Lonmin Experiences Trouble with its Number 1 Furnace

LonminWhen the smelter was reopened after previous failures, Lonmin has experienced more troubles with one of its key furnaces. The shares of Lonmin, which is the world’s third biggest Platinum producer have fallen 11p to £16.26, as its number 1 furnace had suffered a setback in the form of a leak around a tap hole.

The furnace was restarted on 12 may and Lonmin said it would take almost a month to solve this problem and to maintain its sales guidance of 700,000 ounces of platinum for 2010; it would have to boost the volume of refining sent to other smelters above its current contractual promises.

From the Evolution Securities, Charles Kernot has issued a sell note and has cut the price target of his Company from £15.59 to £14.55. According to him, with the continuing furnace problems Xstrata had shown no inclination to bid for Lonmin despite owning 25% and the Platinum is mainly used in auto catalysts to dirt free car exhaust fumes, and car sales in Europe have been on the slide.

Last year, Lonmin thought it had understood the problem will be able to manage it easily but that exactly was not the case. Now, it will lead to additional costs both from outsourcing smelting to other producers and from running its old pyromet furnaces. In addition to this, car sales in Europe have taken a fall down, with Germany down 31.7% and Italy down 15% in April.