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Lonmin a 'Buy' Despite Mine Violence: Analyst

Wednesday, 19 Sep 2012 | 4:20 AM ET

Lonmin shares are a “buy”, according to John Meyer, head of resources at investment bank Fairfax, despite violence at the company’s South African platinum mines which killed 44 workers.

Michael Coyne | Axiom Photographic Agency | Getty Images

While some investors have reduced or completely unwound their exposure to the South African natural resources sector as a result of the strife, Lonmin will recover and now is a buying opportunity, he added. (Read More: Investors Offload South African Miners).

“You simply cannot do without South African platinum production,” Meyer told CNBC’s “European Closing Bell” on Monday. “It is so critical: oil refineries need it. Auto catalysts in cars need it… it is essential.”

Approximately 80 percent of the world’s known platinum reserves are in South Africa.

Speaking on the same program, Patrick Armstrong, director of Armstrong Investment Managers, agreed platinum’s industrial applications make it attractive.

“If you like gold , platinum offers you everything that gold does but it has also got industrial uses... If you believe reflationwill be forced by bearish central banks, precious metals will be of benefit,” he added. Platinum is the only precious metal he holds at present.

However, Armstrong questioned the merits of Lonmin shares . “Why wouldn’t I just own platinum, rather than a platinum company?” In answer, Meyer forecast that Lonmin will recover from its current difficulties and added that aggressive wage disputeshave bedeviled most South African mining companies.

“It is quite normal to see double digit wage increases in the platinum sector. This is a sector where the workers are highly paid… there are difficult and hard conditions… and these guys can get angry and they want to see the union doing a good job for them,” he said.

Lonmin's hefty pay rise offer to striking miners has allowed the conflict to come to an endon Tuesday.

Meyer added that Lonmin was “more than likely” to recapitalize through a rights issue, a view shared by Alison Turner, mining analyst at Panmure Gordon, in an earlier interview with CNBC. (Read More: Lonmin Shares an Excellent Opportunity: Analyst).

Turner also views Lonmin as an attractive long-term buy.

Other analysts fear that Lonmin's travails foresahadow a deteoriation in labor relations across South Africa’s natural resource sectors.“If you are going to have these continued calls for the nationalization of the mining industry, or a revolution of some sort, or any kind of anarchy, it would spell an enormous risk for the global markets because South Africa is one of the largest suppliers of raw materials to the world,”said Robbert Van Batenburg, head of equity research at Louis Capital.

—By CNBC.com’s Katy Barnato

Contact Europe: Economy

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