Lonmin rallies on peace accord and metal buying

Dineo Faku and Bloomberg

THE Lonmin share price rallied 5 percent on the JSE yesterday after the firm signed a peace accord with unions and as investors snapped up platinum.

The share price closed R3.65 up at R75.35. Loss of production during the strike at Marikana sent the share into free fall last month. Last year it plummeted 45 percent due to the weakening price of platinum.

But yesterday investors bought platinum at the fastest pace since 2010 after disruptions at South African mines caused the biggest loss of supply in at least seven years.

At Lonmin, analysts were unconvinced workers would return to work as the Association of Mineworkers and ConstructionUnion (Amcu) and unaffiliated worker representatives refused to agree on peace until they were granted a salary increment to R12 500.

“The only time there will be an improvement in Lonmin’s financial position is when we are able to see production resume. Amcu and worker representatives need to be brought into the peace accord, but until then we must wait,” said Alison Turner, a mining analyst at Panmure Gordon.

Simon Scott, the acting chief executive at Lonmin, said in a statement: “Lonmin and the other unions who are part of our bargaining council have agreed to negotiate to address the wage demands within a legal framework, and have invited Amcu and a delegation of workers’ representatives to take part in the wage discussion.”

Another analyst said despite the strong share price, Lonmin’s problems were far from over.

“The share price strengthened because people are thinking the strike is over. It’s not. They are in serious trouble, and need to raise a significant amount of money to cover the gap, and they still need some form of rights issue.”

The National Union of Mineworkers appealed to Amcu to join the peace accord.

Operations remained shut yesterday and only 1.65 percent of Lonmin’s 28 000 workforce reported for duty at shafts across operations, the firm said.

The attendance was the lowest since 34 protesters were killed in a confrontation with the police on August 16.

Platinum fixed $14 (R116) higher at $1 578 an ounce in London yesterday afternoon.

“Supplies are going to be challenged,” said Nic Johnson, a fund manager at Pacific Investment Management.

Platinum moved very close to the marginal cost of production, which should put an upward pressure on prices, Johnson said. “Any type of outages in South Africa will make it more attractive.”

Strikes and pit closures in the industry meant mining companies extracted 380 000 ounces less than they could have this year, equal to about 6 percent of global output, Deutsche Bank estimates. Metal purchases through exchange-traded funds were the most in 20 months in August, data compiled by Bloomberg show.

Prices will average $1 625 an ounce in the fourth quarter, the highest in more than a year, according to the median of 12 analyst estimates compiled by Bloomberg.

The lost production is cutting a glut that drove prices to within 0.4 percentage points of a bear market in July and below the cost of extracting the metal.

Barclays estimates global production will exceed demand by 99 000 ounces this year, 77 percent less than in 2011, as South African output retreats almost 10 percent to a decade low of 4.38 million ounces.

Supply will contract 6 percent, outpacing a 2.2 percent decline in demand, Barclays forecasts.

Demand may fall short of analysts’ expectations because 38 percent is tied to the metal’s use in catalytic converters to cut vehicle emissions.

The economy in China, the biggest car market, has slowed for six quarters, the euro zone is contracting, and consumer confidence in the US fell the most in 10 months in August, according to Johnson Matthey, the maker of one in three autocatalysts.