Lonmin Share Discussion Threads

[tonysss13] 23/11/2015 14:45

ok thanks Typo that makes sense

[elvisrocks] 23/11/2015 14:37

Typo56, agree. Was just about to quote your 6316, 6334, 6492 Posts, and a possible 'trap'

[typo56] 23/11/2015 14:34

Tony, I think one problem is many brokers are slack and probably won't credit people with paid up rights shares that they can sell at open on 11th Dec. So punters will effectively be locked in as they watch LMI falling.

Still doesn't answer why anyone would be buying LMI at 1.33p, just a possible reason why people are shy of buying LMIN.

[tonysss13] 23/11/2015 14:31

elvisrocks

yes have had an arb since Friday morning. It had closed up nicely by Friday close but now opened up again. Bizarre but happy to profit from it

[elvisrocks] 23/11/2015 14:28

tonyss13, I agree, I think this is the time of day when shorts are in heavy.
The arbitrage is still strong LMIN+1 (1.07p) v LMI (1.32p).

Was similar on Friday.

[mikemaxm] 23/11/2015 14:24

We should not forget that half of the money they raise will be paid to banks.

[tonysss13] 23/11/2015 14:24

why are fools still paying 1.32 for LMI when you can pick them up through LMIN for 1.07p?

[elvisrocks] 23/11/2015 14:22

Careful, you're normally good on these numbers, how do you work that out on a current trade price of about 1.30p?

Correction, I think I can see now, you're suggesting any uplift due to the ex rights price above TERP is offset by the decline due to the current trade value of the rights (0.07p)?

[careful] 23/11/2015 14:18

current price is suggesting that the value of the company will be close to the cash raised.

[elvisrocks] 23/11/2015 14:00

Just tapped out on the calculator to work out Macquarie's and Deutsche's number in old money. These are the only two people to put out a public position (as far as I can see).

Macquarie - Value of a right, 0.40p, old money 19.8p
Deutsche - Ex Rights Buy Recommendation, 2.80p, old money 85.6p

Quite a difference!

[younasm] 23/11/2015 12:42

I should know the answer - but I haven't checked recently : is Lonmin still a FTSE100 stock or has it moved to AIM ??

[chrisbr777] 23/11/2015 12:19

Some additional threats to Lonmin in the near term which may depress valuation, in my opinion, could be the (1) increase in interest rates in South Africa 0.25% which has led to ZAR strengthening vs US$ circa 14.40 down to 13.90 range in the last 2 trading days. This will push up the effective cost of operations in hard currency US$ terms and thus worsen the co's operating margin 2) When the US Fed Reserve increases its interest rates in the next few weeks, which it is likely to do it seems, this will neutralise the effect of point 1 above but will likely lead to flocking to US$ as "safe haven". Will this not push down Platinum $ price even further? Or do you think this is factored in already to the Platinum prices? Some thoughts please.

[kojak78] 23/11/2015 09:59

Sibanye ADR share price if $5.07, 923m shares outstanding, 1:4 ADR ratio. Net debt $800m (if they pay with shares the share price would increase, so not much difference).

EV $1970m

I would estimate gold production at 1.6m ounces and PGM production at 1.1m ounces and assume parity in value of gold and PGM production over the longer term.

So $1970m / 2.7 * 1.2 = $875m for Lonmin EV if compared to Sibanye. Translates with the $85m net cash into 2.3p

Nearly the same valuation again. Given the much higher risk at Sibanye and the somewhat higher risk at Implats the 2.3p figure should be easy to reach. If the bear market continues Sibanye should go before Implats and Implats before Lonmin. If the market turns here Lonmin has 100% relative upside and a 50-100% gain in metal prices could mean Lonmin becomes a ten-bagger. To me that is a very favorable risk/reward ratio.

[elvisrocks] 23/11/2015 09:54

Changing topics slightly, does anyone know why Anglo and Vedanta are next in the battering ram? Ignore copper / iron ores price, they are trading low. Glencore seems to have escaped more battering (for now) with its debt reduction plan.

Vedanta has cut its dividend, Anglo may be next, but is the market now expecting one leg further and cash calls for these two now?

[ravenna23] 23/11/2015 09:52

I think there is a conflict of interest in a bank being an underwriter of an issue and then having its broking arm issue a buy recommendation. However I must admit to doubting the efficacy of Chinese walls.

[elvisrocks] 23/11/2015 09:48

Kojak, I'm guessing your Sibanye figure would be lower than Impala/Lonmin, because you / the market will perceive them as the weakest now (not suggesting you crunch any numbers).

[kojak78] 23/11/2015 09:33

Elvis,

My thinking is if Implats with $200m net debt and R33.40 share price at R14.04 exchange rate, 735m shares outstanding, is valued at EV $1948m then Lonmin - with less risk and way longer reserve life - should be worth at least 1.2m / 2.6m PGM production = EV $899m

Lonmin EV $899m equals with net cash of $85m a market cap of $974m = GBP 643m or 2.33p per new share.

[ravenna23] 23/11/2015 09:26

Careful, if you are an experienced trader with direct market access, i.e. You can put your order directly onto the books without a middle man, plus have all the market stats and news live to your monitors, and can sit there for 8 1/2 hours without taking a pee, there is money to be made during this volatility. If you do not have these advantages you are more likely to lose money because of the spread, brokers commission and the lack of speed conducting a deal.

[brahmsnliszt] 23/11/2015 09:23

yes there are careful

[careful] 23/11/2015 09:17

are there people out there trading the rights?

[elvisrocks] 23/11/2015 08:57

If anyone fancies a Lonmin V2 all over again, try this one. Arcelor Mittal's RI in South Africa from yesterday's SA Sunday Times.
--------------------------------------------------
The timing and terms of Lonmin's rights issue are depressing ArcelorMittal South Africa's share price as investors are anxious that its cash-raising exercise will be offered at a similar steep discount.

ArcelorMittal South Africa CEO Paul O'Flaherty said: "This deep discount given by Lonmin has really affected our share price. Shareholders are not sure where ArcelorMittal South Africa will place itself in terms of its rights issue; people are getting nervous."

Mining and metals companies are strapped for cash as commodity prices are at levels last seen in 1999, with most commodity shares at lower levels than they were during the bottom of the global economic crisis in 2009.

This has forced two of South Africa's biggest companies to go to the market for money, in an effort to survive the commodities slump that appears to have no end.

In a desperate attempt to entice shareholders, Lonmin will offer its shares at a 94% discount on December 10.

Lonmin said on Thursday that 88% of its shareholders approved the rights issue at a meeting in London after it had warned that if it couldn't raise the cash, shares could be suspended.

ArcelorMittal South Africa shareholders will vote on its rights issue, in which it wants to raise up to R4.5-billion, next month. Its share price is below R5 a share, from a high of almost R250 in 2008.

Since November 9, when Lonmin announced more detail on its rights issue, ArcelorMittal South Africa's share price has fallen another 27% to R4.90.

O'Flaherty said the share price was "heavily undervalued" and "ridiculously low", considering the company's strategy and the progress it has made since June this year in terms of government relations, tariff protection and efficiencies.

"We are looking so much better than we did in June this year; if anything, our share price should be looking better, not worse," said O'Flaherty.

Since the start of June, ArcelorMittal South Africa's share price has fallen by 80%.

O'Flaherty said he did not need to give as big a discount as Lonmin's Ben Magara was advised to do, because ArcelorMittal South Africa's rights issue was fully underwritten by the group owned by steel magnate Lakshmi Mittal.

Both companies rely on a small group of big shareholders, with, for example, 70% of ArcelorMittal South Africa's shares held by 10 shareholders. The group's top four shareholders are ArcelorMittal South Africa with a 46.8% stake, the Industrial Development Corporation with 7.9%, the Government Employees Pension Fund with 5% and Investec with 2.5%.

O'Flaherty said that including the rights issue and the BEE deal the company wants to sign in February next year, he would have about R3-billion in cash to work with going into the next financial year.

ArcelorMittal South Africa expects operating losses of almost R700-million for its 2015 financial year. "And I don't expect that 2016 will be any easier; in fact, steel demand for 2016 is expected to be at a seven-year low," said O'Flaherty.

Local steel demand during the next year is pinned at around 4.8million tons from 5.2million tons the year before. This is compared with the seven million tons used when infrastructure was being built for the 2010 Soccer World Cup.

Nevertheless, with the additional cash, better efficiencies and better relations with the government, O'Flaherty said the company could break even as soon as next year, and shareholders should expect an upturn, albeit a slow one, come 2017-18. He predicted 2% annual growth in steel demand after 2016 up to 2020, but that is without government speeding up its spend on infrastructure.

ArcelorMittal South Africa has received 10% import tariff protection on certain of its products, and expects more to be put in place soon. Additional anti-dumping protection is also expected to be implemented in coming weeks.

In exchange, the company has been working with the government to get the right pricing model for steel, and concluding a black partnership deal. Steel would also be included in the country's localisation drive.

"The goal is that local steel is present and represented with the government in future trade missions," said O'Flaherty.

He said the 87-year-old company - the largest steelmaker in Africa - was looking at expanding business on the continent . "We are considering things like setting up a strong steel distribution business in SADC [ the Southern African Development Community] .

"We are fixing our balance sheet and trying to save as many jobs as possible. We are hanging in there and we are hanging tough."

[elvisrocks] 23/11/2015 08:48

Kojak re your Post 6505, was this an EV based calculation or Balance Sheet, DCF etc? Do you have an equivalent one for Sibanye?

[elvisrocks] 23/11/2015 08:44

Dealy, thanks for your Post 6506.

You express this so simply, many people have tried to paraphrase what you say, old equity + new equity added together, what will it be worth and all that when all this paper exercise completes etc. You hit the nail on the head in your Post.

Expressed in another more simple language, what you effectively say is "they threw the kitchen sink at the numbers at year-end, sorted out the covenant etc and Balance Sheet net assets were $1.6bn. When they get the $400m RI (cash and share capital), it will be a $2bn Balance Sheet". You then assumed 50% of that in your numbers, i.e. "how much is 50% of a kitchen sink worth?"

Your numbers are $1bn/27bn shares = 3.7 cents, divided by XR of 1.6 = 2.3p. Did you just add 10% to get to 2.6p? Either way, what you say is the same as what Kojak says in Post 6505, 2.3p-2.4p for an Impala equivalent share.

It's no wonder people have now changed from short to long on this share!

[careful] 23/11/2015 08:25

little volume on nil.
dark pools.
this market is rigged.