Why one bank is rooting for Lonmin
Talks to resolve the workers’ strike that has blighted South Africa’s platinum mining industry for the past 21 weeks dissolved without an outcome on Monday, sending Lonmin’s share price down over three per cent.
Lonmin, along with its peers Anglo American Platinum and Impala Platinum, has reached a deadlock with the dominant Association of Mineworkers and Construction Union (Amcu) over wages.
The three mining firms, which together produce over half of the world’s platinum, have so far lost 21.7bn rand (£1.2bn) in earnings. But Saxo Bank remains bullish on Lonmin (which is still down today, by around 2.5 per cent). This is despite the fact that all of the FTSE 100 firm’s mining operations are currently offline – costing the company millions.
“When the dispute is over it is estimated that it will take three months to get back to full production, but Lonmin has done it before as the miner was the fastest mining operator to get back to full operation in 2012 following wildcat strikes,” said Peter Garnry, head of equity strategy at the bank.
“Revenue is expected to decline 23 per cent this year but is expected to climb back by 52 per cent in the following fiscal year.” Garnry is taking a longer-term view on the stock. “The upside potential in Lonmin is significant though there are a lot of risks,” he said.
“But for investors who are willing to ride them over the long run (one to two years), Lonmin represents interesting opportunities, because at some point, the strike will end.”