Further furnace problems hit Lonmin shares

Platinum mining group, Lonmin (LON:LMI), has suffered a further setback with its main furnace after attempting to reopen the smelter which had sprung a leak back in March. The resulting costs inflicted by the loss of the firm’s number one furnace have sent the share price in the group into the red, down as much as 30p this morning.

Rob Hull
shareprices.com - Monday, May 24, 2010

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Lonmin suffers second furnace closure in a month

The world’s third biggest platinum producer has seen shares drop over 20 per cent since March 31 when the group first announced it had to shut the furnace after it had leaked molten metal.

At the time the group revealed it would take up to 40 days to repair the leak.

However, just 54 days after the initial closure the group has revealed the furnace will have to be shut again for another 30 days after the furnace sprung another leak; this time around a tap hole after the furnace was restarted on May 12.

With the number one furnace now out of action potentially until June 23, Lonmin said it will continue to operate three smaller furnaces to compensate for the closure.

But with these three smaller furnaces only producing 40 per cent of the capacity of the main furnace, the group has conceded it will have to increase the volume of refining sent to other smelters above it current contractual commitments to meet its year’s sales target of 700,00 ounces of platinum.

Lonmin shares have fallen as much as two per cent, shedding 34p this morning to hit a low of 1603p.

The furnace issues have sent the share price down by over 20 per cent in just one month and, with the most recent problem being the sixth such incident at the furnace since it was commissioned in 2004, it may not be the last closure for the future.

Analysts say they expect Lonmin to now cut production for the year to avoid weakening it profits.

Production could therefore reduce into the region of 655,000 ounces this year.

Lonmin is amongst the biggest FTSE 100 fallers today – a list dominated by energy and mining stock at the moment.

 

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