Goldman Sachs upgrades Lonmin to 'neutral' after underperformance

Metal miner Lonmin pushed higher on Friday after it was boosted by an upgrade to ‘neutral’ by Goldman Sachs.

Lonmin’s rating was raised from ‘sell’ as Goldman believes the company to be over its recent underperformance. The bank left its 12-month price target on the stock unchanged at 60p.

GS suggested the company's recent underperformance was now likely to subside, despite consistent challenges relating to its balance sheet. Analysts said it would be difficult for Lonmin to cut costs but firmer metal prices could drive it higher.

“It has limited levers to cut costs, in our view, given opposition around retrenchments, both from the union and the government. As such, without the market for PGMs moving into deficit we expect that Lonmin will continue to burn cash,” analysts said.

Goldman’s target price of 60p presents a potential downside of 7.69% in relation to the stock's closing price on Thursday of 66p.

Lonmin will need to raise capital soon as it burns through its cash, according to Goldman.

“Lonmin’s balance sheet has again come under pressure, especially after the 1H results when the company took an impairment at its Marikana mine which has taken it close to breaching its covenants. On our estimates the company will burn cash (equivalent to c.50% of its market cap) in the next two years which implies that it will need to raise capital soon.”

At 1216 BST, Lonmin shares were up 1.5% to 66p.