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Lonmin soars as profits rebound

Last updated: 02:54 11 Nov 2013 EST, First published: 03:54 11 Nov 2013 EST

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Shares in Lonmin (LON:LMI) soared as it reported better than expected profits and said its recovery was ahead of schedule despite the strikes afflicting the South African platinum industry.

Lonmin has been at the centre of the industrial unrest after a dispute at its Marikana mine last year left dozens dead and forced the company into a huge US$770mln rescue right issue.

The industry in South Africa has been hit by more strikes recently, but Lonmin shrugged these off to post profits of US$140mln (US$698mln loss) in the year to September, well ahead of forecasts.

Sales totalled 696,000 ounces, against guidance of 660,000 ounces, with Lonmin predicting a further increase in the current year to 750,000 ounces.

Ben Magara, Lonmin’s chief executive, said many areas of the business had recorded their best performance in years and while no dividend was possible this year it is under consideration going forward, the miner added.

Lonmin has confidence in the future demand for PGMs and our expectation is for prices to firm in the future. Our Renewal Plan anticipates positive free cash flow from the 2014 financial year onwards. The return to stronger earnings and cash flows will permit the resumption of dividends."

Broker SP Angel was somewhat sceptical about the dividend outlook.

“Costs continue to be a challenge with costs of US$1,356/oz for the period against prices of US$1,058/oz, despite being helped by the weaker rand. With US$210mln capex planned for 2014 and cash of US$201mln, it is hard to see how these match up unless we see an improvement in platinum prices. Prices need to improve from there for the stock to perform and with an improving auto market there could be a better chance of this for the next financial year,” SP Angel said.

Shares rose 7% to 351p.

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