Action is brewing so make mine Lonmin

THEY do not make them like the late Roland 'Tiny' Rowland any more. From a small trading company in Zimbabwe he built first a pan-African and then a worldwide group called Lonrho. He was on first-name terms with all of the top African leaders.

Ousted at one stage by his own board, chaired by Sir Basil Smallpiece, he was reinstated by loyal small shareholders. He narrowly lost a fierce battle with Mohamed Al Fayed to buy Harrods.

Today the sugar plantations and car franchises have long gone. The main survivor of Tiny's empire is Lonmin, the mining group which has narrowed its focus to South African platinum.

As metal prices soared, so did Lonmin shares, currently at 1186p for a market value of £1.7bn. Now change is afoot at the group. Last month, it recruited Brad Mills, from BHP Billiton, as chief executive. But it is chairman Sir John Craven who may be the key figure.

A veteran dealmaker, Craven has been seeking big shareholders' views on Lonmin's future. For all the growth in its value, it remains small fry alongside Anglo American (£19bn) and Rio Tinto (£14bn).

Some think the arrival of Mills, who does not start until May Day, will send the group on the acquisition trail. But it is more likely to become someone else's lunch.

It could make a good partner for Xstrata, the London-quoted miner which is nearly three times its size. Craven knows that it makes more sense, with metal prices so high, to sell rather than buy.

There is also talk of returning cash to shareholders. Either way, it looks as if something has to happen.

Mining shares have had a terrific run and Lonmin is not cheap on trading grounds, nor has it been the most dynamic mining group in the market.

The strength of South Africa's rand is pushing up production costs, the weakness of the US dollar is squeezing its revenues. Brokers expect earnings per share of 70p in the year to September, putting the shares at nearly 17 times.

Lonmin treats its directors well. Chairman Craven collected £205,000 last year, chief executive Edward Haslam £690,000. The South African staff get about £6,000 a year. Empowerment legislation means some assets currently have to be transferred to black businessmen.

The real attraction of the group is its platinum reserves. It expects to produce 900,000 ounces this year. The price is currently $910 an ounce. Profit margins are hefty.

Charles Kernot, at Seymour Pierce, thinks a bidder would pay up to 1530p. This is a bid punt, with downside if the platinum price falls. With the world economy set to grow by up to 5% this year, that does not seem likely. At 1186p, Lonmin shares are not compellngly cheap, but if the price drifts below £11, I would buy.

Just capital as Grafton builds up DIY empire

WHEN is a dividend not a dividend? When it's a return of capital.

Irish building supplies and DIY stores owner Grafton Group pays no divi. Instead it redeems capital and sends the cash to shareholders. That counts as a capital repayment and is free of income tax

Grafton owns Jacksons building centres, the Plumbline chain in Scotland and Woodies DIY stores in Ireland.

Like Travis Perkins, it has expanded by buying up a string of smaller building suppliers. With 8% of the UK market, it has plenty of room to expand.

The shares, quoted in Dublin and London, sell at 411p (e5.95), valuing the group at £840m.

The yield, though tax free, is barely 2%. A better reason for buying is Grafton's growth record.

Pre-tax profits have trebled in five years, climbing 29% last year with earnings up 22%.

The shares sell at 11.5 times prospective earnings - cheap for a group with this track record.