Commission draws a bead on Lonmin

Ellis Mnyandu and Londiwe Buthelezi

Lonmin will bear the brunt of the scrutiny of the judicial commission tasked yesterday by President Jacob Zuma to probe the killing of 44 people in the dispute that flared at its Marikana mine.

The dispute flared into a national crisis last Thursday when 34 protesters were killed and 70 wounded by police bullets in an operation to disperse about 3 000 illegal strikers.

Zuma, whose leadership has come under attack over the incident, said the commission would probe the conduct of Lonmin, which is registered in London but operates platinum mines in South Africa.

Lonmin, which has shed R2 billion of its market value as its stock cratered after the strike, will now become the poster child for bad labour relations in South Africa, if the terms of reference for the commission are any guide.

The terms of reference relating to Lonmin are wide ranging, but what is likely to pose a major challenge for it is the commission’s investigation into “whether by act or omission, the company directly or indirectly caused loss of life or damage to persons or property”.

Zuma said the commission would also examine Lonmin policies generally, including the procedure, practices and conduct relating to its employees and organised labour.

Lonmin’s management has come under fire from workers and their unions for not realising the gravity of the events that culminated in last week’s killings near its Marikana mine complex.

How the company responds to its critics is likely to determine how soon it can return to full production. Lonmin is the third-largest producer of platinum, a commodity whose fortunes have been dented recently by falling demand and rising production costs.

Lonmin has warned that it might violate terms of its bank loans after labour strife led to production shortfalls. Compounding the company’s problems is the fact that its chief executive, Ian Farmer, has been hospitalised with a “serious illness”, something that has created a leadership vacuum when the company needs to be making tough decisions.

Shareholders and creditors of Lonmin will have to help keep the company afloat until dust settles on the Marikana mine tragedy as it could take a while before any company put its money o acquiring Lonmin, mergers and acquisition experts said yesterday.

Until the dust has settled, production resumes and Lonmin and the entire industry find their feet again, even Xstrata, which once wanted to take over the company, will be unlikely to look at it.

Even the recent reports that suggested Xstrata’s stake in Lonmin might be sold if Glencore and Xstrata’s merger went ahead was not something Lonmin should pin its hopes on, said Peter Leon, the head of Africa Mining and Energy Projects at Webber Wentzel.

“That in itself is unclear owing to the current terms of the proposed deal,” said Leon.

Lonmin was such an attractive asset that Xstrata made a $10 billion (about R83bn) takeover bid for the company in August 2008. When Lonmin rejected the bid, Xstrata raised its stake in the company from 10.7 percent to 24.9 percent.

Xstrata has since retained this stake.

Yesterday, the company could not comment on whether it would reconsider the takeover, saying the matter was “pure speculation”.

As Lonmin faces a difficult financial position, it will either request leniency from its bankers on its loan covenants or seek substantial capital injection from its shareholders. It has been reported that Lonmin will lose about $52.5m in revenue over 14 days as production is halted at Marikana.

Carel Vosloo, the joint head of corporate finance at Rand Merchant Bank, said any corporate activity in the platinum group metals space was, at this point, complicated by the huge number of uncertainties – on the policy front, pricing, costs and industrial relations.

He said from that perspective, any suitors in the industry would need strong courage in their convictions

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But Leon gave the platinum industry some glimmer of hope. “One should remember that commodities markets are highly cyclical and what is unfashionable today may well be in vogue tomorrow,” he said.

He still pointed out that even before Marikana, the platinum industry was in an unhealthy state and that while the price situation had recently reversed, it had happened for the wrong reasons and was likely to be temporary.

Another analyst said that there was still a lot of value in the platinum sector and there would still be significant industrial use of the metal in future, such that he would not be surprised if more people invested in it. But as for Lonmin, he said there was no positive spin to its situation and the possibility that the firm’s depressed share price and subsequent undervaluing of assets could encourage anyone to bet their money on it was far fetched.

Even the possibility that Xstrata could revisit the thought of taking over Lonmin was tentative.

Shares in Lonmin added 5 percent to close at R83.80 on the JSE yesterday.