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Lonmin glitches frustrate market Posted: Mon, 07 May 2007 [miningmx.com] -- LONMIN may be exhausting the patience of some of its South African shareholders. The reaction to the group’s recent interim and operating results published last week hints at signs of discontent. Others are supportive. Lonmin increased its dividend – the second rebasing in five years – but results came in at the low end of consensus and production problems were the name of the game. The company is one of London’s few platinum producers and is prized in that city partly because some investment funds don’t have the mandate to own Impala Platinum or Anglo Platinum. “Lonmin continues to be an attractive proposition, with substantial long-term growth prospects and high quality assets in a space with few high quality competitors,” said Simon Toyne, an analyst at Numis Securities. But in South Africa, the growing foreboding is that management may be losing its grip. Said one fund manager: “Brad Mills (CEO) seems to be big on spin. Management is a problem. He’s also lost a lot of people.” Turnover of key employees has been noticeable, but Lonmin hasn’t made much of the problem in the past. It also remains optimistic concerning its full-year results, which appear beset by operational headaches. For example, the year-on-year comparison of March quarter results shows 14% less metal produced. “This we believe is cause for concern and reinforces the misgivings we have expressed in the last two notes we have written on Lonmin, bearing in mind that Mills has led the market to expect improving mine production,” said JPMorgan analyst Steve Shepherd. Not all think that way. Heye Daun, a fund manager at Old Mutual Investment Group, thinks some of Mills’s credibility rests on his ability to produce an improved second half recovery. But he nonetheless commends Mills for safety improvements and his government liaison skills. “He’s got a much more enlightened approach than most of the other South African producers, some of whose relationships have been very adversarial in the past – for example, with government or other stakeholders,” said Daun. Major cost savings initiatives, such as the Six Sigma project, and the move into mechanised mining are other Mills adjustments cited by Daun. “Mechanised mining seems to be working out at the Marikana mine, but not yet at Limpopo. But it’s early days there.” However, the technical problems are a fact of life in Lonmin’s half-year results. In December the company’s No 1 furnace exploded again, the third time in four years it has experienced hitches and lost production. There’s a hope Lonmin can work through the backlog of ore before year-end but analysts are doubtful. Said Shepherd: “We have misgivings that it will be possible to run the No 1 furnace at its 28MW nameplate capacity.” Click Here to subscribe to our daily newsletter
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