Lonmin bleeds as troubles deepen

2012-08-20 10:26

London - Shares in miner Lonmin [JSE:LON] slid for a sixth day on Monday, as investors fretted over the prospect of a cash call to shore up its balance sheet and the potential dismissal of 3 000 striking workers after a week of violence in which 44 people were killed.

South African-focused Lonmin, the world’s third-largest platinum miner, has given workers at its Marikana mine an ultimatum to return to work on Monday or face being fired, a twist that could heighten a tense situation on the ground and make it even harder for production to resume.

Already battered by rising costs and feeble prices squeezing the platinum industry, union clashes have now pushed Lonmin shares to the lowest levels since 2008.

At 07:40 GMT, its shares were down 4.7% in London at 610.3 pence, underperforming a 0.3% drop in the UK mining sector, while the Johannesburg shares were down 3.8%.

Lonmin has one of the most pressured balance sheets in the sector and analysts have warned for days that the latest stoppage, which means the miner will miss its 2012 output target, would force it to overhaul its debt and potentially raise cash on the equity market.   

The Sunday Times newspaper said the miner’s expected rights issue could be as large as $1bn, roughly half its current market capitalisation. Sources familiar with the matter told Reuters it was too soon to put a figure on a cash call, as production had yet to resume at the mine.

Analysts at Liberum in London said a $1bn cash call would be the “belt and braces” recapitalisation needed, given industry oversupply and market conditions that have made large chunks of production loss-making.

“A $1bn rights issue, as compared to its current $2bn market cap, will be a difficult proposition, but strategically, could provide them with a longer-term benefit,” Nomura analysts said in a Monday note.

“However, with such an uncertain future we continue to see the share price as too high and re-iterate our ’reduce’ recommendation.”

Deutsche Bank cut its recommendation on the stock to “sell” from “hold.”

Lonmin has also yet to receive a firm commitment of support in the event of a rights issue from its largest shareholder, miner Xstrata, the sources said.

Lonmin has issued an ultimatum to the illegally striking workers to return to work on Monday or face possible dismissal.

The ultimatum applied only to illegally striking rock drill operators and assistant rock drill operators who began an unprotected action on August 10, the company said in a statement on Sunday. 

“We still are very optimistic that workers will show up,” said Barnard Mokwena, executive vice-president of human capital and external affairs.

“Only then can we sit down and review the situation and determine the next action,” he told SAfm.

Lonmin CFO Simon Scott said, “The safety and security of our employees is paramount and nobody will be asked to report for duty if the police consider them in danger of reprisals.”

Lonmin accounts for 12% of global platinum output. It is already struggling with low prices and weak demand. The company has slashed spending plans and may miss its annual production target of 750,000 ounces.

The possibility of tightening supply has lifted the price of platinum, giving a much-needed boost to Lonmin rivals Impala Platinum Holdings [JSE:IMP], up 1%, and Anglo Platinum [JSE:AMS], up 0.9%.

A total of 259 Marikana protesters were expected to appear in the Garankuwa Magistrate’s Court on Monday.

“They will all appear in the Garankuwa Magistrate’s Court on various charges which include murder, attempted murder, armed robbery, public violence and more,” Captain Dennis Adrio said.

The protesters were arrested on Thursday following the violent confrontation between police and striking workers of Lonmin’s platinum mine in Marikana, North West.

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  • vmeiring1 - 2012-08-20 11:08

    And all this is due to the ANC. Rising costs ie, toll gates, taxes, food, electricity, etc. Start looking at the effects that is caused by the ANC's corruption / fraud. The people cannot pay for their lavish livestyles anymore

  • profLebza - 2012-08-21 11:38

    Lonmin makes billions in profits only and yet the people who's lives get in danger everyday get paid 3-4 seriously? This could have been avoided.......Crooks

  • glen.e.huysamer - 2012-08-21 13:34

    So in layman's terms what is being reported here is that the Lonmin Massacre in the short term is regarded as a crises (critical loss) but will change in the longer term to a very profitable venture while, investors cash in now on the spike in platinum prices???? Ensuring that when work resumes, any shortfall over this period will be turned into profit. Sell now to buy later. Very flipping reassuring that safety is paramount at LONMIN after what can only be regarded as the worst labor relations management disaster of the decade, no wait......this century.

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