UPDATE 3-Lonmin swings to H1 profit, to issue shares

By Eric Onstad LONDON, May 10 (Reuters) - Lonmin swung to a first-half profit after metal prices rebounded and costs fell, helping to soften reaction to a dilutive share issue to raise funds to help meet black empowerment rules in South Africa. Lonmin, the No. 3 platinum producer, did not declare an interim dividend on Monday, but said it hoped to pay out a final dividend following a rebound in the auto sector, which needs platinum for car catalysts that clean exhaust fumes. Most investors welcomed the results, largely shrugging off dilution from issuing shares and focusing on good news after years of disappointing results and missed targets. "The big restructuring they went through last year is starting to pay off. This is a vastly different business from the one we were looking at two years ago, all for the positive," said analyst Rebecca O'Dwyer at Investec Securities. "From a financial perspective it was a strong set of results. They came in well ahead of what we were forecasting. The cost control in the half has been good." Other analysts said they were surprised that Lonmin went back to equity markets to raise money only a year after it raised $457 million in a rights issue. "We view the production as a miss, the earnings as a hit and the placing as a disappointment," said analyst Paul Galloway at Bernstein Research. Lonmin shares rose 5.5 percent to 1779 pence by 1103 GMT, underperforming a 7.7 percent gain in the UK mining index . PROFIT BEATS CONSENSUS Normalised earnings per share for the six months to the end of March were 22.8 cents after a restated loss of 47.9 cents in the previous year. This was slightly higher than a consensus forecast of 20 cents compiled by the company from six analysts. Lonmin was upbeat about the future and the potential of resuming dividends. "The board is... optimistic that it will be possible to declare a final dividend for the 2010 financial year provided current trading conditions persist," a statement said. Chief Executive Ian Farmer told a presentation that the platinum market was tightening up after healthy demand from its top customer, the auto sector, and investors buying up the metal in new exchange traded funds (ETFs). "Demand is increasing more rapidly than anticipated... we therefore anticipate that supply will struggle to keep up with demand from this year onwards." The price of platinum surged by nearly 50 percent during Lonmin's fiscal year. The company, which has operations in South Africa, cut the group's unit costs by 6 percent to 6,535 rand per ounce. It also reiterated its sales target of 700,000 ounces of platinum for the fiscal year, despite a smelter problem. On March 30, Lonmin shut its No.1 furnace after another incident at the troublesome smelter, but Lonmin said on Monday repairs were already completed. Refined platinum sales for the half fell 8.3 percent to 291,921 ounces, below a consensus forecast of 300,000 ounces. Lonmin also said it would stabilise black-owned mining firm Incwala by issuing up to 9.65 million shares, around 5 percent of its share capital, to raise funds so it could provide 206 million pounds ($318.6 million) in vendor financing. Lonmin helped set up Incwala in 2004 under South Africa's black empowerment programme that seeks to involve more blacks in the mainstream economy and guaranteed loans to shareholders, who ran into difficulties. Those shareholders will sell their stakes to Shanduka, headed by leading businessman Cyril Ramaphosa, who has a good track record in the resources sector, said Lonmin. Lonmin's Incwala deal helps it meet South Africa rules that mining firms must have 26 percent black participation by 2014. (Reporting by Eric Onstad; editing by Louise Heavens, Mike Nesbit) ($1=.6465 pounds) Keywords: LONMIN/ (eric.onstad@thomsonreuters.com; +44 20 7542 7093; Reuters Messaging: eric.onstad.reuters.com@reuters.net) COPYRIGHT Copyright Thomson Reuters 2010. All rights reserved.

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