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Lonmin plan draws scepticism Posted: Tue, 16 Jan 2007 [miningmx.com] -- ANALYSTS were sceptical of Lonmin’s plans to spend R45m rebuilding a faulty smelter saying the rebuild could fail, and that management credibility was on the line. This was after a series of failures at the smelter which may be compounded by management resignations. There have been several senior mine management departures at Lonmin since Brad Mills, CEO, took the reins of the company in 2004. Lonmin’s shares fell 5% and hit a session low of R400/share after the company told the market on January 16 of its smelter rebuild proposals. The outcome of the rebuild will be lower platinum sales, and higher costs, possibly to as much as R2,700/oz. Lonmin reported a 9% cost increases last year. Platinum sales could top 1 million oz, of which 880,000 refined oz will come from Lonmin’s own facilities. “If there’s any management credibility, they are going to have to say we’ve got to get this thing right,” said Liston Meintjes, chief investment officer for Metropolitan Asset Management. “There have been management issues in the past and they can’t stand for this.” Simon Toyne, an analyst for the London-based Numis Securities, said the incident underlined Lonmin was higher risk than its City peers owing to its single product focus. However, the cost of the 80-day rebuilt was “immaterial” against its overall value to the group, Toyne said. The rebuild would also reduce a similar occurence in the past, he said. But not all agreed. Rebuilding the furnace would not solve anything because the problems probably stem from high levels of chrome in the smelter feed, said Allan Cooke, an analyst for JP Morgan. “This issue can only be resolved by changing the constituency of the concentrate fed into the furnaces – the group is mining too much UG2 reef in our view,” Cooke said. An inability by Lonmin to meet its original targets from its Messina mine, which has a base metals, sulphide rich concentrate, has meant that it could not increase output from the mine to blend with the chrome-rich feed. “The bottom line for us is that Lonmin’s technical risk is significantly higher than that of its larger, major peers,” Cooke added. Lonmin repaired its No. 1 furnace at a cost of R50m about 12 months ago. But in April, a leak near the matte tap holes was detected, causing another shutdown for repairs. Click Here to subscribe to our daily newsletter
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