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Victoria
Lonmin PLC Uncertain outlook - scenarios analysed Lonmin’s share price collapse highlights the extraordinary pressure that the company is under.

As we detail in this initiation note, forecasting the group’s financials with any degree of certainty is currently impossible.

Notwithstanding this, the fall in the shares has sparked considerable investor interest, so we have attempted to review the group’s assets and analyse the key issues.

We outline a range of scenarios which point to a potential valuation for the equity ranging from zero to 1390p per share. ¢ Lonmin has one principal asset – the Marikana mine in South Africa – which, in our view, effectively represents the group’s equity value as residual interests are all in an exploratory/development phase.

Marikana is the 2nd largest platinum operation globally and represents c.11% of world mined production. ¢ At the current spot price of $1,634/oz, Lonmin’s profits are marginal.

This reflects cost inflation which management is aiming to unwind through a series of cost initiatives that we believe are credible.

Separately, we have a positive view on the outlook for the platinum price.

Based on our in-house platinum forward assumptions, the business should be profitable long term. ¢ Marikana, is currently suffering a damaging strike.

This is a complex situation and we discuss the socio-political aspects in detail.

It is unclear when production will resume, which means a growing shortfall in cashflows.

On top of this, there is a substantial and necessary capex program ahead.

As a result, management has signalled the need to refinance its debt and the potential need for an equity raise.

This could be as much as $1bn excluding debt. ¢ Our initiation focuses on Lonmin’s core Marikana asset and seeks to review the current issues and analyse potential outcomes.

We then seek to translate these outcomes into potential equity valuations.

Given the wide range: zero to 1390p per share, and the current lack of visibility, we have initiated with no formal recommendation or price target.
To access the full note please click here Analysts: Europe: Marc Elliot +44 (0)20 7597 5189 South Africa: Albert Minassian +27 11 291 6176 Australia: Tim Gerrard +61 2 9293 2168
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