Lonmin eyes $1bn rights issue

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Speculation in London newspapers yesterday about Lonmin raising $1 billion (R8.3bn) in a rights issue by next month following the violence at the company’s Marikana mine in North West comes as questions are raised about the future of the world’s third-largest platinum producer.

Protracted protests, which climaxed with the deaths of 34 miners in clashes with police last Thursday, provide an ideal opportunity for a possible buyout by its largest shareholder.

Lonmin continues to be pounded by threats to its debt profile, in addition to financial losses projected to be in the hundreds of millions of rand as the share price fell 13 percent last week to lows last seen fleetingly at the height of the global financial crisis in 2008.

After the violent protests Lonmin shares dropped 0.5 percent to R83.30 on Friday.

The Sunday Times in the UK, citing unnamed sources, reported that Xstrata, the owner of a 25 percent stake in Lonmin, had said that it was ready to cover its part of the deal, although spokespeople for the firms declined to comment on “market speculation”.

Xstrata refused to comment on the Lonmin developments after questions about its shareholding and potential buyout were put to it on Friday.

Cadiz Corporate Solutions analyst Peter Major said: “This would be the ideal time to embark on a buyout as Lonmin’s share price was trading way too low relative to the value of the company’s assets”.

Major said Xstrata bought its 24.6 percent stake in Lonmin in the latter half of 2008 in two different tranches for an average price of about $52 a share.

Platinum prices increased from $1 400 to $1 474 an ounce during the Lonmin crisis.

Lonmin’s problems stem from negligible social investment in communities near the mine and the squalid conditions in which miners live, which is said to have been a catalyst in the protests.

Albert Wocke, a professor of human resources and international business at the Gordon Institute of Business Science, said the violence in the platinum-rich area of Rustenburg was a testament to a lack of leadership and proper engagement with the parties involved.

He said Lonmin’s move to set ultimatums the day before strike action was ill-conceived and it contributed to the value destruction and the resulting bloodshed.

Lonmin issued another ultimatum over the weekend to rock drill operators, ordering them to report to work today or face dismissal.

Wocke said a spillover of the crisis to other platinum operations in the region was likely as other mining companies, such as Impala Platinum and Aquarius Platinum, were hit by skirmishes amid violent protests earlier this year.

It would be a surprise if Anglo American Platinum escaped the contagion, he said.

Wocke added that the crisis affecting the platinum industry was an extension of a lack of service delivery, where people felt alienated from structures that were supposed to be in place to improve their lives.

“NUM [the National Union of Mineworkers] took their eye off the ball and created space for Amcu [the Association of Mineworkers and Construction Union] to organise.

“These are disaffected workers protesting over bread and butter issues.”

He added that the government should have intervened directly and mediated.

Lonmin, which controls 13 percent of the world’s platinum supply, has lost approximately $34 million (R283m) in revenue during the strike.

Last week, the company said rising cost pressures could threaten its credit profile.

The company said it would not reach its full-year guidance of 750 000 saleable ounces of platinum after it lost six days production, which amounted to a loss of 15 000 platinum ounces.

On Saturday, Mineral Resources Minister Susan Shabangu told mining industry insiders in Parktown that the government and the police were not to blame for the carnage. She also dismissed talk that the government had acted too late, saying engagement between the parties involved had taken place behind the scenes.

Shabangu said integral to the problems facing the platinum industry was that mining companies had raked in the profits while workers and communities did not benefit.