Will Lonmin outperform BHP Billiton, Rio Tinto and Randgold Resources after update?

Does Lonmin Plc (LON:LMI) (LMI.L) have more investment potential than BHP Billiton plc (LON:BLT) (BLT.L), Rio Tinto plc (LON:RIO) (RIO.L) and Randgold Resources Limited (LON:RRS) (RRS.L)?


The Lonmin Plc (LON:LMI) (LMI.L) share price has slumped 7% today after the release of its Q2 production report and H1 results.

The total tonnes mined in the first half of the year are down 7.6% at 387,000 tonnes. This is due to the planned removal of high cost Generation 1 production, as well as the poor mining production from K3, the company’s biggest shaft.

Lonmin has taken action to try and register mining improvement, including senior management changes. This has resulted in the best March production for 4 years. General Managers now report directly to the CEO, while Lonmin has been able to leverage its relationships with unions to address the impasse at K3.

Improving production means Lonmin has maintained its full year sales guidance of 650,000 to 680,000 Platinum ounces. Net cash at 31 March improved to $75 million from $49 million at 31 December 2016. Revenue of $486 million was down 6% compared to the prior year’s revenue. This was caused by lower production, but was offset to some extent by an 8% increase in revenue per ounce.

In the last year, the Lonmin share price has fallen 36%. That’s a worse performance than other mining shares such as BHP Billiton plc (LON:BLT) (BLT.L), Rio Tinto plc (LON:RIO) (RIO.L) and Randgold Resources Limited (LON:RRS) (RRS.L) (author owns shares in Randgold Resources). For example, the BHP Billiton share price is 43%, Rio Tinto is 50% up and Randgold Resources has gained 17%.

In my view, Lonmin is moving in the right direction. I think it has a good strategy which could mean improved financial and share price performance in the long run. I’d rather own Rio Tinto, BHP Billiton or Randgold Resources due to what I believe is greater stability. However, I think Lonmin could perform relatively well in the long run.

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