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London Mining a "binary" investment, say City scribes

Published: 23:59 22 Aug 2014 AEST

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Brokers Investec and Credit Suisse have dubbed London Mining (LON:LOND) a “binary” investment as the group continues talks with potential funding partners.

The comments followed first half results, which showed the Sierra Leone-focused iron ore miner’s losses had widened significantly.

A difficult market shows little sign of improving, while the Ebola outbreak looks set to add to firm’s woes.

Of most interest to the analysts is the company’s quest to secure finance to fund a mine extension and increase production at its Marampa operation.

“Either it will succeed in finding a strategic partner and thereby realise its inherent value or it will not and face bankruptcy,” said Investec’s Hunter Hillcoat.

“We continue to believe the former is most likely and maintain a net present value-based target price that reflects the inherent value under our commodity price assumptions.”

While still a ‘buyer’ of the stock, Hillcoat has pegged back his valuation to 52p a share from 57p.

Shares currently trade at around 34p.

Heavyweight Credit Suisse also weighed in, taking its price target down to £1 from £1.40.

It told clients: “Although we see the company's main mining operation as viable at current iron ore prices, high interest costs and necessary capex to extend the mine life will keep free cash flows negative for the foreseeable future resulting in a continual climb in debt levels and financial risk, on our numbers.

“We believe an equity injection is required either through a stake sale or, if this fails, a possible capital raising.

“Management have maintained their expectations that the strategic partner process will complete by the end of the year.

“As such, we think the equity case remains a binary outcome of the success of this process, in the short term at least.”

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