Lonrho shines in precious metals

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LONRHO YESTERDAY underlined its transformation from conglomerate to mining group by announcing an acquisition drive to boost its precious metals business. The company said it would rename itself Lonmin, ditching its historic name to reflect the new focus on mining.

The rump of the late Tiny Rowland's empire is looking at a number of purchases to expand its gold and platinum interests. The chairman, Sir John Craven, said: "We have brought down debt and are now well placed financially to contemplate merger and acquisition activity." Sir John did not comment on areas of expansion, but analysts said a number of South African platinum mines were likely to be on Lonrho's hit list.

The company beat City expectations in its first results since shedding more than pounds 1bn of non-mining businesses. Pre-tax profits for the year rose by 10 per cent to pounds 110m on turnover down by 13 per cent at pounds 401m. Analysts had expected a profit of between pounds 63m and pounds 102m. The shares soared 5 per cent in early trading before falling victim to profit-taking. They closed unchanged at 315p.

Lonrho's performance was driven by a doubling of profits in palladium operations, which benefited from a 70 per cent rise in the metal's price in the second half of 1998. Palladium, a key component of car exhaust catalytic converters, benefited from a combination of higher demand and a supply shortage.

It is estimated that demand for palladium rose by 37 per cent in the past 12 months as more governments forced car makers to fit converters. At the same time Russia, which supplies 74 per cent of the world's palladium, suspended exports of the metal.

Analysts said the buoyant palladium market was set to continue this year. Lonrho will also benefit from its minority stake in the Ghanaian gold producer, Ashanti Goldfields.

Mark Burridge, mining analyst at Merrill Lynch, said the shares, on 7.5 times 1999 earnings, looked cheap. But he cautioned that the discount was partly justified by the company's large share of joint ventures, which weakened Lonrho's hold on its cash flow.