Miners on shaky ground despite stabilising backdrop

 
Elizabeth Fournier
WITH the US markets firmly shut for a second day, investors had no choice yesterday but to focus on corporate events closer to home. Luckily the FTSE’s resources stocks more than made up for the lack of American action, with market watchers gripped yesterday by the unfolding tale of two miners.

First up, Lonmin finally announced its long-awaited rights issue. Far from being priced in, the preliminary plans – despite a heavily revised production update – sent the strike-hit miner’s shares up by almost seven per cent. Lonmin’s South African strike saga has been the longest and sorriest of them all, starting way back in April and culminating in mid-August with the shooting of 34 workers at the company’s Marikana mine by police. A deal has now been struck with the dissenting mine staff, but at a price that will add 11 per cent to its overall wage costs for next year.

Add that to a 46 per cent drop in platinum concentrate due to the unrest and looming debt covenants, and you’ll understand why investors are breathing a sigh of relief at the $880m cash call.

But they might do well to hold their breath. Details of the rights issue yesterday were scant, but analysts were speculating about the role that Xstrata – which owns a 25 per cent stake in Lonmin after a failed takeover attempt – would play in approving the deal.

The mining giant, currently negotiating the stages of its own deal approval in its tie-up with Glencore, has so far kept schtum throughout the Lonmin crisis but last night said it was considering its position on whether to subscribe.

Xstrata’s statement said it would examine the company’s “strategy, business plan and management capability to ensure an attractive and sustainable future,” and where the big money goes, smaller stakeholders may follow.

Meanwhile at the opposite end of the movers board, Centamin was stuck so firmly on the sell pile that it was forced to suspend trading in its shares after they plummeted as much as 59 per cent.

The gold miners problems are also Africa-focused, but around 4,000 miles due north in Egypt’s Eastern desert, where yesterday a local court annulled the licence of the FTSE 250 firm’s key asset – the Sukari mine.

Yesterday all Centamin could do was tell investors it wasn’t a party to the case, and that it had seen no written judgement or details of the final decision. Sukari has already been shut down twice this year due to strike action, and until more clarity can be given the shares are unlikely to recover.

Back in August it reported record output of 67,422 ounces for the second quarter – up 40 per cent on the previous year. Analysts are hopeful that the firm will be able to appeal and overturn the decision, but any delay will inevitably impact production – and could leave workers disgruntled.

Africa’s mining disruption may have quietened down since the heated days of this summer, but yesterday was a stark reminder of the threats that still exist – and the investor headaches that they can spark.

Elizabeth Fournier is news editor of City A.M. @ej_fournier