmer got his hands around the basics of the business.
While analysts are confident Farmer has set a good course – effectively the company is no longer struggling to survive – there may be bigger fish for him to fry, heftier challenges.
One is what to do with assets Mills bought – at some cost – that may never be properly turned to account under Lonmin’s ownership: the Limpopo and Akanani mines.
The view is the assets should surely sit with other neighbouring mine owners, making Lonmin a crucial player in the much-vaunted (little realised) platinum consolidation game. In return, should Farmer consider acquiring neighbouring properties such as the assets owned by Eastern Platinum which earlier today unveiled plans to raise $300m from shareholders?
An intriguing overlay to Lonmin’s improved fortunes is whether Xstrata is planning to finally launch a fresh takeover of the platinum producer in which it has a 25% stake.
Lonmin represents an interesting prospect for investors considering the company has underperformed the platinum sector 10% since the end of 2009. Stockbrokers are long Lonmin at present believing the operational performance and metal fundamentals will support further share price growth, added to which the possibility of corporate action.
