Lonmin reports lower output as protesters demand compensation

* Share (LSE: SHRE.L - news) price falls sharply

* Analysts doubt Lonmin (LSE: LMI.L - news) 's ability to deliver on sales guidance

* Protest at London AGM demands compensation

By Zandi Shabalala

LONDON, Jan 26 (Reuters) - Lonmin reported weaker than expected output on Thursday, causing analysts to raise doubts over 2017 production targets, and faced demands for compensation following the shooting of 34 miners at Marikana in South Africa's platinum belt.

The company reiterated its sales guidance for 2017, but said larger shafts, known as generation 2, had disappointed and production from them was 5.2 percent lower in the final three months of last year than in the previous year.

The production shortfall added to steep losses for Lonmin's volatile share price. It was down more than 16 percent by 1230 GMT. The wider sector was roughly flat.

Platinum prices, which rose just one percent last year, have failed to join a rally in other commodities and Lonmin has lagged the wider recovery in the mining sector that started last year.

Lonmin said it was maintaining its focus on generation 2 shafts, while trying to cut its capital spending.

"We remain committed to delivering sustained productivity improvements at our operations to ensure the long-term viability of the business," Lonmin said in a statement.

Its London AGM attracted a protest demanding the company be held responsible for the incident dubbed the "Marikana Massacre" when in August 2012 South African police shot 34 striking mine workers.

A nearly three-year long commission of inquiry in 2015 found Lonmin, police and unions were responsible for the killings.

The protesters on Thursday added their voice to calls from civil society groups for compensation for the families of the dead miners, a public apology and a monument.

"The corporation has a new chief executive who after the massacre promised would be a new broom, sweeping clean," Andy Higginbottom from the Marikana Miners Solidarity Group said.

"All we have seen so far is the new broom sweeping things under the carpet."

Analysts at BMO Capital Markets in a note said it remained cautious on Lonmin's "ability to deliver".

It did not assign a target price to Lonmin (Berlin: 30318982.BE - news) "due to its highly volatile share price in the current commodity price and operating environment". (Additional reporting by Barbara Lewis, editing by David Evans)