Lonmin shares jump as it cuts costs and beats third quarter expectations, but analysts are still wary

Courtney Goldsmith
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SAFRICA-POLITICS
Lonmin has been plagued by shrinking margins (Source: Getty)

Shares in troubled platinum miner Lonmin jumped today as the firm revealed it had cut costs and improved its mining performance in the third quarter.

The figures

Lonmin mined a total of 2.7m tonnes in the third quarter ending 30 June, up 3.8 per cent on the previous year and up 13.2 per cent on the previous quarter.

The South Africa-focused miner managed to reduce unit costs by 4.7 per cent quarter-on-quarter, but costs were still up 6.4 per cent year on year, slightly above inflation.

Net cash improved to $86m from $75m at the end of the previous quarter.

Shares in the company were up 11.44 per cent to 73.5p in afternoon trading.

Why it's interesting

The embattled miner has been plagued by ever-shrinking margins due to low platinum prices and high costs.

Lonmin came close to breaking its debt covenants in the previous quarter after it announced a $146m impairment due to the stronger rand against the dollar.

Despite the improvement to its margin this quarter and better than expected performance, analysts are still wary of the "challenging outlook" for platinum-group metals (PGM) and the high cost of Lonmin's operations.

"Overall we maintain our cautious long-term view on Lonmin," said Richard Hatch, analyst at RBC Capital Markets.

Read more: Lonmin's chief operating officer has resigned

What Lonmin said

Ben Magara, chief executive, said the company aims to be at least cash neutral even at low PGM prices and a strong rand.

I am pleased that with the right team in place, our mining turnaround has been sustained.

We continue to find levers to pull, in this “lower prices for longer” environment and to make the improvement of our performance a priority.

Read more: Troubled platinum miner Lonmin's shares dive as losses widen

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