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Sibanye-Stillwater buyout critical for Lonmin shareholders

Jan 22 2018 20:12
Lameez Omarjee

Cape Town – Lonmin’s [JSE:LON] financial woes grew in 2017, with its operating loss up more than 200%.

According to the financial results for the year ended September 30 2017, the operating loss recorded was $1.08bn (R13bn) higher than the previous year’s loss of $322m (R3.89bn) and includes an impairment of $1.053bn (R12.70bn). The impairment was driven by a change in the business plan, the report explained.

Earnings before interest, taxation and amortisation was $40m (R483m), down from $115m (R1.39bn) reported in 2016. Revenue was $1.166bn (R14.07bn), higher than the $1.118bn (R13.49bn) reported previously, driven by higher platinum group metals prices. 

The miner is focusing on addressing its liquidity challenges, according to a statement by CEO Ben Magara.

The group is relying on an all-share acquisition by Sibanye-Stillwater to deliver value to its shareholders. The acquisition was announced in December 2017. Sibanye offered to buy Lonmin for £285m (R5.17bn), Fin24 previously reported.

“I support the unanimous recommendation given by our board to support the all-share offer made by Sibanye-Stillwater announced on December 14 2017,” said Magara. “I believe this offer is in the best interest of Lonmin, our shareholders and stakeholders.”

Magara explained that Lonmin was “hamstrung” by its capital structure and liquidity concerns. “The combination with Sibanye-Stillwater will provide a stronger platform for Lonmin's shareholders and other stakeholders to benefit from the long-term upside potential of an enlarged and geographically diversified precious metals group,” he said.

The transaction is expected to be completed by the second half of 2018. It requires competition and regulatory approvals, as well as approval from the UK court for the scheme arrangement and approval from both Lonmin and Sibanye-Stillwater shareholders.

Debt facilities available to Lonmin are subject to financial covenants, and covenant waivers have been agreed to upon the completion of the Sibanye-Stillwater deal. This waiver runs from September 30 2017 to February 28 2019.

“A condition of the waiver was that $66m (R796m) of the revolving credit facilities was cancelled and that the group leaves undrawn all remaining revolving credit facilities during the waiver period,” the report read.

Sibanye-Stillwater shareholders were expected to require Lonmin to have a net cash position after repaying the $150m (R1.8bn) term loan, according to the report.

“We are not in full control of the approvals and there is a risk that the group net cash position could be materially impacted by a substantial economic downturn or operational factors. This introduces material uncertainties that require consideration in the assessment of going concern,” Lonmin said.

On or before the completion of the transaction the R1.8bn loan is expected to be repaid and debt facilities are to be cancelled. “In the event that the deal does not complete, the waiver will cease to apply” and the financial covenants will be reinstated, said Lonmin.

“If they are then breached the $150m (R1.8bn) loan may be required to be repaid. The covenant waiver allows for a four-week grace period whilst other options are pursued provided that the company is engaging with the lenders,” the report read. 

The group prioritised maintaining a cash-neutral position throughout the year while dealing with a low platinum price environment, explained Magara. Lonmin’s net cash position was $103m (R1.24bn), slightly down from $173m (R2.09bn) reported in 2016.

“We had a very challenging first four months during which time we had a cash outflow of $124m (R1.5bn) in the first quarter,” said Magara.

“The challenging ‘lower for much longer’ platinum pricing environment is creating long-term damage to an already ailing industry which has sacrificed at least 26 000 jobs in the last five years and continues to under-invest in its future,” said Magara.

Lonmin spent most of the year improving its operations. This includes introducing a flatter management structure and reducing its capital expenditure. “The Lonmin team is now focused on maintaining momentum across the business, and continuing to drive up safe production, whilst preserving cash,” he said. 

The share opened at R14.17 on Monday morning. By 15:25 it was trading at R14.30.

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