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Johannesburg - Lonmin [JSE:LON], the world’s third-largest platinum miner, said it may shut down should shareholders reject a $770m refinancing, potentially becoming the biggest casualty of the commodity slump so far.
The company wants to raise $400m in a share sale and $370m in loan facilities from banks as it seeks to refinance debt.
Its shares fell 2.9% to 24.75 pence by midday in London, extending a decline this year to 86%. Lonmin, which has more than 35 000 employees and contractors, has been operating at a loss as prices of platinum, used to clean the emissions of gasoline-fueled vehicles and for jewelry, have plunged 20% this year and reached a six-year low last month.
Shareholders will vote on whether to proceed with the rights issues and debt facilities at a meeting on November 19, Lonmin said in a letter posted on its website on Tuesday. If they reject the plans, “the group may have to cease trading and shareholders could lose the entire value of their investment”, Lonmin said.
The share sale will be at a “significant discount” to the price of Lonmin’s stock prior to the day that it enters an underwriting deal, the company said.
READ: Lonmin says 6 000 jobs at risk in proposed restructuring
The plan to refinance its balance sheet comes after Lonmin embarked on cutting jobs, closing shafts and reducing expenses to stem cash losses. The terms of the share sale will be announced on November 9, the company said when it first reported on the plan last month.
The Public Investment Corporation, which has about a 7% stake, will support the sale and may underwrite a “material portion” beyond its entitlement, Lonmin said.
Raising the entire $400m “is going to be tricky”, Ben Davis, a mining analyst at Liberum Capital in London, said by phone. “It certainly was a good win to get the PIC on board but it wasn’t explicit enough in how much it would underwrite apart from its own portion.”
Lonmin’s competitors such as Anglo American Platinum [JSE:AMS], the largest producer, and Impala Platinum Holdings [JSE:IMP] have stronger balance sheets and offer investors better prospects for growth, Hurbey Geldenhuys, a mining analyst at Vunani Securities in Johannesburg, said by phone.
Survival ‘unlikely’
“The proposed business plan, which includes the plan to shut high-cost shafts, is unlikely to result in the group surviving the current low platinum-group-metal price environment,” Geldenhuys said in an emailed note to clients.
The Bapo traditional community in South Africa, which acquired a 2.24% stake in Lonmin last year as part of a black economic empowerment deal, cannot pay for new shares, the producer said. Shareholders will be asked to approve the granting of new shares to the group to maintain the proportion of its holding, Lonmin said.
READ: Lonmin faces BEE dilemma
Regulations in South Africa require that mines should be owned at least 26% by black individuals or companies as part of a policy to redress economic imbalances created under whites-only apartheid rule.
