It’s not often these days that we see mining stocks climbing, especially not on a day when the FTSE 100 is on the way down. But that’s what’s happened, with Anglo American, Fresnillo and Kaz Minerals amongst the morning’s biggest risers while the FTSE is down 34 points at the time of writing.
But it’s a couple of precious metals miners I want to look at, starting with platinum and gold miner Lonmin (LSE: LMI), whose shares were up 17% to 33.7p by just after midday. Lonmin has been through a truly dreadful patch, with its shares down a massive 97% since the end of 2010. (And if, a year ago and after a drop of 80%, you were wondering how much lower it could get, well, today you’d be looking at a further 12-month loss of 87% — which is a useful lesson for bottom-pickers.)
Is it really back?
But is Lonmin’s rise today anything more than a so-called dead cat bounce? It’s not clear, after the stock plunged to a 27-year low yesterday, amid fears for the company’s financial security. With falling commodity prices, Lonmin is set to close its Eland operation in South Africa. And though we shouldn’t see anything as bad as last year’s pre-tax loss of $326m, there’s still a $79m loss forecast for the year ending September 2015.
With platinum prices down around 30% over the past year, there’s even a chance that Lonmin could go bust if it doesn’t cut its costs sufficiently and get a refinancing plan in place. If it manages that, and platinum prices recover — we’ve actually seen an upwards blip this month — then Lonmin might be a long-term bargain. But I reckon the shares are too expensive right now to accommodate the risk.
Aquarius Platinum (LSE: AQP) has also enjoyed a nice rise on the day, of 16% to 8.3p, although the longer-term price performance is similarly painful — a 69% fall over 12 months, and down 97% since a peak in February 2011.
Years of losses
Aquarius has been recording pre-tax losses for several years now, and its latest full-year results, to 30 June 2015, reported a $90.4m loss — and that was after record production from both its Kroondal mine in South Africa and its Mimosa mine in Zimbabwe. There’s a very small profit forecast for 2016, and the few analysts who are offering recommendations seem to think Aquarius is a Strong Buy at the moment.
But there’s still a potential cash problem, and though Aquarius added $60m during the year from the sale of non-core assets, its “focus on consistent cost and capital discipline” and “initiatives to reduce absolute costs and increase efficiencies” are going to be crucial in the coming year.
