Lonmin Plc: A Minor Miner

In the next couple of posts I want to take the time to discuss a number of different equity investments. As many of you know I am a big advocate of buying shares, especially when young. I don't see shares as a risky investment (controversial I know!) when looking to invest over the long run.

Ever wanted to invest in shares?

Investing in shares fits into the Multimillionaire Road Strategy in the following way: Aggressively save from your income and invest those savings into cash producing vehicles. The idea is to make your money work for you. Since shares produce a dividend (a portion of a companies profits), and also the opportunity for capital growth (increase in the value of an asset), shares appear a strong and relatively cheap investment vehicle i.e. you don't need lots of money to invest in shares, unlike when buying property or commodities.

I myself save just over 20% of my monthly income (around £390) and set it aside to use in investing opportunities. Here follows one such opportunity that I have taken:

A great minor share to invest

Lonmin Plc is a South African Platinum and other commodities miner. Roughly one year ago the stock was worth about 1100 pence per share. Today the share price sits at about 480 pence. The reason for the dramatic fall is due to the fact that there have been largescale strikes in the South African mining industry. This has caused companies like Lonmin to experience large reductions in production. For Lonmin this has resulted in a $680m loss, which has seen investors running for the hills.

I see myself as a bit of a contrarian investor. Much of the reason why people lose money on the stock market is because the tend to follow the crowd and get caught out when something adverse happens. As such, I like to stand against the tide, investing where others have run. This is partly why I am currently sitting on a 42% profit in Lloyds Banking Group Plc, achieved in less than a year, to use one example from my portfolio. I bought into Lonmin Plc at 516 pence about 2 weeks ago. The fact that it is currently making a loss is not a worry for me.This is a LONG TERM game! People will always want commodities. The fact that Lonmin had to agree to 20%-40% increases in wages will not affect their profitability in the long run. The wage increase is fairly negligible when you compare it to the potential revenue stream that could come out of it's mines.

Dividends and caveats when investing

Lonmin is looking to service some of its losses with a rights issue and once this occurs (which I am fairly certain it will) we shareholders can all look forward to some much needed capital gains. In the meantime I am very happy to sit on a respectable 2.23% dividend yield, especially given the fact that the rights issue will allow me to almost triple my holdings of the share for half the cost I originally bought them for.

Warning! This share is not for the feint-hearted. It will be volatile and a little unpredictable  especially given the rights issue. However, I like the exposure to an emerging market and to the strong demand for commodities.

Readers, do you agree or disagree with my reasoning? How would you feel about this share? Do some investigation and let me know what you think?

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Mr. Moneybanks said...
This comment has been removed by the author.
Mr. Moneybanks said...

Thank you for the comment. Not sure I totally understood what you were saying but it sounds like a compliment!