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Cape Town - Lonmin CEO Ben Magara says the Sibanye-Stillwater takeover of the platinum miner was the best offer to ensure its long-term sustainability.
He was being interviewed by Charles Gibson, director of mining at Edison Investment Research, at the 2018 African Mining Indaba in Cape Town on Tuesday.
Last year Lonmin announced the acquisition by Sibanye-Stillwater, which was unanimously agreed upon by the board. The acquisition, estimated at £285m (R5.17bn), is subject to a vote by Lonmin shareholders.
In its financial results report for the year ended September 30 2017, which was released in January 2018, Magara said the acquisition was in the best interests of its share and stakeholders. Magara repeated this during the interview on Tuesday.
* The interview was edited to be more concise and to focus on the Sibanye-Stillwater deal.
Gibson
Where did it all go wrong for Lonmin?
Magara
I’ve been in the platinum industry for almost 10 years now. When I look at our assets, we have an enviable mine-to-market business. Great assets, great growth projects, a resilient work force that after Marikana 2012 turned the corner and did exceptionally well.
Where did it all go wrong? We were the last one to get into the western limb (of the Bushveld Igneous Complex (BIC). According to Lonmin’s website the BIC is where 80% of the world’s PGMs are found. The western limb is where the more established long-life PGM operations in Gauteng, Limpopo and North West are. Operations in the eastern limb, Mpumalanaga and Limpopo, are newer and more shallow.
There is no doubt where we sit today, consolidation is essential to this industry.
Change is constant, business has to mutate and from where we were sitting the best offer for the long term for shareholders and stakeholders and to protect the majority of employees, this offer from Sibanye came out tops.
Gibson
What about the Xstrata offer (dating back to 2008)?
Magara
It is easy in hindsight to reflect that at that point it looked like China would pump forever. Everyone believed the world [boom] was going to continue. When everything is going up, everyone believes it will never come down. When everything is coming down, everyone believes it will never go up again – it’s a cycle. Those investors who took the chance made their money.
This (Sibanye-Stillwater) is a much stronger platform, a diversified precious metals business to withstand the challenging environment going forward.
Gibson
Is it a merger or a takeover?
Magara
Lonmin went through an operational review we announced in August. It was intended to dispose non-core assets like Akanani.
The Sibanye offer superseded that operational review. Lonmin shareholders would become 12% of the merged company shareholder structure in the proposal we have. For all intents and purposes it is a takeover from Lonmin. We will delist from the London Stock Exchange, if the shareholders vote “ye”. As a board we unanimously support it.
Gibson
Will we lose the Lonmin name forever?
Magara
A name is a name. I think there is lots of pain, sweet and sour feelings about a name. The reality is the operations, the business will continue to operate in a different form, a form that has longevity and sustainability, the long-term benefits of this will still remain. That for me is an exciting part of this.
Gibson
Why should we buy Lonmin shares?
Magara
I have shares in Lonmin. I would buy it.
Let me start off by highlighting that the platinum industry has gone through a challenging period and the cycle we are going through is the longest we have seen. The investment opportunity when prices turn is fantastic, but you better be aligned when that happens.
That is the challenge Lonmin has gone through and tough decisions were made; reducing 8 000 people to save the majority of employees. We know if the price turns there will be great benefits out there.
The reality is Lonmin is hamstrung by failure. Some failures such as the mechanisation project which failed, we spent $1bn on it and another billion to revert back to conventional mining. We bought Akanani for another billion. One billion after another is a bit of money.
When you look at it today, Lonmin has been hamstrung by the capital structure and by the lack of liquidity. We have not been able to develop our wonderful projects which would be competitive in the industry today. There isn’t enough capex to spend.
It means that old shafts are being shut down and that workforce needs to be retrenched, it takes money. So (Sibanye-Stillwater) is the best offer one can get in a merged precious metal diversified business.
We need to make sure we take the company beyond survival so it can benefit when the market turns.
Gibson
Does the market and investors understand the investment case at Lonmin?
Magara
Let me take you back to the rights issue of November 2015. We discounted the rights issue by 96%. We could not do more than that. If we had not done that would not be selling Lonmin today, we would have packed up then.
We took tough decisions and we have continued to do. At the rights issue the Public Investment Corporation (PIC) came on board and the equity of 6% ended up at 30%.
If we did not have the PIC, the rights issue would not have gone ahead. But with the PIC alone, the rights issue was not possible.
Gibson
Who forced the discount?
Magara
Looking to advisers, it was the optimal way to do it. For me it was the biggest thing that succeeded. Now Lonmin has managed since 2015 to be a net cash positive in this low-price environment.
Gibson
Did you sell Lonmin for too low?
Magara
If you ask me today, it is the best on the table. If you ask me tomorrow, I don’t know where the rand will be and I don’t know where PGM price will be.
Magara concluded the interview saying that his priority in the near-term is to make sure the proposed transaction goes through, if shareholders vote yes, and to maintain the strategy of remaining net cash positive.
*This interview was edited to be more concise and to focus on the Sibanye-Stillwater deal.
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