Analysts seeking comfort in Lonmin plan

[miningmx.com] – GLENCORE’S decision to unbundle its 23.9% stake in Lonmin to shareholders was a strong signal that the platinum sector would fall under further pressure and that Lonmin was vulnerable more than most.

“Glencore’s exit was clearly a no confidence vote on the sector but foremost on a company that is disadvantaged versus the other big players,” Ingo Hofmaier, director at London-based merchant bank Hannam & Partners told Reuters.

“The situation is critical. Raising capital now will put pressure on the share price and as the highest-cost of the big producers, Lonmin is the first to feel the pain and the need to restructure,” he said.

Lonmin’s share price has sunk to its lowest level since 1979 and is burning cash at a rate of $240m per year which could leave it with year-end debt of $380m, said Reuters citing data from Deutsche Bank.

The group recently announced a plan to cut 100,000 ounces of loss-making platinum production in the next two years with the loss of 6,000 jobs, but analysts told Reuters they were still seeking comfort on the restructure.

“The details and implementation of the operational plan are critical,” said fund manager Hanre Rossouw at Investec Asset Management. “Any equity investor needs the certainty that the operational side is solid. You can’t just throw money at the problem.”

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