Johannesburg - Embattled Lonmin received a new lease on life after announcing yesterday that major banks had underwritten its $407 million (about R5.7 billion) rights offer aimed at boosting its balance sheet.
The rights offer will see the world’s biggest platinum producer sell around 27 billion shares at a 94 percent discount.
The support by banks was likely to discard any uncertainty that the world’s third-biggest platinum producer would not be able to raise the cash, analysts said.
The Public Investment Corporation (PIC), which holds a 7 percent stake in Lonmin, was fully behind the rights issue and had sub-underwritten a material portion of the rights issue in excess of its entitlement, the company said.
Lonmin’s shares to gained as much as 13.64 percent in Johannesburg on the news. However, the stock later fell as much as 16.84 percent to R3.11, the lowest since September 29.
Lonmin’s shares closed the day down 12.83 percent at R3.26, which valued the company at about R1.9bn.
Shareholders are expected to vote on the rights offer next Thursday.
Debt load
Lonmin is battling to stay afloat given its debt load and a slump in the platinum price. It has cut jobs, closed unprofitable operations and is still burning through cash.
The company said last week that it might “cease trading” if its refinancing plan failed.
Sibonginkosi Nyanga, an analyst at Momentum SP Reid, said the major concern among shareholders was that the discount of the shares was steep.
“It’s cruel for the few guys who’ve been holding this share for a while – if you look at the dilution, it will be massive,” Nyanga said.
“However, the advantage is that the rights offer has been underwritten by banks. One way or another, Lonmin will get the money it wants,” Nyanga said.
Goldman Sachs analysts said in a note: “Although a short-term positive for the stock, we believe that the longer-term issues remain the same.
“Lonmin, on our estimates, will continue to struggle to generate cash, and as such we believe that investor returns will remain depressed.”
Lonmin “will get its money, but shareholders who don’t follow their rights will be virtually wiped out”, Hurbey Geldenhuys, an analyst at Vunani Securities, said.
Lonmin needs to raise the cash to help implement its business plan and also cushion the company against the impact of the rapid decline of platinum group metals prices.
‘Under water’
“Around 50 percent of the platinum industry was under water; it is not making money,” Lonmin chief executive Ben Magara, told journalists during a teleconference yesterday.
At the same time, Lonmin’s share has fallen by about 91 percent over the past year, owing to a plunge in the platinum price and fears that the company will not be able to meet its debt covenants, which expire next year.
“It is encouraging that our rights issue has been fully underwritten,” Magara said.
He added that it was in the best interests of shareholders to vote in favour of the company’s rights offer.
Lonmin wrote down the value of its assets by more than half to $1.6bn as it took an impairment charge of $1.8bn, the company said in a separate statement.
It reported an underlying loss before tax of $143 million for the year ended September 30 from a profit of $46m the previous year, it said.
Net debt was at $185m, up from $29m in 2014, it said.
Magara said the year to September was arguably the company’s toughest so far, given the adverse pricing environment and the imminent maturity of its debt facilities in the middle of 2016.
* Additional reporting by Bloomberg
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