Lonmin clears all its debt ahead of Sibanye-Stillwater deal
A $200m deal with a Chinese company has taken the pressure off its balance sheet — but does not remove the need for the takeover
Lonmin, the world’s third-biggest platinum miner, put in place a $200m metal purchase deal with a Chinese company to ease the pressure on its balance sheet as it nears the completion of a takeover by Sibanye-Stillwater.
Lonmin, which has been operating under the threat of having to pay back $150m for breaching its loan covenant, will immediately repay its debt and cancel all its undrawn loan facilities with South African and international banks.
The $200m metal purchase agreement with Pangaea Investments Management, an associate company of Jiangxi Copper Company, will entail Lonmin and its new owner delivering platinum and palladium to the company over a three-year period.
Lonmin can deliver the full amount of metal to terminate the contract early after the first year, as long as Jiangxi Copper secures a 16% return on its investment.
“We are pleased to announce an improved funding arrangement as it immediately enhances Lonmin’s liquidity,” said Lonmin CEO Ben Magara, who recommitted to the all-share takeover bid by Sibanye, which must clear SA’s Competition Tribunal as well as approval votes from both companies.
“Regrettably, the new facilities do not address the fundamental business challenges facing Lonmin and do not offer an opportunity to avoid the announced retrenchments and shaft closures,” he said, referring to the cuts of up to 12,600 people at its old, depleted mines over the next few years.
"Accordingly, the board of Lonmin remains focused on completing the Sibanye-Stillwater all-share transaction, which we firmly believe provides a sustainable solution and is in the best interest of all our stakeholders,” he said.
The financing deal had Sibanye’s backing, said its CEO Neal Froneman.
Lonmin announced the financing deal at the same time it updated the market on its full-year production performance for the 12 months to end-September, when it noted its net cash position had grown to $114m from $103m a year earlier.
Magara has committed to keeping the company cash-neutral at worst, as opposed to the string of hefty losses the company has posted in recent years.
Full-year platinum sales of 681,580oz were higher than the targeted ranges of 650,000oz to 680,000oz Lonmin had set.
Looking at the full basket of platinum group metals (PGMs) Lonmin produces, sales were 1.3-million ounces, with the rand price for these metals, which include platinum, palladium, gold and rhodium, increasing by nearly 20% to R13,447/oz.
Costs increased by 4% to R12,271/oz for the basket of metals.
“These pleasing results demonstrate once again that despite these uncertain times, we can dig deep and use all levers within our control to maintain our net cash position,” said Magara.
Lonmin noted that it had a strong performance on the safety front during the year, notching up 15 fatality-free months.
The direct impact is that safety stoppages ordered by the Department of Minerals Resources reduced and tonnages lost to these temporary halts was 20,000 tonnes compared with the previous year’s 276,000 tonnes.
Community disruptions cost Lonmin 54,000 tonnes, down from the previous year’s 143,000 tonnes.
Lonmin will release its full-year financials for the year towards the end of November, after the Competition Tribunal considers the Sibanye takeover on November 12 to 14.