Lonmin and “anal”-yst price targets….

We note with interest (and derision) the price target put out by SocGen in recent days on Lonmin of 145p. Yup, that’s right, 145p. Either the guy knows something we don’t, he is looking for a controversial headline or he has missed a number in front or, as one commentator opined, he’s “smoking something”.

Given that Lonmin has prime platinum assets and is one of the biggest producers in the world, delivering an operating margin in the region of 20% over the ypical cycle and so, with the debt convenant issues all but certain to be waived by the banks and/or their major shareholder Xstrata likely to support a capital raising, the company is slated to produce and an EPS of over 100p for 2013. Not suprisingly we are scratching our heads furiously this morning at such a call from SG as that would put the stock on 1.5 times earnings should they deliver them!

Now, far be it from us to cast aspersions (;-)) as to the “independence” of City banks – perish the tought!, but with almost 20% of the company’s shares out on loan – likely to some large hedge funds, I wonder if there is a vested interest in this Sell call?

We actually take the opposing tack at this price and believe that there is a fantastic short squeeze set up. I would expect that should platinum not turn tail and fall back below $1500 that fellow industry participants will begin to look at renewed corporate activity in the sector. The SA labour unrest issues is actually supportive of the platinum price as it is taking our excess capacity too. 

With Glenstrata now a done deal, Glasenberg has to do something with his inherited 24% stake in Lonmin – either mount a full bid again (for a fraction of the cost that Mick Davis was contemplating) or put the stake up for sale – if the latter, this will likely act as a powerful catalyst for the share price as an industry buyer would set a new price for the stock. 24% is a good lump and a perfect bid platform and a price of 750-800p is eminently conceivable by the likes of AngloPlats

Finally, the chart below shows just what a drubbing the stock has had over the last few years with the shares probing lows last seen in 1997… Oversold is an understatement.

Spreadbet Magazine V Soc Gen – may the best man win!