Lonmin warns of ‘significant’ covenant breach
Lonmin, the embattled platinum miner, warned that its debt covenant, which has been temporarily waivered, will be "significantly" breached because of an impairment of its assets, the size of which will be released in its long-awaited full-year results on January 22.
Lonmin, one of the world’s leading sources of platinum group metals (PGMs), has skated dangerously close to breaching the tangible net-worth valuation of $1.1bn stipulated in its debt covenants, but the timely all-share takeover bid by Sibanye-Stillwater has staved off major financial problems.
"The slow-motion train smash of a once great PGM miner has been ongoing for some time now, but the end became clearer since the Public Investment Corporation — a 29% shareholder in Lonmin — approved the Stillwater purchase by Sibanye," Nedbank analysts Leon Esterhuizen and Arnold van Graan said recently, noting the $2.2bn cash purchase of the American palladium and platinum miner by Sibanye.
Lonmin’s lenders have conditionally agreed to a waiver of compliance with the covenant, which if triggered could force a call on the company to repay debt, something it is barely in any condition to do, with many in the market speculating it could be facing a fourth rights issue.
However, in drawing up its full-year accounts, which were due in November 2017, but were indefinitely delayed, Lonmin said on Thursday the unspecified noncash impairment of its assets would reduce its tangible net worth "significantly below" the $1.1bn level.
"The … waiver will ensure that this shortfall is not regarded as an event of default during the waiver period," Lonmin said.
Lonmin’s lenders gave in-principle agreement to the company for the waiver "subject to credit approval and execution of the necessary legal agreements" until the Sibanye offer closed or lapsed. Analysts said the bid from Sibanye prevented Lonmin lurching into financial difficulties at a time it could least afford.
Lonmin’s CEO Ben Magara had flagged the sale of assets, including spare capacity in its processing division and seeking partners on key projects. The timing of the announcement on the restructuring of the company was seen as a ploy to force Sibanye’s hand into making a bid for the company years ahead of its planned takeover of Lonmin.
Sibanye will now have to justify Lonmin’s reduction of 12,600 jobs from old shafts to the Competition Commission because the timing falls within the takeover plans, something Sibanye CEO Neal Froneman was hoping to avoid, letting Lonmin undertake the job cuts itself before buying the miner with a workforce of 20,000.
Lonmin has run into difficulties a number of times in recent years and while some in the market had speculated it could conduct a fourth rights issue to prop up its balance sheet, others said there was no way shareholders would support such an action after the dismal support and huge dilution the 2015 rights issue for $400m entailed.
Gold miner Sibanye has grown into one of the world’s largest platinum producers since listing in 2013, snapping up the whole of Aquarius Platinum, the Rustenburg mines of Anglo American Platinum and Stillwater Mining. The bid for Lonmin, the world’s third-largest platinum miner, will thrust Sibanye into third place as a global platinum group metal supplier.
The Lonmin assets give Sibanye the processing facilities it wanted, giving it rare control of its destiny, enabling it to sell refined platinum group metals from SA instead of processing metal through offtake and toll treatment agreements with Anglo American Platinum.