12.05.14 - 09:54 Uhr
Lonmin PLC (Price: 283p | Target: Under Review | Rec: Sell)

Unsurprisingly, the results reflect the impact of strike action with 155,720oz Pteq lost. Saleable metal in concentrate of 215koz Pt is down 41% yoy, platinum sales are down 19% yoy at 264koz with costs up 46% yoy at ZAR13,058/oz, leading to EBIT of US$34m down from US$93m a year ago. Underlying EPS at 3.5cps (12.3cps a year ago) with final EPS at -35.5cps (13.3cps a year ago). Lonmin remains in net cash of US$71m with debt facilities of US$589m. We place our target price and forecasts under review.

* Financials: Lonmin is in reasonable financial shape with net cash of US$71m having pulled on its credit lines to ensure healthy liquidity. Cash stood at US$660m and debt at US$589m. Management expects to move to a net debt position on resumption of operations. Capex in the period was US$46m and guidance, once reviewed, is expected to be below the US$210m previously expected with costs set to increase. The company confirmed that the major K4 shaft is to be delayed, which we expected (see 8 April note).
* Recovery plan: A recovery plan depends on employees returning to work. Management has been approaching staff directly and hopes to resume operations on 14 May. The furnaces have been kept hot and pipeline inventories are substantial at US$351m. We understand that management will ramp up processing activities regardless of miners returning to work as it has the staff to do so, and this enables cash flow generation. We expect it to take around two weeks to ramp processing back up whilst mining activities would probably take 6-8 weeks to recover.
* The poor results are not a surprise in light of the strike. Management is experienced at recovering from such disruption so we hope for a smooth ramp up. However, until workers return, estimating the operational performance in the year ahead is exceptionally challenging for all parties.
* Our Lonmin TP remains based on NPV, earnings and cash flow multiples.

To access the full note please click here<

Analyst: Marc Elliott +44 (0)20 7597 5189

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