Lonmin risks recede along with rand, Liberum reckons

Lonmin is looking a less risky investment than it seemed a few months ago, said broker Liberum on Monday, upgrading the miner to 'hold'.

The broker had in May considered the rate of cash burn and that the chance the proposed merger with Sibanye falling apart were too high, downgrading the shares to 'sell'.

A 30% devaluation in the South African rand in the last six months, as the emerging markets currency crisis and the confirmation that the country has gone into recession, will benefit Lonmin's cost base as it is predominantly in local terms.

"Lonmin as result is no longer losing cash for each ounce they produce and should finish the financial year with circa $40m in cash (assuming they have managed to unlock the $47m of PGM ounces in the smelter)."

Another factor is the public support from the Public Investment Corporation for the merger, which Liberum said has "derisked the merger substantially, although not entirely", with the Competition and Markets Authority having also approved the deal.

Liberum had a 40p target price on the shares and noted that shares trading a 12% discount to the implied bid, "a more a suitable discount for a deal that is still far from certain to complete".