Johannesburg - Lonmin chief executive Ben Magara faced a tough road ahead in turning around the fortunes of the world’s third biggest platinum producer and failure to do so could see him lose his job, analysts said yesterday.
Magara faces a big test tomorrow as Lonmin shareholders are scheduled to vote on whether or not they will follow their rights issue and support the $407 million (R5.85 billion) capital raise aimed at beefing up the company’s financial position.
He was appointed from July 1, 2013, almost a year after the Marikana massacre that claimed more than 40 lives and was described as the single most lethal use of force by the South African police.
Adrian Williams, an analyst at Avior Capital Markets, said yesterday that Magara’s job could be on the line in the year ahead. “If he cannot get things right over the next year or two then it would be difficult to argue that he retains his job,” Williams said.
Magara had joined Lonmin at an appalling time in the company’s history, but shareholders were anxious for returns, Williams noted. Since he joined the company, Lonmin’s share price has fallen by 94 percent.
“He has taken over after bad decisions around spending on mechanisation were made followed by strikes and falling commodity prices. He was handed a difficult company to run,” Williams admitted.
Peter Major, a mining analyst at Cadiz Corporate Solutions, said Lonmin was a hugely difficult company to operate for any executive.
“Between the government, unions and Eskom – how much can one do? It is not Magara that is the problem. Even Neal Froneman, the chief executive at Sibanye Gold, said he would not even try and take over or operate Lonmin.”
Company spokeswoman, Sue Vey, said Magara was the right man to lead the firm despite the challenges. “I think he has been a terrific leader. He has the right skills set that complement the company. I believe that he is the right man to lead the ship,” Vey said.
Lonmin’s problems were laid bare when it posted a $207m loss before impairment charges of $2bn in the year to September, driven mainly by the sliding platinum prices. It announced a business plan aimed at cutting high cost production that would see 6 000 job cuts by next October.
“Lonmin’s target for a more streamlined business by 2019 is a good one, but getting there will be difficult,” Williams said.
The company was putting a lot of weight on the rights issue to buy time to survive.
The Public Investment Corporation (PIC), which holds 7 percent in Lonmin, said it would to take up as much as 25 percent if shareholders did not follow their rights through the rights issue. “I think it’s clear that the PIC is trying to support not only the company, but the greater Marikana community, and arguably the country as there are around 35 000 jobs at stake if the company goes under,” he said.
Major agreed, saying that the PIC could bail out Lonmin in an effort to save jobs as there was way more than just the 35 000 positions at the Lonmin mines at stake and including the industries supporting Lonmin the number of jobs at risk was probably more than 70 000.
“Not supporting Lonmin would put the company at risk and it could potentially be harmful to the industry and the communities where Lonmin operates as well as the economy at large,” the PIC said last week.
Timeline
July 2013: Ben Magara is appointed as chief executive at Lonmin following previous boss Ian Farmer’s illness and departure.
August 2013: Lonmin declares the Association of Mineworkers and Construction Union (Amcu) as majority union after itousted the National Unionof Mineworkers.
January 2014: Around 70 000 members of Amcu embark on a strike for higher wages at Lonmin, Anglo American Platinum and Impala Platinum.
June 2014: The wage strike ends at Lonmin after five months. The impact of the strike is devastating for the companies concerned as well as the workers and nearby communities.
December 2014: Lonmin announces it has completed the steps necessary to meet its mining charter obligations, including having a 26 percent ownership by previously disadvantaged investors.
November 2015: Lonmin announces a $407 million (R5.85 billion) equity raiseat a 94 percent discountto its share price.
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