London-based company Lonmin, the platinum mining firm affected by strikes at their Marikana facility in South Africa, is a definite opportunity for investors looking to enter the sector according to Alison Turner, mining analyst at Panmure Gordon.
“I think the company is being hit by a sort of triple whammy at the moment. With a combination of low (platinum) prices, the troubles they are having on the labor front and concerns over the balance sheet,” she told CNBC Wednesday.
“All of that has been depressing the price, but I think that provides an excellent opportunity for long term investors to get in at the current price.”
Forty-four people were killed, almost two weeks ago, after clashes and firing by police in a labor dispute at the mine. The South African government has recently announced that it wants to bring in external mediation to resolve disputes over pay and conditions.
Lonmin’s shares dipped to their lowest since 2008 on August 20 due to the incident and have recovered little since.
Shares on Wednesday traded at 617.14 pence, 37 percent lower than the start of the year. On the other hand, platinum prices have jumpedto three-and-a-half month highs last week on the supply disruption, and finished trading at $1515 on Tuesday. The metal is used in catalytic converters for cars and jewelry.
Meanwhile, an acting chief executive, Simon Scott, has replaced Ian Farmer who was hospitalized last week.
Turner estimates the problems at Lonmin’s mine will persist for six weeks and believes the new CEO’s first move could be to issue additional shares to raise new capital. A rights issue would dilute existing shareholders, but she said that shouldn’t be a concern for investors who wanted to enter the sector for the long term.
“With little sign of an imminent return to work by striking rock drill operators, we have updated our Lonmin forecasts to build in a six week strike,” she said in a research note.
“That would make a September covenant breach almost unavoidable, and a rights issue increasingly likely,” she said, referring to the terms of the company’s bank loans.
It’s not only Lonmin where Turner sees value in platinum mining. She says the sector as a whole has been affected by the European financial crisis and could see a turnaround.
“I think that provides an opportunity to get into platinum and see that longer term rise,” she told CNBC.
“I think you’ve got some of the other commodities where that’s not the case, where the prices are, by historical standards, actually very high at the moment.”
Alison Turner or Panmure Gordon has no corporate involvement with and no shareholdings in any with any of the companies mentioned in this article.