Lonmin has its hands full
CE Ben Magara treads carefully around the possibility of a rights issue and points to positive trends and turnaround efforts
Lonmin’s board is so completely focused on finalising talks to acquire fresh money as well as selling excess processing capacity to third parties and finding buyers for two assets that it has not been able to apply its mind to its annual results.
While CE Ben Magara carefully phrases his answer about whether a fourth rights issue is on the cards seeing that the share price has fallen more than a third since the announcement on Friday of delayed results and uncertainty in the market about what this entails, it is unlikely shareholders would back such a proposal, forcing the company to seek alternatives.
“We are doing all we can to have a self-help business that is cash-generative in these low prices,” he said.
The options open to Lonmin, which the board is already working on and advancing as quickly as it can, are selling assets, selling spare capacity at its concentrators and refineries for cash for use by third parties, and raising either project or developmental funding for its two key projects — the MK2 extension at its Rowland mine and completing its partially built K4 mine, the potential jewel in Lonmin’s asset base.
Closing Rowland with its 6,000 employees would probably cost about R1bn. The alternative is to spend R1.2bn over three years on MK2 and save those jobs, making for an easier discussion with funders.
“We are involved in encouraging discussions on all the three key value drivers of our operational review, but we are not at a phase where I can bed them down and put them in my financial statements. Our lenders have given us time until March so we have this opportunity to clean up all this and have real and significant outcomes,” Magara said, referring to a temporary waiver of measuring six-monthly debt covenants.
“We announced this review in August.... We are very encouraged by the proposals we’ve received and are discussing.”
Analysts pointed out that the deep reservations around the delayed results and the closing in on the tangible net worth of the company to $1.1bn, a level below which it may not fall as stipulated in debt covenants, had overshadowed the largely positive news about the operational improvements during the financial year to end-September.
The inclusion of the whole of the Pandora mine after buying out partners Anglo American Platinum and Northam would give a $100m uplift to the tangible net worth of Lonmin, while every 10c weakening of the rand against the dollar provided $50m more, Magara said.
Lonmin has under its listing obligations until the end of January to deliver its full-year results to the market, giving it three months to finalise all or part of the transactions to recapitalise itself.
“We’ve been working very hard to make sure this
operational turnaround sticks,” Magara said.