Lonmin deep in the hole
The platinum miner is between a rock and a hard place as it tries to fend off bulging costs amid depressed commodity prices
Shareholders in platinum miner Lonmin have lost all but 4% of what they invested in the company five years ago. The stock market capitalisation has dropped to below the R4bn they sank in a rights issue in December 2015 — the third rights issue in 10 years. Yet the company’s struggle for survival is far from over.
In the past week Lonmin lost 27% in value as it delayed the publication of its audited annual financial accounts due to a breach of its debt covenants. CEO Ben Magara, who joined Lonmin in the wake of the massacre of 34 of its employees at Marikana in 2012, is racing against time to dispose of assets and slash costs to keep the entity a going concern.
Some of the funders have already agreed to waive their rights in the wake of Lonmin’s breach of its debt covenants until March. Chief among those is a requirement that the group’s tangible net worth be not less than US$1.1bn. For the year ended September, Lonmin was already on the verge of breaching this, due to an impairment of the carrying value of assets, it said.
The company is selling spare production capacity at its concentrators and refineries to third parties. Magara is also trying to cut overhead costs by at least R500m by September next year. He is adamant these will not include involuntary job losses.
"We are doing all we can to have a self-help business that is cash-generative in these [times of] low [platinum] prices," Magara told Business Day on Tuesday.
The platinum price has dipped and stayed below $1,000/oz since late 2016. That gave Lonmin an average price of R11,567/oz of platinum group metals (PGM). It cost Lonmin up to R11,800 to produce an ounce of PGM.
This leaves investors with little choice. They will most likely be called to bail out the company in a rights issue for the fourth time. In the past decade they have not been paid a dividend.
The company must publish its financial results for the year ended September at the latest by January. By then it will have completed its latest voluntary separation process with more than 1,000 workers, which commenced in September.
Lonmin has to fight on many fronts: it has to find the cash to keep going while handling the equally delicate matter of violence in its workforce. Bodies have been piling up as a result of what is thought to be union-related violence in its communities. Job cuts could only worsen the situation.