The Investment Column: Lonrho

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The Independent Online
The Investment Column: Lonrho

SHAREHOLDERS IN Lonrho, the father to mining company Lonmin, which reported maiden interims yesterday, used to receive torrents of information about the company.

Lonrho's assets spanned from coal and platinum to sugar and transport. There were regular letters to shareholders from Lonrho's own father, Tiny Rowland, attacking the way Lonrho was run. But Lonmin, the mining company formed after Lonrho's other African interests were spun into Lonrho Africa, is focused on mining and its results are refreshingly clear.

The group benefited from a hike in platinum prices - the metal is a component for catalytic convertors - so platinum profits rose 62 per cent to pounds 34m on the back of 30 per cent margins. The South African coal operations were able to shift more volumes following the previous year's acquisition of Tavistock Collieries harbour slots. Its profits rose from pounds 6m to pounds 16m. The group's gold interests saw identical rises thanks to hedging, which insulates it from gold price fluctuations.

Freed of the distractions on its non-mining interests, Lonmin is concentrating on boosting output at its coal and Zimbabwean gold operations, where new machinery can have a dramatic effect on margins. It intends to buy out Impala's stake in its platinum operations. Lonmin could negotiate a good price - Impala needs money for investment elsewhere. Meanwhile, coal metals prices are forecast to rise.

Paribas expects pre-tax profits of pounds 126m and earnings of 58p per share this year, rising to 68p in 2001. The shares have tipped up recently to 490p, but are on a forward p/e of just 8. That's still too cheap given Lonmin's plans to boost both output and efficiency.