Credit Suisse has trimmed its target price for troubled platinum miner Lonmin and reiterated its ‘underperform’ rating on the stock, following the recent violent protests at its Marikana project in South Africa which left more than 30 of its workers dead.
The company revealed yesterday that it will likely breach the covenants with its banks as a result of the violence and subsequent impact on production.
‘Regardless, the company needs to raise cash given the likely trajectory of earnings over the next six months,’ the broker said.
‘Under our normalised framework, a $1bn rights issue is valuation neutral at current levels for Lonmin shareholders. A smaller $500m rights issue would be value positive at current levels. However given uncertainty over achieving the ‘normal’ 950koz target and valuation uncertainty (high cost) we believe investors should seek theoretical 10-15%+ upside. For this to happen the price of Lonmin shares would need to fall another c10%-20% at least depending on size of issue.’
While Credit Suisse made no changes to its forecasts at this stage, as it awaits strike impact confirmation, it has reduced its price down from 740p to 525p to reflect the rights issue.
By 10:55 on Wednesday, Lonmin’s shares were down 1.47% at 603.5p, compared to the near-750p level they were before the protests began.
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