Lonmin share price questioned

(iStock)
(iStock)

A Fin24 user is concerned about what is happening with Lonmin's share price. He writes:

What is going on with the Lonmin share price? I know metal is not one of the best stocks at the moment, but look at Lonmin shares compared to Arcelor, for instance.

The market for gold and platinum has been going up so why not Lonmin's share prices? This is even more so when taking the pound/dollar/rand into consideration.

There are also no strikes happening at Lonmin at the moment. The workforce is operational. What is going on?

The share has the potential. Look at what Harmony’s share price did.

Kirk Swart, account manager at Overberg Asset Management, responds:

Towards the end of last year Lonmin made it public that they are in need of capital to keep operations going. They needed about $369m. To raise the money they had a rights issue in which more shares were issued to existing shareholders at R0.21 per share.

The market did not like the news and the share price dropped to around the R0.21 level subsequently. The share hit a low of R0.15 on December 17 2015.

Lonmin has subsequently announced a share consolidation of a 100 to 1. Your R0.17 share became worth R17.

The platinum price is remaining at low levels. The slowdown in China is also weighing in on commodity prices. Gold has been going up as investors see gold as a safe haven in times of economic uncertainty.

Although there have been no strikes of late, input costs keep on rising - wages, electricity etc. - and the demand for platinum keeps declining.

It is an unfortunate case where the slowdown in the commodity cycle along with serious internal issues is weighing in on the share price.

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