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At least 18 months, but three years at the most. That’s how much of a reprieve Lonmin has before its cash flow will dry up and it will have to find new money sources again.
The only thing that can prevent this is if the platinum price rises sharply, but by consensus it is predicted that the metal will only show signs of life by 2018 at the earliest.
The rand price of the platinum metals basket per ounce – the most accurate indication of a platinum mine’s income – has during the process of the rights issue decreased from R22 000 three weeks ago to R19 000 on Friday.
Government officials will be hit hardest because their pension fund, which is managed by the Public Investment Corporation (PIC), will be the biggest shareholder in Lonmin by far after the rights issue.
The PIC will own up to 32% of Lonmin, since it not only underwrote its own 7% but also an additional 25% of the rights issue.
Lonmin’s pool of shareholders will also shift from mostly long-term investors like pension funds to speculators like hedge funds. Together with the PIC’s 7%, Kagiso Investments also owned 7%, but Kagiso voted against the rights issue at the shareholders’ meeting in London on Thursday.
A spokesperson for Kagiso, Vera von Lieres, says the company is not going to say anything about the rights issue before the process is finalised on December 10 as the company wants to do transactions with Lonmin shares in the meantime. This shows clearly that Kagiso is going to sell its interest in Lonmin.
Two other big investors in the company, Investec and Old Mutual, owned between 5% and 6% of Lonmin, but have disinvested during the past month in the run-up to the rights issue.
After the approval of the rights issue, the share price dropped to 30c on Friday from R2 before the shareholders’ meeting on Thursday. At its peak in 2008, the share price was trading at R301.
In other words, if you invested R100 000 in Lonmin in 2008, you have about R100 left today.
Yes, a decrease of more than 55% in the platinum price from around $1 900 per ounce five years ago to $866 per ounce on Friday caused problems for all the platinum mines, but at Lonmin the trouble is much worse due to management decisions that can only be described as highly ill-advised.
The most important of these is the approximately R8 billion it has spent since 2004 on the mechanisation of its shafts. As many analysts predicted, it was an absolute failure.
Since 2011, another R1.2 billion has been spent on switching the mechanised shafts back to conventional mining methods.
Shareholders paid for this. The rights issue that was approved on Thursday is the third in six years.
On Thursday shareholders gave Lonmin permission to collect R5.642 billion in the next three weeks by issuing 27 billion new shares that have to sell at a rebate of 94% – otherwise the shareholders are dead in the water.
It will probably consume R1.823 billion of government officials’ pension money because the PIC, which already owns 7% of Lonmin, will not only follow its own rights, it will also have to buy 25% of the new shares because it had underwritten 25% of the offer.
Every platinum analyst has been asking this question for the past two weeks: Is the PIC’s exceptionally strong support of the rights issue an investment decision, or is the PIC – by order of government – buying votes for next year’s municipal elections by preventing Lonmin from cutting back on labour and, in so doing, preventing thousands of mineworkers in the politically sensitive Marikana area from losing their jobs?
