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A deal signed in platinum

Jun 13 2019 09:55
David McKay

Corporate deaths are rarely spectacular. Rather, the lawyers move in and with a swish of the pen life moves on.

So it was with Lonmin this month: 20 years after its creation as a focused mining company the office chairs were stacked, and someone turned the lights off. 

It had taken more than a year to conclude its all-share merger with Sibanye-Stillwater – more than might really be necessary, but as ever with Lonmin, events rarely run smoothly.

CEO Ben Magara’s role in the Lonmin story began six years ago to the month, just under a year after the Marikana atrocity in which 34 protesting miners were shot dead by security forces. Ten miners had been killed in the week prior, largely a function of inter-union rivalry.

Commenting in an interview with finweek at Melrose Arch, in the same hotel room where he met Neal Froneman, Sibanye-Stillwater’s CEO, Magara laments the way the Marikana event became a story of political collusion.

Current President Cyril Ramaphosa, then non-executive director of Lonmin, asked for “concomitant action” against protest action by members of the Association of Mineworkers & Construction Union (Amcu) that he interpreted as “dastardly” and “criminal”. 

“From 9 to 16 August [2012], ten people died at the hands of the strikers,” says Magara. 

“That element seemed to get forgotten,” he says, referring to the justified global condemnation of Marikana following the police shootings. “Marikana then moved quickly. It moved to a political issue.”

The reality is that it was a consequence of union tension and, before that, the fact that employees and communities had been left behind. Hostel-style housing and then the well-intentioned but ultimately wayward policy of living-out allowances created the conditions for social upheaval.

The romantic notion is that after Marikana, Lonmin was cursed. Certainly, its name would always be connected with the events of August 2012, but that’s not the reason it closed its doors forever earlier in June. “For me, it’s got nothing to do with Marikana, it’s simply because the PGM [platinum group metal] price has not recovered and Lonmin is such a leveraged business,” says Magara.

Magara had previously been in the Anglo American fold, helping to run its coal division where he was CEO, and at Anglo American Platinum. Anglo always stood as a big brother behind its subsidiary companies, but Lonmin had no such insurance and was horribly exposed to the failing platinum price.

In geography and commodity Lonmin was, in Magara’s phrasing: “A one-trick pony”. The company had twice tapped shareholders for major funds and by 2012 patience was at an ebb should there be another. It was sink or swim.

For four years, Lonmin attempted to pull its levers in the hope that the platinum price would revive. In July 2013, as Magara walked through Lonmin’s doors for the first time, platinum was trading at around $1 360 per ounce. Two years later, just as Lonmin began to run out of operational options, platinum was around $1 000/oz. And as someone closed the office door for the last time this month, the platinum price was barely above $800/oz.

Sibanye-Stillwater had already kicked the tyres at Lonmin even before it bid for Stillwater Mining in December 2016 – but with the operational levers failing to win the stability Magara wanted at Lonmin, it was time to act.

The way he describes it, the company sought a partner for about half of its downstream processing capacity, a move that would shore up the balance sheet but also force Froneman’s hand. It was also important that if Lonmin was going to transact with a buy-out partner, it should be before the market got wind of the possible alternative of a rights issue, which would depress Lonmin’s value.

“Instead of saying we would wait for Sibanye until they were ready, we decided we would go straight to operational review, because once there is genuine interest from those who wanted to buy our downstream [processing/refining capacity], Sibanye would have to jump, and they did,” says Magara.

He describes the negotiating relationship with Froneman as a good one. Quite what Amcu president Joseph Mathunjwa would make of the transaction was another matter. 

Mathunjwa and Froneman are cut from the same cloth: both tend to think in absolute goals.

Magara says Mathunjwa’s reaction was to think the merger was “white monopoly capital”. He wanted to know if Magara would play a role in the merged company – he doesn’t – and if there were any other black business participating in the deal (there weren’t). “I could sense from the way Froneman and Mathunjwa were talking that they were not perhaps on the same page,” says Magara.

That relationship is still in the crucible.

A new era?

Although Lonmin takes its leave after 20 years of trade, its origins are, in fact, much older – and equally colourful.

Founded in 1909 as the London and Rhodesia Mining and Land Company, or Lonrho, the company was rarely out of the news. This was especially the case in the 1970s when – as a sanctions-buster throughout the period of Rhodesian Prime Minister Ian Smith’s Unilateral Declaration of Independence – it drew the criticism of then UK Prime Minister Edward Heath, who labelled Lonrho “the ugly face of capitalism”.

Empire-builders such as Tiny Rowland – who led the company for just over 20 years from 1962 – did nothing to dispel the notion. Lonrho was a high-flying corporate in search of conglomerate status. It, for example, fought for control of Harrods, the UK’s Knightsbridge department store; it also bought Ashanti Goldfields in Ghana; and when not capturing the headlines on the business pages, it was owning them following the takeover of the UK’s Observer newspaper.

It’s fitting, therefore, that what’s left of the company should be gobbled up by Sibanye-Stillwater’s Neal Froneman, whose deal hunger and craving for multi-jurisdictional, blue-chip status is not unlike the ambition of the late Rowland. At the current juncture, however, Lonmin is perhaps the last deal Froneman’s shareholders can tolerate; at least for a while. As for Lonmin, analysts think the merger represents a lifeline for its shareholders.

“We believe Lonmin is not viable on a standalone basis unless it is replicated and that any attempt to recapitalise it should have been properly planned and embarked on months ago, and not as a knee-jerk reaction to higher PGM prices,” said Nedbank analysts Leon Esterhuizen and Arnold van Graan in a report dated 4 June.

“We therefore see the deal as a good lifeline for Lonmin shareholders.”

For Sibanye-Stillwater, Lonmin brings with it some $71m in cash, which will help deleverage the Sibanye-Stillwater balance sheet following three years of intense deal activity. 

While production from Lonmin is unlikely to increase, especially as Sibanye-Stillwater focuses on capital conservatism, Lonmin will also provide the cash flow and security for Sibanye-Stillwater to tackle its gold division, recently emerging from a five-month strike and an announcement earlier in June that it was cutting 3 500 staff.

“Deleveraging the balance sheet seems to be a top priority for Sibanye’s management at this stage; we believe this comes on the back of pressure from concerned bankers and shareholders,” said the Nedbank analysts.

“The marginal nature of Lonmin’s assets also adds further PGM price leverage that will likely be well-received by those bullish on the PGM market,” they said. 

“These assets should, therefore, become a significant boon if PGM prices rise further.” 

This article originally appeared in the 20 June edition of finweek. Buy and download the magazine here or subscribe to our newsletter here.

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