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Joahnnesburg - Lonmin’s options to refinance its debt next year are getting tougher as the plunge in shares of the world’s third-biggest platinum producer deepens.
The stock has dropped 66% since July 1, leaving it a market value of $348m as it has debt facilities of $563m to renegotiate next year. Lonmin will struggle to obtain similar terms from banks or sell shares, which would wipe out much value for existing shareholders, according to Momentum Asset Management and Liberum Capital.
“There comes a point in time when the share price is just so low that the dilution from the rights issue destroys the company and the valuation,” said Simon Hudson-Peacock, a fund manager at Momentum. “This kind of share price will lead them to look at other options.”
Lonmin may consider concluding cooperation agreements with fellow producers or a sale of assets as a way to raise finance, Hudson-Peacock said. It’s reviewing its capital structure while it operates at a loss amid a plunge in platinum prices to a six- year low. It is planning to cut as many as 6 000 jobs as it closes shafts that contribute 100 000 platinum ounces a year.
Lonmin rose 0.7% to 38 pence by 8:02 in London, after falling to a record-low 37.71 pence on Friday. It’s this year’s worst performer on the broadest stock gauge in Johannesburg, where it has a secondary listing, declining 76%.
New terms
Sue Vey, a spokesperson for the company, declined by e-mail to comment and referred Bloomberg News to Lonmin’s July 24 statement in which the company said it plans to give an update on plans in November.
Should Lonmin succeed in renegotiating new debt terms, these will probably be more onerous and restrictive than the conditions on its current facilities, Ben Davis, an analyst at Liberum Capital in London, said by phone on Thursday.
The platinum producer should find alternatives to a share sale as a way of refinancing debt amid a rout in metal prices, South Africa’s Public Investment Corporation, which manages state pensions, said last month. The PIC is Lonmin’s second-largest shareholder with 9.97%, according to data compiled by Bloomberg.
“I hope they’ve got a plan B, it is difficult at this time to know what that can be,” Edward Sterck, an analyst at BMO Capital Markets, said by phone on August 6. “Management have actually done a very good job of trying to turn the company around in what is a difficult and at times impossible situation, but sometimes the markets just run away from you.”
