Investment: Lonrho finds life hard down the mine

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IT'S HARD to think of Lonrho as a proper company, but that's more or less what it has become. In the past year, chief executive Nick Morrell has banished the combined memories of Tiny Rowland and Dieter Bock by demerging the African businesses, selling the hotel chains, and buying back shares held by South African giant Anglo American.

All this is welcome for investors, because it clears up Lonrho's opaque structure. The downside is that Lonrho could hardly have picked a worse time to become a pure mining business.

Demand for gold, coal and platinum has been hit as part of the global commodities downturn which was sparked by the Asian crisis. Then there is the added uncertainty over gold sales by European central banks.

Not that yesterday's interim results gave a clear picture of what is going on. The figures were distorted by the demerger and the pounds 69m exceptional cost of writing down the value of Lonrho's holding in the Opon gas field in Colombia.

And there is more to come. Lonrho still has to book the exceptional profit from the Princess hotels, which were sold for pounds 332m last week. The South African Tavistock coal mining business, which Lonrho bought from the now-defunct JCI, was also not included in these results.

Despite the gloomy outlook, Mr Morrell remains upbeat. He reckons that demand for platinum is running ahead of supply, while the devaluation of the rand has made South African coal cheap for export markets.

The company also has a hedge which protects Ashanti, its gold mining arm, from a falling gold price.

Looking ahead, Lonrho expects mining profits to improve - but that's on the heroic assumption that current prices and exchange rates do not change. Analysts think full year profits will be about pounds 75m, which puts the shares - up 3p to 283p yesterday - on a forward p/e ratio of about 11.

A time will come to buy these shares. For now, however, they are no more than a hold.