London Mining (LON:LOND) has announced a downward revised production guidance for 2013 to 3.3-3.4M wmt instead of the previously announced 3.6-3.9M wmt at its Marampa project in Sierra Leone. This decrease in guidance of approximately 12% has caused the share price to slide by approximately 10%, and we feel the market is overreacting.
The new guidance is mainly caused by the wet season in Sierra Leone which resulted in a lower mine production and the depletion of the stockpile, which had a negative impact on the amount of ore which was fed through the processing plant. The stockpile has been replenished and we think this event was a one-time event caused by severe rain and teething pains of a large iron ore operation which is still ramping up. As the guidance for next year at 5.4M wmt remains unchanged, we see no reason for the sell-off in London Mining and we expect the company to show excellent results next year. If the company is able to indeed ship 5.4M wmt of iron ore next year, we are anticipating an operational cash flow of in excess of $200M if the iron ore price remains stable at the current level.
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Disclosure: The author holds a long position in London Mining. Please see our disclaimer for current positions.
