Lonmin upgraded by HSBC on poor share performance

After a poor share price performance, HSBC has upgraded Lonmin from ‘hold’ to ‘buy’ but has cut its target price from 135p to 76p.

The company’s first quarter production report out on Thursday was mixed, according to the investment bank.

“Safety stoppages impeded production momentum at the key Generation 2 shafts, but the processing division performed well, drawing down ore and concentrate inventory in the period. Although mined platinum volumes of 158koz were 16% lower y-o-y, refined volumes climbed 23% to 171koz.”

HSBC said it has updated its valuation to reflect weaker platinum pricing from its Metals Quarterly report out earlier in January.

“We maintain our 33% discount to our DCF for Lonmin (at a 7.5% real discount rate) to account for valuation risk given high gearing to key driver assumptions. We cut our target price to 76p from 135p. As this implies upside of 32%, we upgrade to Buy from Hold.”

Shares in Lonmin had dropped 3.25p (5.94%) to 51.5p at 1115 GMT.