Lonmin wins six-month breather on covenants
Lenders agree to the purchase of Pandora and lift pressure on near-term balance sheet as miner starts hitting targets
Lonmin won a six-month breather on strict covenants as it strives to mitigate the weak platinum price and market conditions by finding additional ways to generate cash.
Lonmin’s shares shot up 17% on Friday’s news, closing at R15.15 and giving the company a R4.3bn capitalisation on the JSE. However, it remains the worst performer of the major platinum miners, having lost 35% of its value so far in 2017 and 55% over 12 months.
The company’s lenders have consented to the purchase of the Pandora mining joint venture stakes held by Anglo American Platinum (Amplats) and Northam Platinum to give Lonmin full control of the asset.
Probably more importantly in the short term, Lonmin’s bankers waived the company’s tangible net worth covenants due for measurement at the end of September.
As part of the agreement with its bankers, Lonmin said it would not draw down the remaining $200m of a revolving credit facility before the end of March 2018 and it agreed to cancel $21m in facilities available to the company.
The revolving credit facility will be available again after March if the banks are satisfied with the business plan stemming from the business review process Lonmin announced in early August to generate cash flows from excess capacity in its metal processing and refining plants as well as asset sales or joint ventures.
Lonmin wants to rent or sell 500,000oz a year of spare processing capacity and either sell or bring in partners to its partially developed K4 mine and its Limpopo and Akanani projects.
The waiver removed "near-term pressure from the balance sheet and should see Lonmin’s financial position improve, assuming that prices and FX [foreign exchange] stay flat and the company does not experience operational disruption", said RBC analyst Richard Hatch in a Friday note.
Yuen Low, a Shore Capital Stockbrokers analyst in London, said the waiver gave Lonmin "some handy breathing room".
Lonmin also forecast that its full-year platinum sales would top its guidance of 650,000oz-680,000oz and that it had hit its cost target of R11,300/oz to R11,800/oz of platinum group metals. Its capital expenditure was in its predicted R1.4bn-R1.5bn range. "The group’s liquidity is expected to be adequate for the waiver period," Lonmin said.
Lonmin agreed in 2016 to buy the 42.5% stake in Pandora held by Amplats for a minimum of R400m and a maximum of R1bn over six years. It also inked a deal for Amplats to use Lonmin’s Baobab smelter for three years at a rental cost of R46m a year, starting the process of monetising an underused asset.
Lonmin will pay Northam R45.6m for its 7.5% stake in Pandora as well as R6m-R8m additional expenditure made at the mine by Northam.
Pandora will give Lonmin additional mining ground next to the Saffy shaft, allowing it to defer R1.6bn in expenditure at the shaft over the next four years to go deeper to access fresh ore. It is far cheaper and quicker to mine laterally and will keep Saffy at full production.
Pandora supplied Lonmin 63,857oz in platinum group metals in 2016, of which 32,509oz was platinum.